Goodwill and Intangible Assets, Net

Goodwill and intangible assets of the Predecessor were recorded in connection with various business combinations. Goodwill and intangible assets of the Successor were recorded in connection with fresh start accounting. Refer to Note 2 for further information on fresh start accounting.

Goodwill

The table below sets forth the activity in goodwill, which related entirely to the Originations segment (in thousands):



	Successor			Predecessor
	For the Period From February 10, 2018 Through December 31, 2018			For the Period From January 1, 2018 Through February 9, 2018			For the Year Ended December 31, 2017
Balance at beginning of the period⁽¹⁾	$	8,960		$	47,747		$	47,747
Fresh start accounting adjustment⁽²⁾	—			(38,787		)	—
Impairment	(8,960		)	—			—
Balance at end of the period⁽³⁾	$	—		$	8,960		$	47,747

__________


(1)	There were accumulated impairment losses of $470.6 million and $138.8 million relating to the Servicing and Reverse Mortgage segments, respectively, at December 31, 2017. These accumulated impairment losses were reset in connection with the adoption of fresh start accounting.


(2)	In connection with the adoption of fresh start accounting, the Company revalued goodwill to its estimated fair value at February 9, 2018. This resulted in a reduction to goodwill totaling $38.8 million at February 9, 2018 as further discussed in Note 2.


(3)	There were accumulated impairment losses of $9.0 million relating to the Originations segment at December 31, 2018.

The Company completes its annual impairment testing effective October 1st, or more often if indicators are present that it is more likely than not that the goodwill of a reporting unit is impaired. As a result of lower projected financial performance within the Originations reporting unit subsequent to the Company's emergence from bankruptcy, which was driven by certain market factors including increasing mortgage interest rates driving lower originations volume, a flattening of the interest rate curve resulting in margin compression, aggressive pricing by certain competitors and continued challenges in shifting to a purchase money lender, the Company determined that there were indicators present that would require an interim impairment analysis as of March 31, 2018. The Company chose to early adopt the accounting guidance that measures the amount of goodwill impairment as the amount by which the reporting unit's carrying value exceeds its fair value. The carrying value of the Originations reporting unit exceeded its estimated fair value. Accordingly, the Company recorded a goodwill impairment charge of $9.0 million relating to the Originations reporting unit. As a result of this charge, there is no longer any goodwill for the Company.

Intangible Assets, Net

Amortization expense associated with intangible assets was $14.2 million, $0.2 million and $3.2 million for the period from February 10, 2018 through December 31, 2018, the period from January 1, 2018 through February 9, 2018 and the year ended December 31, 2017, respectively.

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



	Successor										Predecessor
	December 31, 2018										December 31, 2017
	Gross Carrying Amount⁽¹⁾		Accumulated Amortization			Accumulated Impairment			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net Carrying Amount
Institutional and customer relationships	$	24,000	$	(13,640	)	$	—		$	10,360	$	41,041	$	(30,793	)	$	(6,340	)	$	3,908
Trademarks and trade names	20,000		—			(14,700		)	5,300		10,000		(4,780		)	(395		)	4,825
Other	650		(541		)	—			109		—		—			—			—
Total intangible assets	$	44,650	$	(14,181	)	$	(14,700	)	$	15,769	$	51,041	$	(35,573	)	$	(6,735	)	$	8,733

__________

(1)

In connection with the adoption of fresh start accounting, the Company revalued its intangible assets to their estimated fair value at February 9, 2018. This resulted in an increase to intangible assets totaling $35.5 million, which included $20.2 million for institutional and customer relationships and $15.2 million for trade names. Refer to Note 2 for additional information regarding fresh start accounting adjustments.

Based on the balance of the definite-lived intangible assets, net at December 31, 2018, the following is an estimate of amortization expense for each of the next five years and thereafter (in thousands):



	Amortization Expense
2019	$	8,076
2020	3,121
2021	850
2022	542
2023	530
Thereafter	2,650
Total	$	15,769

In March 2018, the Company recorded an impairment charge of $1.0 million related to the trade names of the Servicing reporting unit, and in June 2018, the Company recorded an impairment charge of $1.0 million related to the trade names of the Originations reporting unit. The Company tested these intangible assets for recoverability due to changes in facts and circumstances associated with rising mortgage interest rates and lower projected originations business financial performance. Based on the testing results, it was determined that the carrying value of the intangible assets was not fully recoverable and an impairment charge was recorded to the extent that carrying value exceeded estimated fair value.

In December 2018, the Company recorded additional intangible assets impairment of $6.4 million and $6.3 million related to trade names of the Servicing and Originations segments, respectively, as a result of actual and forecasted business declines. The forecasted revenues used in the December 2018 relief-from-royalty method were based on two scenarios, revenue associated with the recapitalization of the Company and revenue associated with the sale of the Company. The recapitalization scenario revenue was calculated by using a probability-weighted average of the revenue associated with the recapitalization of the Company under the proposed terms of the DHCP RSA and revenue extrapolated from the recent actual results as adjusted for known subsequent events, with both scenarios given equal weight. The sale scenario revenue was based on the DHCP RSA revenue reduced in a manner to reflect a sale scenario based on known third-party bids. The trade name fair value was calculated by using a probability-weighted average of the estimated fair value from both the recapitalization and sale scenarios, with equal weight given to each.

Changes in circumstances, existing at the measurement date or at other times in the future, or in the numerous estimates associated with the Company's judgments, assumptions and estimates made in performing the impairment assessments, could result in further impairment charges in the future. The Company will continue to monitor all significant estimates and impairment indicators, and will perform interim impairment reviews as necessary.