$529,761,000 Extendible PIK Step-Up Notes

Transcription

1 $529,761,000 Extendible PIK Step-Up Notes Carrington Holding Company, LLC, a limited liability company organized and existing under the laws of the state of Delaware, the United States of America with registered number (the Issuer ) is issuing $529,761,000 aggregate principal amount of its Extendible PIK Step-Up Notes (the Notes ). The Notes will mature on January 15, 2021 (the Initial Maturity Date ) at 100% of their principal amount unless the maturity of all of the outstanding principal amount of the Notes is extended in accordance with the procedures described herein. In no event will the maturity of the Notes be extended beyond January 15, 2026 (the Final Maturity Date ). The Issuer will pay interest on the Notes semi-annually in arrears on January 15 and July 15 of each year (each an Interest Payment Date ), beginning July 15, The interest rate on the Notes initially will be 2.00% per annum and will increase 50 basis points (0.50% per annum) on each Interest Payment Date beginning on January 15, 2015, subject to a maximum interest rate of 6.50% applicable to interest accrual periods ending on or prior to the Initial Maturity Date. In the event the Issuer elects to extend the maturity of the Notes beyond the Initial Maturity Date, the interest rate on the Notes will be increased as described herein. For any interest accrual period prior to January 15, 2016, the Issuer may, at its option, elect to pay interest on the Notes (i) entirely in cash ( Cash Interest ) based on the interest rates then in effect for the Notes for the applicable interest accrual period (the Stated Interest Rate ) or (ii) a portion in Cash Interest and the remainder by either (a) increasing the principal amount of the outstanding Notes or (b) issuing additional Notes ( PIK Notes ), in each case, in a principal amount equal to such portion of interest (such interest amount represented by either the increase in the principal amount of outstanding Notes or the issuance of the PIK Notes, PIK Interest ), provided that (x) the amount of Cash Interest to be paid on the outstanding principal amount of the Notes will not be less than 1.00% per annum (such interest rate selected by the Issuer to calculate Cash Interest, the Cash Interest Rate ) and (y) the amount of PIK Interest to be paid on the outstanding principal amount of the Notes will be calculated based on an interest rate (the PIK Interest Rate ) that is equal to 150% of the positive difference between the Stated Interest Rate then in effect for the applicable interest accrual period and the Cash Interest Rate selected by the Issuer. For the first interest accrual period ending on July 15, 2014, interest on the Notes will be payable in Cash Interest at the rate of 1.00% per annum and PIK Interest at the rate of 1.50% per annum. After January 15, 2016, the Issuer will make all interest payments on the Notes entirely in cash. On and after July 15, 2014, the Issuer may, at its option, redeem the Notes in whole at any time or in part from time to time at 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to the redemption date. If the Issuer experiences a change of control, unless the Issuer has exercised its right to redeem the Notes, the Issuer may be required to offer to repurchase the Notes from the holders at a purchase price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest to the date of repurchase. See Description of the Notes Repurchase at the Option of the Holder. The Notes will be senior unsecured obligations of the Issuer and will rank equally in right of payment with all of its existing and future senior unsecured indebtedness. The Notes will be issued only in registered form in denominations of $2,000 and integral multiples of $1,000 in excess thereof. Investing in the Notes involves risks. See Risk Factors beginning on page 12 to read about certain factors you should consider before buying any of the Notes. The Notes have not been and will not be registered under the Securities Act and if offered and sold to purchasers after the consummation of the Exchange Transaction, may only be offered and sold (i) to accredited investors ( Accredited Investors ) as defined in Rule 506 of Regulation D under the U.S. Securities Act of 1933 (the Securities Act ); (ii) to qualified institutional buyers ( QIBs ) (as defined under Rule 144A under the Securities Act) in reliance on Rule 144A under the Securities Act and (iii) to non-u.s. persons in transactions outside the United States in reliance on Regulation S. The Notes are not transferable except in accordance with the restrictions described under Notice to Investors. This Offering Circular has been approved by the Central Bank of Ireland, as competent authority under Directive 2003/71/EC (the Prospectus Directive ) as amended (which includes the amendments made by Directive 2010/73/EU to the extent that such amendments have been implemented in a relevant member state of the European Economic Area). The Central Bank of Ireland only approves this Offering Circular as meeting the requirements imposed under Irish and EU law pursuant to the Prospectus Directive. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the official list (the Official List ) and trading on the Main Securities Market of the Irish Stock Exchange (the Main Securities Market ). There can be no assurance that any such approval will be granted or, if granted, that such listing will be maintained. Such approval relates only to the Notes that are to be admitted to trading on a regulated market for the purposes of Directive 2004/39/EC and/or that are to be offered to the public in any member state of the European Economic Area. References in this Offering Circular to the Notes being listed (and all related references) on the Irish Stock Exchange shall mean that such Notes have been admitted to the Official List and to trading on its Main Securities Market. The Main Securities Market is a regulated market for the purposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments. We expect that the Notes will clear through the book-entry facilities of the Depository Trust Company ( DTC ) in the United States and Euroclear Bank S.A./N.V. ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream, Luxembourg ) in Europe. Offering Circular dated December 31, 2013

2 You are authorized to use this Offering Circular solely for the purpose of considering an investment in the Notes described in this Offering Circular. The Company has provided the information contained in this Offering Circular. You may not reproduce or distribute this Offering Circular, in whole or in part, and you may not disclose any of the contents of this Offering Circular or use any information herein for any purpose other than considering an investment in the Notes. You agree to the foregoing by accepting delivery of this Offering Circular. This Offering Circular comprises a prospectus for: (a) the purpose of Article 5 of the Prospectus Directive and (b) the purpose of giving information with regard to the Company and the Notes that, according to the particular nature of the Company and the Notes, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Company and of the rights attaching to the Notes. This Offering Circular is to be read in conjunction with the financial statements that form part of and are included herein. This Offering Circular does not constitute a prospectus for the purpose of Section 12(a)(2) of, or any other provision of or rule under, the Securities Act. The Notes have not been approved or disapproved by the Central Bank of Ireland, the U.S. Securities and Exchange Commission (the SEC ), any state securities commission in the United States or any other U.S. regulatory authority, nor have any of these authorities passed upon or endorsed the merits of this exchange or the accuracy or adequacy of this Offering Circular. Any representation to the contrary is a criminal offense in the United States. The distribution of this Offering Circular in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Company to inform themselves about and to observe any such restrictions. The Notes have not been and will not be registered under the Securities Act or the securities laws of any state of the United States and if offered and sold to purchasers after the consummation of the Exchange Transaction, may only be offered and sold to (i) accredited investors ( Accredited Investors ) under the Securities Act, (ii) QIBs in reliance on Rule 144A under the Securities Act or (iii) non-u.s. persons in transactions outside the United States in reliance on Regulation S, and in accordance with any applicable laws of any state of the United States. Deutsche Bank Trust Company Americas, as Transfer Agent, shall not be responsible for and makes no representation or warranty, express or implied, as to the validity or adequacy of the Offering Circular or the Indenture or the accuracy or completeness of the information contained therein, and it assumes no responsibility for the accuracy or completeness of such information nor shall it be responsible for any statement of Issuer in the Offering Circular and in the Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee s certificate of authentication. Deutsche Bank Trust Company Americas shall not be accountable for Issuer s use of the proceeds from the Notes. Deutsche Bank Trust Company Americas has no obligation with respect to the creditworthiness or credit quality of Issuer or the Notes, nor does its participation in the distribution or sale of the Notes constitute any statement as to the creditworthiness or credit quality of either Issuer or the Notes. Deutsche Bank Trust Company Americas is providing no investment advice whatsoever to the investors with respect to the sale of the Notes. Deutsche Bank Trust Company Americas is only acting with respect to the sale of the Notes in its capacity as Transfer Agent as such role is defined in the Transfer Agent Agreement. Deutsche Bank Trust Company Americas is not making any representation to the investors regarding the legality of an investment by the investors under appropriate investment or similar laws. Investors should consult with their own advisors as to legal, tax, business, financial and related aspects of a purchase of the Notes. When used in this Offering Circular, unless the context otherwise indicates, the terms we, our, us, and Carrington Group refers to the Issuer and its consolidated subsidiaries taken as a whole and the terms the Issuer and the Company refers to Carrington Holding Company, LLC on a standalone basis. The Issuer accepts responsibility for the information contained in this Offering Circular. The Issuer, having taken all reasonable care to ensure that such is the case, confirms that the information contained in this Offering Circular is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. i

3 Where information has been sourced from a third party, this information has been accurately reproduced and that as far as the Issuer is aware and is able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of third party information is identified where used. No person has been authorized to give any information or to make any representation other than those contained in this Offering Circular in connection with an investment in the Notes and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. The delivery of this Offering Circular shall not, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Company since the date hereof. This Offering Circular is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Company that any recipient of this Offering Circular should invest in any Notes. Each investor contemplating purchasing Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness of the Company. You are responsible for making your own examination of the Company and your own assessment of the merits and risks of investing in the Notes. You may contact us if you need additional information. No person has been authorized to give any information or to make any representation concerning us or the Notes (other than contained in this Offering Circular and information given by our duly authorized officers in connection with your examination of the Company and the terms of this exchange) and, if given or made, any such other information or representation should not be relied upon as having been authorized by us. Neither we, nor any of our or their respective representatives are making any representation to any potential investor regarding the legality of an investment in the Notes by such investor under applicable legal law. You should consult with your own advisors as to legal, tax, business, financial and related aspects of an investment in the Notes. All references in this Offering Circular to U.S. dollars, U.S.$ and $ refer to the lawful currency of the United States of America, and references to euro and refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty on the Functioning of the European Union. You should rely only upon the information provided in this Offering Circular. We have not authorized anyone to provide you with different information. You should not assume that the information in this Offering Circular is accurate as of any date other than the date of this Offering Circular. Circular 230: Any discussions of U.S. federal income tax matters set forth in this Offering Circular were written in connection with the promotion and marketing by the Company of the Notes. Such discussions were not intended or written to be legal or tax advice to any person and were not intended or written to be used, and they cannot be used, by any person for the purpose of avoiding any U.S. federal tax penalties that may be imposed on such person. Each investor should seek advice based on its particular circumstances from an independent tax advisor. ii

4 NOTICE TO FLORIDA RESIDENTS WHERE SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA (EXCLUDING QUALIFIED INSTITUTIONAL BUYERS WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT AND CERTAIN OTHER INSTITUTIONAL PURCHASERS DESCRIBED IN SECTION (7) OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT (THE FLORIDA ACT )), ANY SUCH SALE MADE PURSUANT TO SECTION (11) OF THE FLORIDA ACT SHALL BE VOIDABLE BY THE PURCHASER EITHER (A) WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE TRUSTEE, AN AGENT OF THE TRUSTEE, OR AN ESCROW AGENT, OR (B) WITHIN THREE DAYS AFTER RECEIPT OF THIS OFFERING CIRCULAR, WHICHEVER OCCURS LATER. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER NEW HAMPSHIRE REVISED STATUTES ANNOTATED, CHAPTER 421-B ( RSA 421-B ), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTWITHSTANDING ANY PROVISION HEREIN, AND EFFECTIVE FROM THE DATE OF COMMENCEMENT OF DISCUSSIONS CONCERNING AN INVESTMENT IN THE NOTES, EACH PARTY THERETO (AND EACH EMPLOYEE, REPRESENTATIVE, OR OTHER AGENT OF SUCH PARTY) MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATION OF ANY KIND, THE TAX TREATMENT AND TAX STRUCTURE OF NOTE INVESTMENT AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) THAT ARE PROVIDED TO IT RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE, EXCEPT TO THE EXTENT THAT ANY SUCH DISCLOSURE COULD REASONABLY BE EXPECTED TO CAUSE THE NOTE INVESTMENT NOT TO BE IN COMPLIANCE WITH SECURITIES LAWS. IN ADDITION, NO PERSON MAY DISCLOSE THE NAME OF OR IDENTIFYING INFORMATION WITH RESPECT TO ANY PARTY IDENTIFIED HEREIN OR OTHER NON-PUBLIC BUSINESS OR FINANCIAL INFORMATION THAT IS UNRELATED TO THE TAX TREATMENT OR TAX STRUCTURE OF THE NOTE INVESTMENT WITHOUT THE PRIOR CONSENT OF THE COMPANY. FOR PURPOSES OF THIS PARAGRAPH, THE TAX TREATMENT OF THE INVESTMENT IN THE NOTES IS THE PURPORTED OR CLAIMED U.S. FEDERAL INCOME TAX TREATMENT OF THE NOTE INVESTMENT, AND THE TAX STRUCTURE OF THE NOTE INVESTMENT IS ANY FACT THAT MAY BE RELEVANT TO UNDERSTANDING THE PURPORTED OR CLAIMED U.S. FEDERAL INCOME TAX TREATMENT OF AN INVESTMENT IN THE NOTES. This Offering Circular does not constitute an offer to sell or an invitation to subscribe for or purchase any of the Notes in any jurisdiction in which such offer or invitation is not authorized or to any person to whom it is unlawful to make such an offer or invitation. Laws in certain jurisdictions may restrict the distribution of this Offering Circular and the offer and sale of the Notes. The Company does not represent that this Offering Circular may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Company which is intended to permit a public offering of the Notes or the distribution of this Offering Circular in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Offering Circular nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. In particular, there are restrictions on the distribution of this Offering Circular and the offer and sale of the Notes in the United States and the European Economic Area. Persons into whose possession this Offering Circular or any of the Notes are delivered must inform themselves about and observe iii

5 those restrictions. Each prospective holder or purchaser of the Notes must comply with all applicable laws and regulations in force in any jurisdiction in which it holds, purchases, offers or sells the Notes or possesses or distributes this Offering Circular. In addition, each prospective purchaser must obtain any consent, approval or permission required under the regulations in force in any jurisdiction to which it is subject or in which it holds, purchases, offers or sells the Notes. We shall have no responsibility for obtaining such consent, approval or permission. The distribution of this Offering Circular in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular or any Notes come are required by the Company to inform themselves about and to observe any such restriction. iv

6 Table of Contents SUMMARY...2 RISK FACTORS...12 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...49 AVAILABLE INFORMATION...51 OVERVIEW...51 SUMMARY CONSOLIDATED FINANCIAL DATA...68 CAPITALIZATION...68 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...69 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...83 GLOSSARY OF INDUSTRY AND OTHER TERMS...85 INDUSTRY...88 BUSINESS...93 MANAGEMENT CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS PRINCIPAL COMMON MEMBERSHIP OWNER DESCRIPTION OF THE NOTES BOOK-ENTRY SETTLEMENT AND CLEARANCE CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IRISH TAXATION EU SAVINGS TAX DIRECTIVE NOTICE TO INVESTORS THE EXCHANGE TRANSACTION MARKET AND INDUSTRY DATA AND FORECASTS LEGAL MATTERS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM LISTING AND GENERAL INFORMATION FINANCIAL STATEMENTS Page 1

7 SUMMARY Summaries are made up of disclosure requirements known as Elements. These elements are numbered in Sections A E (A.1 E.7). This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of not applicable. Section A - Introduction and warnings A.1 This summary must be read as an introduction to this Offering Circular. Any decision to invest in the securities should be based on consideration of this Offering Circular as a whole by the investor. Where a claim relating to the information contained in this Offering Circular is brought before a court, the plaintiff investor might, under the national legislation of the EU Member States, have to bear the costs of translating this Offering Circular before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this Offering Circular or it does not provide, when read together with the other parts of this Offering Circular, key information in order to aid investors when considering whether to invest in such securities. A.2 Not applicable; notwithstanding the minimum denomination of the Notes, the Issuer is offering the Notes in the European Economic Area (the EEA ) in circumstances which do not require the publication of a prospectus under Article 3(1) of the Prospectus Directive. A prospectus has, accordingly, been published by the Issuer as a consequence of the admission of the Notes to the Main Securities Market of the Irish Stock Exchange pursuant to Article 3(3) of the Prospectus Directive and this summary is set out in this Offering Circular as a consequence of the foregoing only. The Issuer does not consent to the use of this Offering Circular by any third party in connection with any resale or final placement of any Notes that is not within an exemption from the requirement to publish a prospectus under the Prospectus Directive Section B Issuer B.1 Legal and commercial Name B.2 The domicile and legal form of the issuer, the legislation under which the issuer operates and its country of incorporation. B.4b A description of any known trends affecting the issuer and the industries in which it operates. B.5 If the issuer is part of a group, a description of The Issuer s legal and commercial name is Carrington Holding Company, LLC. The Issuer is a limited liability company organized and existing under the laws of the state of Delaware, the United States of America. The residential market tends to be cyclical and typically is affected by changes in general economic conditions, which are beyond the Issuer s control. Additionally, due to market distress, which began in the second half of 2007, but from which the real estate market is currently recovering, the real estate business is heavily regulated. Such regulation affects the Issuer s activities and creates the potential for significant liabilities and penalties. The Issuer is a holding company and all of its operations are conducted through its subsidiaries. The Issuer s revenue and cash flow is generated through its subsidiaries, meaning it is dependent on dividends and distributions from its subsidiaries to meet its financing obligations. 2

8 the group and the issuer s position within the group. B.9 Where a profit forecast or estimate is made, state the figure. B.10 A description of the nature of any qualifications in the audit report on the historical financial information. B.12 Selected historical key financial information regarding the issuer, presented for each financial year of the period covered by the historical financial information, and any subsequent interim financial period accompanied by comparative data from the same period in the prior financial year except that the requirement for comparative balance sheet information is satisfied by presenting the year end balance sheet information. A statement Not applicable; the Issuer has not made any public profit forecast or profit estimate. Not applicable; neither of the audit reports on the Issuer s audited consolidated financial statements for the years ended December 31, 2011 and 2012 included any qualifications. The following tables set forth the consolidated financial information of the Company. The consolidated statement of operations data for the nine months ended September 30, 2013 and September 30, 2012 is unaudited and has been extracted without material adjustment from our audited consolidated financial statements for the nine months ended September 30, 2013 and September 30, The consolidated statement of operations data for the years ended December 31, 2011 and 2012, and the consolidated balance sheet data as of December 31, 2011 and 2012, have been extracted without material adjustment from our audited consolidated financial statements included elsewhere in this Offering Circular. Nine Months Ended Sept. 30 Year Ended December (Unaudited) Revenues Mortgage servicing fees $ 64,501,208 $ 49,195,364 $ 69,679,379 $ 82,186,243 Real estate services fees 32,753,559 28,563,949 38,845,759 49,793,079 Mortgage banking 29,795,673 17,052,577 26,740,212 10,781,181 Commissions 10,835,415 11,306,973 14,867,161 12,565,783 Management fees 8,170,597 2,097,185 4,142, ,987 Other 2,187,758 4,803,787 3,929,709 1,918,280 Total revenues 148,244, ,019, ,204, ,172,553 Operating expenses Compensation and benefits 117,674,496 79,088, ,112,618 96,459,010 General and administrative 43,879,101 32,349,752 45,942,478 44,160,467 Depreciation 2,774,907 2,410,422 3,262,855 3,175,942 Other 1,466,667 Total expenses 165,795, ,848, ,317, ,795,419 Income (loss) from operations (17,550,961) (828,820) (4,113,031) 14,377,134 Other income (expense) Interest (5,134,892) (14,303,719) (17,588,075) (34,220,060) Fair value adjustment on mortgage servicing rights (3,597,180) (6,743,222) (8,454,045) (12,397,574) Gain (loss) from investment in affiliated partnerships 67,944 65,259 (57,949) Other income (expense), net (8,732,072) (20,978,997) (25,976,861) (46,675,583) Net loss before income taxes (26,283,033) (21,807,817) (30,089,892) (32,298,449) 3

9 that there has been no material adverse change in the prospects of the issuer since the date of its last published audited financial statements or a description of any material adverse change. A description of significant changes in the financial or trading position subsequent to the period covered by the historical financial information. Income taxes (benefit) 27, , ,818 (389,732) Net loss $ (26,310,619) $ (21,974,416) $ (30,224,710) $ (31,908,717) As of Sept. 30, As of December (unaudited) Assets Cash and cash equivalents $ 52,519,615 $ 74,199,796 $ 56,686,351 Restricted cash 3,219,899 2,281,138 5,993,526 Servicer advances 163,882, ,708, ,520,931 Loans held for sale, at estimated fair value 145,478, ,280, ,205,957 Mortgage servicing rights, at estimated fair value 53,197,779 50,656,984 55,041,422 Investments in affiliated partnerships 7,879,110 12,774,729 3,685,318 Accounts and notes receivable from affiliates 2,334,417 2,174,854 2,186,090 Property, furniture and equipment, net 8,644,615 5,538,849 6,226,698 Prepaid expenses and other assets 26,417,785 18,571,775 12,247,176 Total assets $ 463,574,228 $ 489,186,560 $ 685,793,469 Liabilities Servicing advances lines of credit $ 105,411,283 $ 150,550,094 $ 320,749,125 Warehouse lines of credit 132,240,897 92,600,134 94,595,614 Servicing obligations 64,396,052 61,796,646 66,070,191 Repurchase agreement 12,700,000 Accrued interest payable 177, , ,165 Accounts payable and accrued liabilities 39,889,292 37,135,101 16,601,653 Accrued compensation 10,082,513 12,384,923 8,694,284 Due to affiliates 46,416 46,416 46,661 Notes payable 2,421,483 3,385,304 5,378,506 Dividend payable to noncontrolling interests 11,385,232 11,385,232 11,385,232 Other liabilities 5,983,327 1,776,861 1,536,341 Total liabilities 372,033, ,335, ,717,772 Commitments and Contingencies Members Capital (Deficit) Controlling interests (277,372,564) (251,061,945) (220,837,235) Noncontrolling interests 368,912, ,912, ,912,932 Total members capital 91,540, ,850, ,075,697 Total liabilities and members capital $ 463,574,228 $ 489,186,560 $ 685,793,469 There has been no significant change in the financial or trading position of the Company or the Carrington Group since September 30, 2013 and there has been no material adverse change in the financial position or prospects of the Company or the Carrington Group since December 31, 2012 (being the date of its last audited financial statements). B.13 A description of any recent events particular to the issuer which are to a material extent relevant to the evaluation of Not applicable; there have been no recent events particular to the Issuer which are to a material extent relevant to the evaluation of the Issuer s solvency. 4

10 the issuer s solvency. B.14 If the issuer is part of a group, a description of the group and the issuer s position within the group. If the issuer is dependent upon other entities within the group, this must be clearly stated. B.15 A description of the issuer s principal activities. B.16 To the extent known to the issuer, state whether the issuer is directly or indirectly owned or controlled and by whom and describe the nature of such control. B.17 Credit ratings assigned to an issuer or its debt securities at the request or with the cooperation of the issuer in the rating. Section C Securities C.1 A description of the type and the class of the securities being offered and/or We are a holding company for a group of fully integrated companies that together provide services to the residential mortgage and US housing markets. As a holding company, all of Carrington Holding Company, LLC s revenue and cash flow is generated through its subsidiaries. As a result, we are dependent on dividends and other distributions from those subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal and interest on our outstanding debt. We are a holding company that owns and operates multiple businesses that cover virtually every aspect of single family real estate and residential real estate transactions. We are organized into four distinct, but related operating segments: asset management, mortgage servicing, mortgage lending and a real estate company. Our asset management segment oversees investments in U.S. real estate and mortgage markets. Our mortgage servicing segment services residential loans. Our mortgage lending segment is a national lender. Our real estate company is comprised of real estate services and real property logistics divisions. Together these four segments allow us to direct every aspect of the life cycle of single-family residential assets. We are owned directly by another holding company, The Carrington Companies, LLC, which is 99.5% owned by our principal common membership holder, Mr. Bruce Rose. Following the Exchange Transaction he will continue to own membership interests sufficient for the majority vote over fundamental and significant corporate matters and transactions. As of the date of this Offering Circular, the Issuer was in compliance with the corporate governance requirements of applicable law, including the Delaware Limited Liability Company Act under which its operations are governed. Not applicable; neither the Issuer nor any of its debt securities has been assigned any credit ratings by a credit rating agency. $529,761,000 aggregate principal amount of the Issuer s PIK Extendable Step-Up Notes to be issued on or about December 31, The Notes have been accepted into the applicable systems used by DTC, Euroclear and Clearstream, Luxembourg. The Notes have the following CUSIP numbers and ISIN codes: 5

11 admitted to trading, including any security identification number. Accredited Investor Global Note: CUSIP number AB3 and ISIN code US144523AB35. QIB Notes: CUSIP number AA5 and ISIN code US144523AA51. Regulation S Notes: CUSIP number U14534 AA6 and ISIN code USU14534AA64 C.2 Currency of the securities issue. C.5 A description of any restrictions on the free transferability of the securities. C.8 A description of the rights attached to the securities including: ranking The currency of the Notes will be U.S. dollars. The Notes have not been registered under the Securities Act or any U.S. state securities law. To the extent the Notes are offered and sold to purchasers after the consummation of the Exchange Transaction, the Notes may only be offered and sold to (i) QIBs in reliance on Rule 144A under the Securities Act, (ii) non-u.s. persons in transactions outside the United States in reliance on Regulation S and (iii) Accredited Investors pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act or applicable state law. In addition, there are restrictions on the offer, sale and transfer of the Notes in the EEA. The Notes will be senior unsecured obligations of the Issuer and will rank equally in right of payment with all of its existing and future senior unsecured indebtedness. The Indenture will, among other things, limit our ability and the ability of certain subsidiaries to: incur additional indebtedness, guarantee indebtedness and issue preferred stock; limitations to those rights make restricted payments (including paying dividends on, redeeming or repurchasing equity interests in our company); make restricted investments; redeem or repurchase subordinated debt; dispose of our assets; incur liens on our assets; engage in transactions with affiliates; enter into agreements restricting our subsidiaries ability to pay dividends or transfer assets to us; and merge, consolidate or transfer substantially all of our assets. The Indenture prohibits, in the manner described more particularly herein, the Company and its subsidiaries that are subject to the covenants of the Indenture from creating, incurring, assuming or permitting to exist any liens of any kind on the assets of the Company or such subsidiaries securing indebtedness of the Company or such subsidiaries unless (1) in the case of liens securing indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a lien on such assets that is senior in priority to the liens securing the subordinated indebtedness, and (2) in all other cases, the Notes are equally and ratably secured. The foregoing prohibition is subject to a number of material exceptions described in the covenants and the related definitions, including, but not limited to: liens existing on the original issue date of the Notes; 6

12 liens securing Non-Recourse Indebtedness; liens securing Permitted Funding Indebtedness so long as any such lien shall encumber only specified assets; liens on assets of subsidiaries that are not guarantors with respect to the Notes securing indebtedness of such subsidiaries; and Permitted Liens. Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the holders of a majority in principal amount of the then outstanding Notes. Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder): (1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; (2) waive a redemption payment or reduce the principal of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the Company s obligation to offer to repurchase the Notes upon the occurrence of a Change of Control or with the net cash proceeds from Asset Sales ); (3) change the fixed maturity of any Note other than in accordance with the terms of the Notes; (4) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (5) waive a default or event of default in the payment of principal of, premium, if any or interest on the Notes (except a rescission of acceleration of the Notes and a waiver of the payment default that resulted from such acceleration); (6) make any Note payable in money other than that stated in the Notes; (7) make any change in the provisions of the Indenture relating to waivers of past defaults or the rights of holders to receive payments of principal of, premium, if any, or interest on the Notes; (8) after the Company s obligation to purchase Notes arises thereunder, amend, change or modify in any material respect the obligation of the Company to make and consummate a takeover offer in the event of a Change of Control or modify any of the provisions or definitions with respect thereto; or (9) make any change in the preceding amendment and waiver provisions, all as more particularly described in the Indenture. Notwithstanding the preceding two paragraphs, the Company and the Trustee are permitted under certain circumstances set forth in the Indenture to amend or supplement the Indenture or the Notes without the consent of any holder of Notes. The Indenture provides that the Trustee may make reasonable rules for action by or at a meeting of noteholders. C.9 A description of the rights attached to the securities including: the nominal interest rate the date from which interest becomes payable and the due dates for Maturity: The Notes will have an Initial Maturity Date of January 15, 2021 and a Final Maturity Date of January 15, Upon not less than 60 nor more than 90 days notice given prior to the then applicable maturity date of the Notes, the Issuer may elect to extend the maturity of all, but not less than all, of the then outstanding Notes so that the maturity of the Notes will be extended to (i) if the then applicable maturity date of the Notes is the Initial Maturity Date, a date (the First Extended Maturity Date ) not later than January 15, 2024 or (ii) if the then applicable maturity date of the Notes is the First Extended Maturity Date, a date (the Second Extended Maturity Date ) not later than the second anniversary of the First Extended Maturity Date; provided that in no event shall the Second Extended Maturity Date be later than the Final Maturity Date. Principal will be due and payable upon maturity of the Notes unless the Issuer exercises the extension option(s). Interest. Interest on the Notes will be payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, Interest on the Notes will accrue from the most recent date that interest has been paid, or if no interest has been paid, from the original date of issuance. The interest rate on the Notes initially will be 2.00% per year and will increase 50 basis points (0.50% per annum) on each Interest Payment Date beginning on January 15, 2015, subject to a maximum interest rate 7

13 interest where the rate is not fixed, description of the underlying on which it is based maturity date and arrangeme nts for the amortisatio n of the loan, including the repayment procedures an indication of yield name of representat ive of debt security holders of 6.50% per annum applicable to interest periods ending on or prior to the Initial Maturity Date. In the event the Issuer elects to extend the maturity of the Notes beyond the Initial Maturity Date, the interest rate on the Notes will be increased. If the Issuer elects to extend the maturity of the Notes beyond the Initial Maturity Date to the First Extended Maturity Date, the interest rate applicable during the first extension period will be (i) 8.00% per annum during the one year period commencing on the Initial Maturity Date, (ii) 9.50% per annum for the one year period commencing on the first anniversary of the Initial Maturity Date, and (iii) 11.00% per annum for the one year period commencing on the second anniversary of the Initial Maturity Date. If the Issuer elects to extend the maturity of the Notes beyond the First Extended Maturity Date, the interest rate applicable during the second extension period will be (x) 13.50% per annum during the one year period commencing on the First Extended Maturity Date and (y) 16.00% per annum for the one year period commencing on the first anniversary of the First Extended Maturity Date. For any interest accrual period prior to January 15, 2016, the Issuer may, at its option, elect to pay interest on the Notes (i) entirely in cash ( Cash Interest ) based on the interest rates then in effect for the Notes for the applicable interest accrual period as described in the preceding paragraph (the Stated Interest Rate ) or (ii) a portion in Cash Interest and the remainder by either (a) increasing the principal amount of the outstanding Notes or (b) issuing additional Notes ( PIK Notes ), in each case, in a principal amount equal to such portion of interest (such interest amount represented by either the increase in the principal amount of the outstanding Notes or the issuance of the PIK Notes, PIK Interest ), provided that (x) the amount of Cash Interest to be paid on the outstanding principal amount of the Notes will not be less than 1.00% per annum (such interest rate selected by the Issuer to calculate Cash Interest, the Cash Interest Rate ) and (y) the amount of PIK Interest to be paid on the outstanding principal amount of the Notes will be calculated based on an interest rate (the PIK Interest Rate ) equal to 150% of the difference between the Stated Interest Rate then in effect for the applicable interest accrual period and the Cash Interest Rate selected by the Issuer. For any interest accrual period prior to January 15, 2016, the Issuer must elect the form of interest payment with respect to each interest accrual period by delivering a notice to the Trustee at least 10 business days prior to the commencement of an interest accrual period and, if the Issuer elects to pay a portion of the interest as Cash Interest and the remainder in the form of PIK Interest, then the Issuer will also include in such notice the Cash Interest Rate and the PIK Interest Rate. For the first interest accrual period ending with the first Interest Payment Date on July 15, 2014, and in the absence of an election for any interest accrual period thereafter, interest on the Notes will be payable in both Cash Interest and PIK Interest with the Cash Interest Rate being 1.00% per annum and PIK Interest Rate being equal to 150% of the positive difference between the Stated Interest Rate then in effect for such interest accrual period and 1.00%. After January 15, 2016, the Issuer will make all interest payments on the Notes entirely in cash calculated at the Stated Interest Rate. Redemption at the Option of the Issuer. Beginning July 15, 2014, the Issuer may, at its option, redeem the Notes in whole or in part at any time at 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to the redemption date; provided that the Issuer may only redeem the Notes in part in an aggregate principal amount of not less than $5,000,000. Trustee. Wells Fargo Bank, National Association has been appointed as the Trustee. C.10 If the security has a derivative component in the interest payment, provide a clear and comprehensive explanation to help investors understand Not applicable; the interest rate on the Notes is fixed and there is not a derivative component in the interest payments made in respect of the Notes. 8

14 how the value of their investment is affected by the value of the underlying instrument(s), especially under the circumstances when the risks are most evident. C.11 An indication as to whether the securities offered are or will be the object of an application for admission to trading, with a view to their distribution in a regulated market or other equivalent markets with indication of the markets in question. Section D Risks D.2 Key information on the key risks that are specific to the issuer. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Main Securities Market. We cannot assure you that any such approval will be granted or, if granted, that such listing will be maintained. Our business model and the execution of our business strategies is highly dependent upon the efforts, skills, reputations and business contacts of our founder, Mr. Bruce M. Rose, as well as the members of our senior management team and other key employees. Accordingly, our success depends on the continued service of these individuals, who are not obligated to remain employed with us We are highly dependent on our founder, Mr. Bruce Rose, who through his equity ownership controls us. We are a highly leveraged company. Our high level of debt could adversely affect our operating flexibility and put us at a competitive disadvantage. As of September 30, 2013, we, including our subsidiaries, had approximately $240.1 million aggregate principal amount of total debt outstanding on a consolidated basis. In the Exchange Transaction we are issuing $529,761,000 of debt, which will further increase our indebtedness. As a result of the incurrence of this additional indebtedness, we will also have substantial negative members equity. The Notes are obligations of Carrington Holding Company, LLC, which is a holding company with no material operating assets, other than interests in its subsidiaries. All of Carrington Holding Company, LLC s revenue and cash flow is generated through its subsidiaries. As a result, we are dependent on dividends and other distributions from those subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal and interest on our outstanding debt. 9

15 D.3 Key information on the key risks that are specific to the securities. For the nine months ended September 30, 2013, one managed account contributed 81.6% of the revenues of our asset manager. This investor has recently informed us that they have no present intention of investing further capital with us. If this managed account were to withdraw all or a portion of the current invested capital, or if we failed to attract new capital from an alternative investor, then our business, results of operation and cash flow could be adversely impacted. Our servicing portfolio is subject to run off, meaning that mortgage loans serviced by us may be prepaid prior to maturity, refinanced with a mortgage not serviced by us or liquidated through foreclosure, deed-in-lieu of foreclosure or other liquidation process or repaid through standard amortization of principal. As a result, our ability to maintain the size of our servicing portfolio depends on our ability to originate additional mortgages or to acquire the right to service additional pools of residential mortgages. We may not be able to acquire MSRs or enter into additional servicing and subservicing agreements on terms favorable to us or at all, which could adversely affect our business, financial condition and results of operations. We are an approved Freddie Mac and Ginnie Mae servicer. Our status as an approved servicer is important, particularly because our ability to remain as an eligible servicer under several of our servicing agreements depends on us being an approved servicer with Freddie Mac, Fannie Mae or Ginnie Mae. Our failure to maintain approved servicer status with Freddie Mac or Ginnie Mae could result in us being terminated as servicer under existing servicing agreements and subservicing agreements, prevent us from obtaining future servicing business and adversely impact the ability to finance our operations. We operate in highly competitive mortgage lending and real estate industries that could become even more competitive as a result of economic, legislative, regulatory and technological changes. We may be unable to compete successfully and this could adversely affect our business, financial condition and results of operations. The Notes will not be secured by any of our assets or those of our subsidiaries. As a result, the Notes are effectively subordinated to any secured debt we may incur. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of our secured debt may assert rights against the secured assets in order to receive full payment of their debt before the assets may be used to pay the holders of the Notes. The Notes are effectively subordinated to all the obligations of our subsidiaries, and none of our subsidiaries will guarantee our payment obligations on the Notes. Our and our subsidiaries right to participate in any distribution of assets of any other subsidiary upon its dissolution, windingup, liquidation, reorganization or otherwise is generally subject to the prior claims of the creditors of that subsidiary. Therefore, the Notes will structurally be subordinated to all indebtedness and other obligations of our subsidiaries. If a bankruptcy proceeding or lawsuit were to be initiated by unpaid creditors, the Notes could come under review for federal or state fraudulent transfer violations. In the event that the transfer was found to be a fraudulent conveyance, a court could require the holders of the Notes to return payments received from the Company. Upon the occurrence of a change of control with respect to the Company, it will be required to offer to repurchase all outstanding Notes at a price equal to their aggregate principal amount, plus accrued and unpaid interest, together with any additional amounts. The Company, however, may not have sufficient funds to repurchase all outstanding Notes. Section E Offer E.2b Reasons for the offer and use of The Issuer is undertaking the Exchange Transaction in order to purchase all of the assets of Carrington Investment Partners (US), LP and Carrington Investment Partners (Cayman), LP. The Issuer will not receive any proceeds from the issuance of the Notes. 10

16 proceeds when different from making profit and/or hedging certain risks E.3 A description of the terms and conditions of the offer. E.4 A description of any interest that is material to the issue/offer including conflicting interests. E.7 Estimated expenses charged to the investor by the issuer or the offeror. Not applicable; the Issuer is offering the Notes in the EEA in circumstances which do not require the publication of a prospectus under Article 3(1) of the Prospectus Directive. So far as the Issuer is aware, no person involved in the offer of the Notes has an interest material to the offer. There are no conflicts of interest which are material to the offer of the Notes. The Issuer will not charge any expenses to investors in the Notes. 11

17 RISK FACTORS Potential investors in the Notes should carefully consider the risks described below and all other information contained in this Offering Circular and reach their own view before making an investment decision. The Issuer believes that the factors described below represent the principal risks and uncertainties which may affect its ability to fulfill its obligations under the Notes, but the Carrington Group may face other risks that may not be considered significant risks by the Issuer based upon information available to it at the date of this Offering Circular or that it may not be able to anticipate. Factors which the Issuer believes may be material for the purpose of assessing the market risks associated with the Notes are also described below. If any of the following risks, as well as other risks and uncertainties that are not yet identified or that the Issuer thinks are immaterial at the date of this Offering Circular, actually occur, then these could have a material adverse effect on the Issuer s ability to fulfill its obligations under the Notes. You should also note that the risks relating to Carrington Group, its industry and the Notes summarized in Summary are the risks that the Issuer believes to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Notes. However, as the risks which the Carrington Group faces relate to events and depend on circumstances that may or may not occur in the future, prospective investors in the Notes should consider not only the information on the key risks summarized in Summary but also, among other things, the risks and uncertainties described below. 1. Risks Relating to Our Business: a. General Risks The residential real estate market is cyclical and we are negatively impacted by downturns in this market and general global economic conditions. The residential real estate market tends to be cyclical and typically is affected by changes in general economic conditions which are beyond our control. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence and the general condition of the U.S. and the global economy. The residential real estate market also depends upon the strength of financial institutions, which are sensitive to changes in the general macroeconomic environment. Lack of available credit or lack of confidence in the financial sector could impact the residential real estate market, which in turn could materially and adversely affect our business, financial condition and results of operations. For example, the U.S. residential real estate market has recently shown signs of recovery after having been in a significant and prolonged downturn, which began in the second half of Due to the cyclicality of the real estate market, we cannot predict whether the recovery will continue or if and when the market and related economic forces will return the U.S. residential real estate industry to a period of sustained growth. If the residential real estate market or the economy as a whole does not continue to improve, we may experience adverse effects on our business, financial condition and liquidity, including our ability to access capital and grow our business. Any of the following could be associated with cyclicality in the housing market by halting or limiting a recovery in the housing market, and have a material adverse effect on our business by causing periods of slower growth or a decline in the number of home sales and/or home prices which, in turn, could adversely affect our revenue and profitability: continued high unemployment; a period of slow economic growth or recessionary conditions; weak credit markets; a low level of consumer confidence in the economy and/or the residential real estate market; instability of financial institutions; 12

18 legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities ( GSEs ) that provide liquidity to the U.S. housing and mortgage markets; increasing mortgage rates and down payment requirements and/or constraints on the availability of mortgage financing, including but not limited to the potential impact of various provisions of the Dodd- Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act ) or other legislation and regulations that may be promulgated thereunder relating to mortgage financing, including restrictions imposed on mortgage originators as well as retention levels required to be maintained by sponsors to securitize certain mortgages; excessive or insufficient regional home inventory levels; renewed high levels of foreclosure activity, including but not limited to the release of homes already held for sale by financial institutions; adverse changes in local or regional economic conditions; the inability or unwillingness of homeowners to enter into home sale transactions due to negative equity in their existing homes; a decrease in the affordability of homes; local, state and federal government laws or regulations that burden residential real estate transactions or ownership, including but not limited to changes in the tax laws, such as potential limits on, or elimination of, the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and real property taxes and employee relocation expense; decreasing home ownership rates, declining demand for real estate and changing social attitudes toward home ownership; and/or acts of God, such as hurricanes, earthquakes and other natural disasters that disrupt local or regional real estate markets. Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus or legislative or regulatory changes could adversely affect our business. Our business is subject to extensive regulation, supervision and licensing under various federal, state and local statute, ordinances and regulations. In most jurisdictions in which we operate, a self-regulatory organization and/or government regulatory agency regulates and enforces laws relating to our business, including mortgage servicing companies, mortgage origination companies, real estate brokerages, title and escrow companies, property management companies, debt collection companies, investment advisors and broker dealers. These rules and regulations generally provide for licensing requirements as to the background and financials of our owners, directors and officers, form and content of our contracts, policies and procedures, internal controls, accounts and other documentation, licensing of our employees and employee hiring background checks, licensing of independent contractors with which we contract, restrictions on collection practices, disclosure and recordkeeping requirements and enforcement of borrowers rights. We are also subject to periodic examinations by such governmental and selfregulatory organizations. Many of these regulators, including U.S. federal, state and local agencies, GSEs and self-regulatory organizations, are empowered to conduct investigations and administrative proceedings that can result in fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of applicable licenses and memberships. Even if an investigation or proceeding does not result in a sanction or the sanction imposed against us or our personnel by a regulator were small in monetary 13

19 amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm our reputation and adversely affect the results of our operations and financial condition. As a result of market disruptions in the past years as well as highly publicized financial scandals, regulators and fund investors exhibited concerns over the integrity of the U.S. and global financial markets. In response, regulators in the U.S. and elsewhere launched programs of regulatory reform that have broad implications for us as well as for many of the markets in which we and they operate. Any changes in the regulatory framework applicable to our business, including the changes and potential changes described below, as well as adverse news media attention, may impose additional expenses or capital requirements on us, limit our fundraising for our investment products, result in limitations in the manner in which our business is conducted, have an adverse impact upon our financial condition, results of operations or prospects, impair executive retention or recruitment and require substantial attention by senior management. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed or may become law on our business or the markets in which we operate. If enacted, any new regulation or regulatory framework could negatively impact us in a number of ways, including increasing our costs and the cost of investing, borrowing or hedging, increasing our regulatory costs, imposing additional burdens on our staff, and potentially requiring the disclosure of sensitive information. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. New laws or regulations could make compliance more difficult or more expensive or affect the manner in which we conduct business. There have been a number of legislative or regulatory proposals affecting the financial sector in the United States. In particular, the Dodd-Frank Act, that President Obama signed into law on July 21, 2010, creates a significant amount of new regulation. The Dodd-Frank Act: requires alternative investment and hedge fund advisers to register with the SEC under the Investment Advisers Act, to maintain extensive records and to file reports if deemed necessary for purposes of systemic risk assessment by certain governmental bodies; creates the Consumer Financial Protection Bureau (the CFPB ) within the U.S. Federal Reserve, which enforces consumer protection laws, including mortgage finance and recently promulgated final rules implementing the Dodd-Frank Act amendments to the Truth in Lending Act of 1968 ( TILA ) and the Real Estate Settlement Procedures Act (together, the Final Servicing Rules ); moves administration of the Real Estate Settlement Procedures Act from the Department of Housing and Urban Development ( HUD ) to the CFPB, which, with respect to our real estate segment, restricts payments which real estate brokers, agents and other settlement service providers may receive for the referral of business to other settlement service providers in connection with the closing of real estate transactions and also requires timely disclosure of certain relationships or financial interests that a broker has with providers of real estate settlement services; establishes new standards and practices for mortgage originators, including determining a prospective borrower s ability to repay their mortgage, removing incentives for higher cost mortgages, prohibiting prepayment penalties for non-qualified mortgages, prohibiting mandatory arbitration clauses, requiring additional disclosures to potential borrowers and restricting the fees that mortgage originators may collect; and requires securitizers to retain an interest in the credit risk arising from assets they securitize. The following rulemaking has been enacted, the following notices of proposed rulemakings have recently been announced and certain regulations will soon come into effect that may apply to us or our subsidiaries: In June 2010, the SEC approved Rule 206(4)-5 under the Advisers Act regarding pay to play practices by investment advisers involving campaign contributions and other payments to government clients and elected officials able to exert influence on such clients. Among other restrictions, the rule prohibits investment advisers from providing advisory services for compensation to a government client for two years, subject to very limited exceptions, after the investment adviser, its senior executives or its personnel involved in soliciting investments 14

20 from government entities make contributions to certain candidates and officials in position to influence the hiring of an investment adviser by such government client. Advisers are required to implement compliance policies designed, among other matters, to track contributions by certain of the adviser s employees and engagements of third parties that solicit government entities and to keep certain records in order to enable the SEC to determine compliance with the rule. There has also been similar rule-making on a state-level regarding pay to play practices by investment advisers, including in California and New York. Any failure on our part to comply with these rules could cause us to lose compensation for our advisory services or expose us to significant penalties and reputational damage. In June 2011, the Basel Committee on Banking Supervision of the Bank of International Settlements announced the final framework for strengthening capital requirements, known as Basel III, which was implemented by U.S. bank regulatory agencies in July 2013 subject to a phase in period. This framework is expected to increase the cost of funding on banking institutions that we rely on for financing. Such Basel III requirements on banking institutions could reduce our sources of funding and increase the costs of originating and servicing mortgage loans. If we are unable to obtain sufficient capital on acceptable terms for any of the foregoing reasons, this could adversely affect our business, financial condition and results of operations. The Final Servicing Rules (as described above) will become effective January 10, 2014 and are part of a broader effort to establish minimum national standards for mortgage servicing. Failure to comply with these requirements could result in the servicer being liable for actual damages, statutory damages under TILA or RESPA and attorneys fees. Among other things, the Final Servicing Rules require servicers to establish information management policies and procedures reasonably designed to access and provide accurate and timely information to borrowers, investors, and courts, evaluate loss mitigation applications, facilitate oversight of, and compliance by, service providers, facilitate the transfer of information during servicing transfers and inform borrowers of the availability of written error resolution and information request procedures. The Final Servicing Rules also incorporate many of the provisions of the Joint Federal-State Servicing Settlement discussed below, target early intervention with borrowers following initial delinquency and impose detailed requirements applicable in each step of a servicer s loss mitigation process. In particular, the Final Servicing Rules restrict so-called dual tracking, in which a servicer simultaneously evaluates a mortgagor for a loan modification or other loss mitigation alternatives at the same time that it prepares to foreclose on the mortgaged property. Furthermore, servicers must establish or make efforts to establish contact with borrowers by the 36th day of their delinquency and provide borrowers with written notice about loss mitigation options by the 46th day of their delinquency. Specifically, the Final Servicing Rules prohibit a servicer from making the first notice or filing required to commence the foreclosure process until the mortgagor is more than 120 days delinquent. Even if a mortgagor is more than 120 days delinquent, if the mortgagor submits a complete application for a loss mitigation option before a servicer has made the first notice or filing required for a foreclosure process, the servicer may not start the foreclosure process unless (i) the servicer informs the mortgagor that the mortgagor is not eligible for any loss mitigation option (and any appeal in respect thereof has been exhausted), (ii) the mortgagor rejects all loss mitigation offers, or (iii) the mortgagor fails to comply with the terms of a loss mitigation option such as a trial modification. If a mortgagor submits a complete application for a loss mitigation option after the foreclosure process has commenced but more than 37 days before a foreclosure sale, the servicer may not move for a foreclosure judgment or order of sale, or conduct a foreclosure sale, until one of the same three conditions has been satisfied. In all of these situations, the servicer is responsible for promptly instructing foreclosure counsel retained by the servicer not to proceed with filing for foreclosure judgment or order of sale, or to conduct a foreclosure sale, as applicable. These rules or other new laws and regulations affecting the mortgage servicing industry could increase the cost of servicing loans and may adversely affect our results of operations or financial condition. Additionally, there are federal and state legislative and agency initiatives that could, once fully implemented, adversely affect our business. For instance, the risk retention requirement under the Dodd-Frank Act requires securitizers to retain a minimum beneficial interest in residential mortgage backed securities ( RMBS ) they sell through a securitization, absent certain qualified residential mortgage ( QRM ) exemptions. The responsible federal agencies have recently issued a proposed rule implementing these risk retention requirements, including a definition of QRM. Once implemented, the risk retention requirement may result in higher costs of certain originations operations and impose on us additional compliance requirements to meet servicing and originations criteria for QRMs. Similarly, the amendments to Regulation AB relating to the registration statement required to be filed by ABS issuers recently adopted by the SEC pursuant to the Dodd-Frank Act would increase compliance costs for ABS issuers, which could in turn increase our cost of funding and operations. Lastly, certain proposed federal legislation 15

21 would permit borrowers in bankruptcy to restructure mortgage loans secured by primary residences. Bankruptcy courts could, if this legislation is enacted, reduce the principal balance of a mortgage loan that is secured by a lien on mortgaged property, reduce the mortgage interest rate, extend the term to maturity or otherwise modify the terms of a bankrupt borrower s mortgage loan. Any of the foregoing could materially affect our financial condition and results of operations. Our real estate brokerage business, our relocation business and our title and settlement service business (excluding commercial brokerage transactions) must comply with the Real Estate Settlement Procedures Act ("RESPA"). RESPA and comparable state statutes, among other things, restrict payments which real estate brokers, agents and other settlement service providers may receive for the referral of business to other settlement service providers in connection with the closing of real estate transactions. Such laws may to some extent restrict preferred vendor arrangements involving our brokerage business. RESPA and similar state laws also require timely disclosure of certain relationships or financial interests that a broker has with providers of real estate settlement services. As stated abover, pursuant to the Dodd-Frank Act, administration of RESPA has been moved from HUD to the new CFPB and it is possible that the practice of HUD taking very expansive broad readings of RESPA will continue or accelerate at the CFPB creating increased regulatory risk. Our title insurance business also is subject to regulation by insurance and other regulatory authorities in each state in which we provide title insurance. State regulations may impede or impose burdensome conditions on our ability to take actions that we may want to take to enhance our operating results. Furthermore, because we are not a depository institution, we do not benefit from a federal exemption to state mortgage banking, loan servicing or debt collection licensing and regulatory requirements. We must comply with state licensing requirements and varying compliance requirements in all fifty states and the District of Columbia and Puerto Rico, and we are sensitive to regulatory changes that may increase our costs through stricter licensing laws, disclosure laws or increased fees or that may impose conditions to licensing that we or our personnel are unable to meet. In addition, we are subject to periodic examinations by state regulators, which can result in refunds to borrowers of certain fees earned by us, and we may be required to pay substantial penalties imposed by state and federal regulators due to compliance errors. Future legislation and changes in existing regulation may significantly increase our compliance costs or reduce the amount of fees that we may charge to clients. This could make our business cost-prohibitive in the affected state or states and could materially affect our business. We also regularly rely on exemptions in the United States from various requirements of the Securities Act, the Exchange Act, the Investment Company Act of 1940, or Investment Company Act, and the U.S. Employee Retirement Income Security Act of 1974, or ERISA, in conducting our investment management activities. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third-party claims and our business could be materially and adversely affected. Finally, regulatory authorities also have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend our company licenses and prevent us from carrying on some or all of our activities if our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could have a material adverse effect on our operations. We are also subject to various other rules and regulations such as: the Gramm-Leach-Bliley Act which governs the disclosure and safeguarding of consumer financial information, various state and federal privacy laws protecting consumer data, controlled business statutes, which impose limitations on affiliations between providers of title and settlement services, on the one hand, and real estate brokers, mortgage lenders and other real estate providers, on the other hand, the USA PATRIOT Act, restrictions on transactions with persons on the Specially Designated Nationals and Blocked Persons list promulgated by the Office of Foreign Assets Control of the Department of the Treasury, federal and state Do Not Call, Do Not Fax, and Do Not laws, the Fair Housing Act, the Foreign Corrupt Practices Act, state and federal employment laws and regulations, including any changes that would require classification of independent contractors to employee status, and wage and hour regulations, increases in state, local or federal taxes that could diminish profitability or liquidity, and consumer fraud statutes that are broadly written. 16

22 Certain lawmakers are looking into a variety of tax law changes in order to achieve additional tax revenues and reduce the federal deficit. One possible change would reduce the amount certain taxpayers would be allowed to deduct for home mortgage interest and possibly limit the deduction to one s primary residence. Any reduction in the mortgage interest deduction could have an adverse effect on the housing market by reducing incentives for buying homes and could negatively affect property values. As evidenced, our operations are subject to regulation and supervision in a number of domestic and foreign jurisdictions, and the level of regulation and supervision to which we are subject varies from jurisdiction to jurisdiction and is based on the type of business activity involved. Our failure to comply with any of the foregoing laws and regulations may subject us to fines, penalties, injunctions and/or potential criminal violations. Any changes to these laws or regulations or any new laws or regulations may make it more difficult for us to operate our business and may have a material adverse effect on our operations. We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local regulations. We may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could result in a default under our servicing agreements and have a material adverse effect on our operations. The states that currently do not provide extensive regulation of our business may later choose to do so, and if such states so act, we may not be able to obtain or maintain all requisite licenses and permits. The failure to satisfy those and other regulatory requirements could result in a default under our servicing agreements and have a material adverse effect on our operations. Furthermore, the adoption of additional, or the revision of existing, rules and regulations could adversely affect our business, financial condition and results of operations. Legal proceedings, state or federal governmental examinations or enforcement actions and related costs could have a material adverse effect on our liquidity, financial position and results of operations. We are currently engaged in the litigation summarized under Business Legal Proceedings in this Offering Circular. As is discussed under Business Legal Proceedings, in September 2013, our asset manager received a subpoena for documents and other information from the U.S. Securities and Exchange Commission. The subpoena seeks documents and information relating to the business and operations of our asset manager, CMS and Carrington Investment Partners, LP, a fund managed by the asset manager. There are no assurances that regulatory inquiries such as those discussed above will not result in investigations of the asset manager, CMS or their affiliates, enforcement actions, fines or penalties or claims, which could materially adversely affect the asset manager s ability to manage the funds or CMS s ability to service the underlying mortgage pools. This subpoena and any resulting investigation or enforcement action by the Securities and Exchange Commission may have a material impact on our ability to raise capital. We will continue to produce and supply documents and cooperate fully with the Securities and Exchange Commission regarding the document request. See Business Legal Proceedings. We also are routinely and currently involved in legal proceedings concerning matters that arise in the ordinary course of our business. These legal proceedings range from actions involving a single plaintiff to class action lawsuits with potentially tens of thousands of class members. An adverse result in governmental investigations or examinations or private lawsuits, including purported class action lawsuits, may adversely affect our financial results. In addition, a number of participants in our industry, including us, have been the subject of purported class action lawsuits and regulatory actions by state regulators, and other industry participants have been the subject of actions by state Attorneys General. Although we believe we have meritorious legal and factual defenses to the lawsuits in which we are currently involved, the ultimate outcomes with respect to these matters remain uncertain. Litigation and other proceedings may require that we pay settlement costs, legal fees, damages, penalties or other charges, any or all of which could adversely affect our financial results. In particular, ongoing and other legal proceedings brought under state consumer protection statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities and that could have a material adverse effect on our liquidity, financial position and results of operations. We are also routinely subject to state and federal examinations by various licensing and other agencies. Any adverse finding or enforcement action resulting from such examinations could have material adverse consequences including, without limitation, settlements, fines, penalties, adverse regulatory actions and changes in business practice, or could lead to other higher costs and additional administrative burdens. 17

23 Governmental investigations, both state and federal, can be either formal or informal. The costs of responding to the investigations can be substantial. In addition, government-mandated changes to servicing practices could lead to higher costs and additional administrative burdens, in particular regarding record retention and informational obligations. The lack of financing for homebuyers in the U.S. residential real estate market at favorable rates and on favorable terms could have a material adverse effect on our financial performance and results of operations. Our business is significantly impacted by the availability of financing at favorable rates or on favorable terms for homebuyers, which may be affected by government regulations and policies. Certain potential reforms such as the U.S. federal government s conservatorship of Fannie Mae and Freddie Mac, proposals to reform the U.S. housing market, attempts to increase loan modifications for homeowners with negative equity, monetary policy of the U.S. government, any rising interest rate environment and the Dodd-Frank Act may adversely impact the housing industry, including homebuyers ability to finance and purchase homes. The monetary policy of the U.S. government, and particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S., significantly affects the availability of financing at favorable rates and on favorable terms, which in turn affects the domestic real estate market. Policies of the Federal Reserve Board can affect interest rates available to potential homebuyers. Further, we are affected by any rising interest rate environment. Changes in the Federal Reserve Board s policies, the interest rate environment and mortgage market are beyond our control, are difficult to predict and could restrict the availability of financing on reasonable terms for homebuyers, which could have a material adverse effect on our business, results of operations and financial condition. Additionally, the possibility of the elimination of the mortgage interest deduction could have an adverse effect on the housing market by reducing incentives for buying or refinancing homes and negatively affecting mortgage loan origination volume and property values. In addition, the reduction in government support for housing finance, including proposals for the winding down of Fannie Mae and Freddie Mac, further reduces the availability of financing for homebuyers in the U.S. residential real estate market. In connection with the U.S. federal government s conservatorship of Fannie Mae and Freddie Mac, it has provided billions of dollars of funding to these entities in the form of preferred stock investments to backstop shortfalls in their capital requirements. The U.S. Treasury announced that it would accelerate the winding down of these entities, but no consensus has emerged in Congress concerning a successor, if any. Given the current uncertainty with respect to the current and further potential reforms relating to Fannie Mae and Freddie Mac, we cannot predict either the short or long term effects of such regulation and its impact on homebuyers ability to finance and purchase homes. In an effort to assist recovery of the housing market, the U.S. government has also attempted to increase loan modifications for homeowners with negative equity, but there can be no assurance that such measures will be effective. Furthermore, during the past several years, many purchasers of mortgage loans have significantly tightened their underwriting standards, and many subprime and other alternative mortgage products are no longer being sold in the marketplace. If these trends continue and mortgage loans continue to be difficult to obtain, including in the jumbo mortgage markets, the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes will be adversely affected, which will adversely affect our operating results. While we are continuing to evaluate all aspects of the current state of legislation, regulations and policies affecting the domestic real estate market, we cannot predict whether or not such legislation, regulation and policies may result in increased mortgage costs, and result in increased costs and potential litigation for housing market participants, any of which could have a material adverse effect on our financial condition and results of operations. The industries in which we operate are highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations. We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes. Our four business segments face competition from various industry participants that operate in each of the market sectors serviced by our businesses. Our asset management segment competes with a variety of entities across different market sectors, including general competitors such as 18

24 PennyMac Loan Services, LLC, PIMCO and Lone Star Funds, as well as Nationstar Mortgage Company and Green Tree Servicing LLC in the mortgage servicing rights ( MSR ) space. Our mortgage servicing segment faces competition from Lone Star Funds, Ocwen Mortgage Servicing LLC, Green Tree Servicing LLC, Caliber Home Loans, Inc. and Residential Credit Solutions, Inc. The largest competitors of our originations segment are Freedom Mortgage Corporation and Stearns Lending, Inc. With respect to the brokerage operations of our real estate segment, our largest competitors include Realogy Holdings Corporation and RE/MAX Holdings Incorporated. Our asset and property management operations within our real estate segment compete with Altisource, Solutionstar Realty Services LLC, First Preston HT and FirstService Residential, respectively. Some of these competitors may have greater financial resources and larger budgets than we do. In addition, technological advances and heightened e-commerce activities have increased consumers accessibility to products and services. This has intensified competition among industry participants. We may be unable to compete successfully in our industries and this could adversely affect our business, financial condition and results of operations. See Risk Factors Risks Relating to Our Business Servicing The servicing industry is highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations and Risk Factors Risks Relating to Our Business Origination The originations industry is highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations in this Offering Circular. Adverse economic and market conditions may adversely affect our liquidity position, which could adversely affect our business operations in the future. We expect that our primary liquidity needs will consist of cash required to: continue to grow our business, including funding our capital commitments made to existing and future funds, co-investments and any net capital requirements of our capital markets companies; service debt obligations, including the Notes, and our servicer s obligation to make servicing advances, as well as any contingent liabilities that may give rise to future cash payments; fund cash operating expenses; make cash distributions in accordance with our distribution policy; and acquire additional principal assets. These liquidity requirements are significant and, in some cases, involve capital that will remain invested for extended periods of time. (See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ). Our liquidity and financing strategy includes the use of significant leverage. Accordingly, our ability to finance our operations and repay maturing obligations rests in large part on our ability to borrow money. We are generally required to renew our financing arrangements each year, which exposes us to refinancing and interest rate risks. Our ability to refinance existing debt and borrow additional funds is affected by a variety of factors including: limitations imposed on us under the indenture governing the Notes and other financing agreements that contain restrictive covenants and borrowing conditions that may limit our ability to raise additional debt; any decrease in liquidity in the credit markets; prevailing interest rates; the strength of the lenders from which we borrow; limitations on borrowings on advance facilities imposed by the amount of eligible collateral pledged, which may be less than the borrowing capacity of the advance facility; and 19

25 accounting changes that may impact calculations of covenants in our debt agreements. An event of default, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of credit similar to the market conditions that we have experienced recently may increase our cost of funds and make it difficult for us to renew existing credit facilities or obtain new lines of credit. We intend to continue to seek opportunities to acquire loan servicing portfolios and/or businesses that engage in loan servicing and/or loan originations. Our liquidity and capital resources may be diminished by any such transactions. We use financial models and estimates in determining the fair value of certain assets, such as MSRs, pools of mortgage loans and derivative financial instruments. If our estimates or assumptions prove to be incorrect, we may be required to record impairment charges, which could adversely affect our earnings. We use internal financial models that utilize, wherever possible, market participant data to value certain of our assets, including our MSRs, newly originated loans held for sale and derivative financial instruments for purposes of financial reporting. These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements are complex because of the high number of variables that drive cash flows associated with these assets. Even if the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the models. If loan loss levels are higher than anticipated, due to an increase in delinquencies or prepayment speeds, or financial market illiquidity continues beyond our estimate, the value of certain of our assets may decrease. It may also be difficult to validate certain key assumptions required for valuing assets in dislocated markets. We may be required to record impairment charges, which could impact our ability to satisfy minimum net worth covenants and borrowing conditions in our debt agreements and adversely affect our business, financial condition or results of operations. Errors in our financial models or changes in assumptions could adversely affect our earnings. See Risks Relating to Our Business General Risks We may not realize all of the anticipated benefits of potential future acquisitions, which could adversely affect our business, financial condition and results of operations. Our earnings may decrease because of changes in prevailing interest rates. Our profitability is directly affected by changes in prevailing interest rates. The following are the material risks we face related to changes in prevailing interest rates: an increase in prevailing interest rates could generate an increase in delinquency, default and foreclosure rates resulting in an increase in both operating expenses and interest expense and could cause a reduction in the value of our assets; an increase in prevailing interest rates could adversely affect our loan originations volume because refinancing an existing loan would be less attractive for homeowners and qualifying for a loan may be more difficult for consumers; an increase in prevailing interest rates would increase the cost of servicing our outstanding debt, including our ability to finance servicing advances and loan originations; a decrease in prevailing interest rates may require us to record a decrease in the value of our MSRs; and a decrease in prevailing interest rates could reduce our earnings from our custodial deposit accounts. Our hedging strategies may not be successful in mitigating our risks associated with interest rates. From time to time, we have used various derivative financial instruments and forward sale agreements to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. The derivative financial instruments and forward sale agreements that we select may not have the effect of reducing our interest rate risks. In addition, the nature and timing of hedging transactions may influence the effectiveness of these strategies. Poorly designed strategies, improperly executed and documented transactions or inaccurate assumptions could actually increase our risks and losses. In addition, hedging strategies involve transaction and other costs. Our 20

26 hedging strategies and the derivatives and forward sale agreements that we use may not be able to adequately offset the risks of interest rate volatility and our hedging transactions may result in or magnify losses. Furthermore, interest rate derivatives and forward sale agreements may not be available on favorable terms or at all, particularly during economic downturns. Any of the foregoing risks could adversely affect our business, financial condition and results of operations. We depend on the accuracy and completeness of information about counterparties and any misrepresented information could adversely affect our business, financial condition and results of operations. In deciding whether to enter into transactions with counterparties, we may rely on information furnished to us by or on behalf of counterparties, including financial statements and other financial information. We also may rely on representations of counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. We additionally rely on representations from public officials concerning the licensing and good standing of the third party mortgage brokers through which we do business. This information may be intentionally or negligently misrepresented, and we generally bear the risk of loss associated with the misrepresentation. We may not have detected or may not detect all misrepresented information from our business clients, and any such misrepresented information could adversely affect our business, financial condition and results of operations. Technology failures could damage our business operations and increase our costs, which could adversely affect our business, financial condition and results of operations. The financial services industry as a whole is characterized by rapidly changing technologies, and system disruptions and failures caused by fire, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters and other similar events may interrupt or delay our ability to provide services to our borrowers. Security breaches, acts of vandalism and developments in computer capabilities could result in a compromise or breach of the technology that we use to protect our borrowers personal information and transaction data. Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the techniques used change frequently or are not recognized until launched, and because security attacks can originate from a wide variety of sources, including third parties such as persons involved with organized crime or associated with external service providers. Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity. We may not be able to successfully prevent a disruption to or material adverse effect on our business or operations in the event of a disaster, theft of data or other business interruption. Any extended interruption in our technologies or systems or significant breach could significantly curtail our ability to conduct our business and generate revenue. A successful penetration or circumvention of the security of our systems or a defect in the integrity of our systems or cybersecurity could cause serious negative consequences for our business, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or operating systems and to those of our customers and counterparties. Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could adversely affect our business, financial condition and results of operations. Any failure of our internal security measures or breach of our privacy protections could cause harm to our reputation and subject us to liability, any of which could adversely affect our business, financial condition and results of operations. In the ordinary course of our business, we receive and store certain confidential information concerning borrowers. Additionally, we enter into third party relationships to assist with various aspects of our business, some of which require the exchange of confidential borrower information. If a third party were to compromise or breach our security measures or those of the vendors, through electronic, physical or other means, and misappropriate such 21

27 information, it could cause interruptions in our operations and expose us to significant liabilities, reporting obligations, remediation costs and damage to our reputation. Any of the foregoing risks could adversely affect our business, financial condition and results of operations. See also Risks Relating to Our Business General Risks Technology failures could damage our business operations and increase our costs, which could adversely affect our business, financial condition and results of operations. Negative public opinion could damage our reputation and brand and adversely affect our earnings. Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending and debt collection practices, corporate governance, and actions taken by government regulators and community organizations in response to those activities. Negative public opinion can also result from media coverage, whether accurate or not. Negative public opinion can adversely affect our ability to attract and retain customers, trading counterparties and employees and can expose us to litigation and regulatory action. Although we take steps to minimize reputation risk in dealing with our customers and communities, this risk will always be present in our organization. Brand value can be severely damaged even by isolated incidents, particularly if the incidents receive considerable negative publicity or result in litigation. Some of these incidents may relate to the way we manage our agents, our growth strategies or the ordinary course of our business. Other incidents may arise from events that are or may be beyond our ability to control and may damage our brand, such as actions taken (or not taken) by one or more of our agents or their employees relating to health, safety, welfare or other matters; litigation and claims; failure to maintain high ethical and social standards for all of our operations and activities; failure to comply with local laws and regulations; and illegal activity targeted at us or others. Our brand value could diminish significantly if any such incidents or other matters erode confidence in us. Our employees could take actions that could harm our business. There is a risk that our employees could engage in misconduct that adversely affects our business. We are subject to a number of obligations and standards arising from our business. The violation of these obligations and standards by any of our employees would adversely affect our clients and us. Our business requires that we deal with confidential information protected by Federal and state law, if our employees were improperly to use or disclose confidential information, we could suffer serious harm to our reputation, financial position and current and future business relationships, as well as face potentially significant fines, penalties and litigation. It is not always possible to detect or deter employee misconduct, and the extensive precautions we take to detect and prevent this activity may not be effective in all cases. If any of our employees were to engage in misconduct or were to be accused of such misconduct, our business and our reputation could be adversely affected. Infringement, misappropriation or dilution of our intellectual property could harm our business. We regard our trademark, logo and sign design trademarks as having significant value and as being an important factor in the marketing of our brand. We believe that this and other intellectual property are valuable assets that are critical to our success. We rely on a combination of protections provided by contracts, as well as copyright, trademark, and other laws, to protect our intellectual property from infringement, misappropriation or dilution. We have registered certain trademarks and service marks and have other trademark and service mark registration applications pending in the U.S. and foreign jurisdictions. However, not all of the trademarks or service marks that we currently use have been registered in all of the countries in which we do business, and they may never be registered in all of those countries. Although we monitor trademark portfolios both internally and through external search agents, there can be no assurance that we will be able to adequately maintain, enforce and protect our trademarks or other intellectual property rights. We are not aware of any challenges to our right to use any of our brand names or trademarks. From time to time we may be involved in proceedings, generally on a small scale, to enforce our intellectual property and protect our brand. Unauthorized uses or other infringement of our trademarks or service marks, including ones that are currently unknown to us, could diminish the value of our brand and may adversely affect our business. Failure to adequately protect our intellectual property rights could damage our brand and impair our ability to compete effectively. Even 22

28 where we have effectively secured statutory protection for our trademarks and other intellectual property, our competitors may misappropriate our intellectual property. Defending or enforcing our trademark rights, branding practices and other intellectual property, and seeking an injunction and/or compensation for misappropriation of confidential information, could result in the expenditure of significant resources and divert the attention of management, which in turn may materially and adversely affect our business and operating results. Unauthorized third parties may use our intellectual property to trade on the goodwill of our brand, resulting in consumer confusion or dilution. Any reduction of our brand s goodwill, consumer confusion, or dilution is likely to impact sales, and could materially and adversely impact our business and operating results. Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have a material adverse effect on our financial performance and results of operations. Generally accepted accounting principles in the U.S. and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as revenue recognition, accounting for leases, stock-based compensation, asset impairments, valuation reserves, income taxes and fair value accounting, are highly complex and involve many subjective assumptions, estimates and judgments made by management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates or judgments made by management could significantly change our reported results. We are highly dependent upon our founder, senior management team and other key employees. Our business model and the execution of our business strategies is highly dependent upon the efforts, skills, reputations and business contacts of our founder, Mr. Bruce M. Rose, as well as the members of our senior management team and other key employees, the information and deal flow they and others generate during the normal course of their activities and the synergies among the diverse fields of expertise and knowledge held by our professionals. Accordingly, our success depends on the continued service of these individuals, who are not obligated to remain employed with us. The loss of the services of our founder, any of our senior executives or key employees could delay or prevent us from executing our business strategy and could significantly and negatively affect our business. In addition, we do not maintain key employee life insurance policies on our key employees. As a result, we may not be able to cover the financial loss we may incur in losing the services of any of senior management. Our principals and other key personnel possess substantial experience and expertise and have strong business relationships with investors, customers and members of the business community. As a result, the loss of these personnel could jeopardize our relationships with our investors, customers and members of the business community, which could reasonably impact out business. We do not have employment contracts or employment agreements in place with Mr. Bruce Rose, our principals or any of our key personnel, which enhances our reliance on these individuals choosing to remain employed with us, and increases our exposure to risks resulting from the loss of services of such individuals. For example, if any of our senior executives were to join or form a competing firm, our business, results and financial condition could suffer. One individual through his equity ownership controls us. Because of his equity ownership of the Company, Mr. Bruce Rose is able to exercise control over decisions affecting us, including: our direction and policies, including the appointment and removal of officers; mergers or other business combinations and opportunities involving us; further issuance of membership interests or other equity or debt securities by us; payment of dividends; and 23

29 approval of our business plans and general business development. The concentration of ownership held by Mr. Bruce Rose could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination that may be otherwise favorable to us. In addition, because our equity securities are not registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are not listed on any U.S. securities exchange, we are not subject to any of the corporate governance requirements of any U.S. securities exchanges. Our business could suffer if we fail to attract and retain a highly skilled workforce. Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization, in particular skilled managers, loan servicers, debt default specialists, loan officers, underwriters and real estate agents. Our ability to retain our employees is generally subject to numerous factors, including the compensation and benefits we pay, the mix between the fixed and variable compensation we pay our employees and prevailing compensation rates. In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. As such, we could suffer significant attrition among our current employees. The process of locating employees with the combination of skills and attributes required to carry out our goals is often lengthy. Trained and experienced personnel are in high demand and may be in short supply in some areas and many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. We may not be able to attract, develop and maintain an adequate skilled workforce necessary to operate our businesses and labor expenses may increase as a result of a shortage in the supply of qualified personnel. Our ability to recruit, retain and motivate our professionals is also dependent on our ability to offer highly attractive incentive opportunities. If we are unable to attract and retain such personnel, we may not be able to take advantage of acquisitions and other growth opportunities that may be presented to us and this could materially affect our business, financial condition and results of operations, and if we were to lose key employees and not promptly fill their positions with comparably qualified individuals, our business may be materially adversely affected. b. Organizational Structure We are a highly leveraged company. Our high level of debt could adversely affect our operating flexibility and put us at a competitive disadvantage. As of September 30, 2013, we, including our subsidiaries, had approximately $240.1 million aggregate principal amount of total debt outstanding on a consolidated basis In the Exchange Transaction we are issuing $529,761,000 of debt, which will further increase our indebtedness. As a result of the incurrence of this additional indebtedness, we will also have substantial negative members equity. Our level of debt could have important consequences for investors, including the following: we will have to use a portion of our cash flow from operations for debt service rather than for our operations; we may not be able to obtain additional debt financing for future working capital, capital expenditures, refinancing our existing debt or other corporate purposes or may have to pay more for such financing; we could be less able to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; we will be more vulnerable to general adverse economic and industry conditions; and we may be disadvantaged compared to competitors with less leverage. 24

30 The Indenture governing the Notes limits but does not prohibit us from incurring a significant amount of additional indebtedness. To the extent we or our subsidiaries incur more debt the risks described about will increase. See Description of the Notes Certain Covenants Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock. We expect to obtain the money to pay our expenses and to pay the principal and interest on the Notes primarily from our operations. Our ability to meet our expenses thus depends on our future performance, which will be affected by financial, business, economic and other factors. We are not able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors. The money we earn may not be sufficient to allow us to pay principal and interest on the Notes and to meet our other debt obligations. If we do not have enough money, we may be required to refinance all or part of the Notes, sell assets or borrow additional funds. We may not be able to take such actions on terms that are acceptable to us, if at all. In addition, the terms of any future debt agreements may restrict us from adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve these alternatives could adversely affect the value of the Notes and our ability to pay principal and interest on the Notes. See Description of the Notes. We are a holding company and our ability to make payments on the Notes is dependent upon the receipt of funds from our subsidiaries by way of distributions, dividends, fees, loans or otherwise. The Notes are obligations of the Company, which is a holding company with no material operating assets, other than interests in its subsidiaries. All of the Company s revenue and cash flow is generated through its subsidiaries. As a result, we are dependent on dividends and other distributions from those subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal and interest on our outstanding debt. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness. In addition, our subsidiaries ability to make any payments of dividends, distributions, loans or advances to us will depend on the terms of the agreements governing their indebtedness and other agreements, which may include requirements to maintain minimum levels of working capital and other assets, as well as, business and tax considerations, legal and regulatory restrictions, their earnings and overall economic conditions. Accordingly, the distributions to us from our subsidiaries may not be adequate to permit us to pay interest and principal on the Notes when due. See " The Notes are effectively subordinated to all the obligations of our subsidiaries and our ability to service our debt is dependent on the performance of our subsidiaries" and "Description of the Notes Guarantees." c. Asset Management Our asset manager manages investor capital with a specific focus on investments in the mortgage loan and U.S. housing markets, and assists investors with strategies for deploying capital and managing and generating returns on investments in these markets. In addition, our asset management segment raises capital, issues structured finance debt and provides mortgage litigation advice and expert witnesses. See Business Our Business Asset Management. Difficult market conditions can adversely affect our business in many ways, including by reducing the value or performance of the investments that we manage or by reducing the ability of our clients or our funds to raise or deploy capital, each of which could negatively impact our net income and cash flow and adversely affect our financial condition. Our business is materially affected by conditions in the financial markets and economic conditions and in the real estate and housing markets more specifically, conditions such as fluctuations in interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation), unemployment rates, and controls and national political circumstances. General adverse economic conditions may also affect mortgagors ability to pay principal and interest on their mortgage loans, as well as the ability of the servicer to liquidate the mortgage loans and sell or rent REO properties. For example, the unprecedented turmoil in the global financial markets during 2008 and 2009 provoked significant volatility of securities prices, contraction in the availability of credit and the failure of a number of companies, including leading financing institutions, and had a material adverse effect on our businesses. Excessive building resulted in an oversupply of housing in a particular areas and a decrease in employment reduced the demand for housing in certain areas. While the adverse effects of 25

31 that period have abated to a degree, economic weakness has continued, characterized by low levels of growth and high levels of unemployment and governmental deficits in major markets including the United States and Europe. Furthermore, while U.S. financial institutions have seen recent improvements, global financial institutions have generally not yet provided debt financing in amounts and on terms commensurate with what they provided prior to Market and economic conditions are outside our control and may affect the level and volatility of securities prices and the liquidity and the value of our investments. In addition, we may not be able to or may choose not to manage our exposure to macroeconomic conditions and/or events, such as fluctuations in housing prices. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in net income relating to changes in market and economic conditions. Unfavorable market conditions generally, and in the real estate and housing markets more specifically, may reduce opportunities for our clients and for the funds that we manage to make, exit and realize value from their investments. For example, when financing is not available, it is difficult for potential buyers, including our clients and funds that we manage, to raise sufficient capital to purchase assets. Consequently, we may earn lower than expected returns on investments, which could cause us to realize diminished or no incentive based compensation. In addition, we may not be able to find suitable investments for our clients or the funds that we manage to effectively deploy capital, which could adversely affect our ability to attract new clients and to raise new funds because we can generally only attract capital from new clients or raise capital for a new fund following the substantial deployment of capital from our current clients or funds that we manage. In the event of poor performance of investments that we manage or during periods of unfavorable fundraising conditions, as have prevailed in recent years, pressures by clients and fund investors for lower fees, different fee sharing arrangements for transaction or other fees, and other concessions will likely continue and could increase. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than our current compensation arrangements. Any of these developments could adversely affect our future revenues, net income, cash flow, financial condition or ability to retain our employees. See Risk Factors Risks Relating to Our Business Asset Management Our inability to attract future separately managed accounts or to raise additional or successor funds could have a material adverse impact on our business and Our clients or our investors in future funds may negotiate to pay us lower management fees and the economic terms of our future separately managed accounts or our future funds may be less favorable to us than our current compensation arrangements, which could adversely affect our revenues. During periods of difficult market or economic conditions or slowdowns (which may be across one or more industries, sectors or geographies), we may experience difficulty in obtaining access to financing and increased funding costs. We may also have difficulty expanding operations or be unable to meet debt service obligations or other expenses as they become due. Negative financial results in our clients or our funds asset portfolios may result in lower investment returns for our clients or investment funds, which could materially and adversely affect our operating results and cash flow. To the extent the operating performance of such asset portfolios deteriorate or do not improve, our clients or our funds may sell those assets at values that are less than we projected or even at a loss, thereby significantly affecting those separately managed accounts or those funds performance and consequently our operating results and cash flow. Negative market conditions or a specific market dislocation may result in lower investment returns for our separately managed accounts or our funds, which would further adversely affect our net income. Even if economic and market conditions do continue to improve broadly, adverse conditions in particular sectors may also cause our performance to suffer. Finally, low interest rates related to monetary stimulus and economic stagnation may negatively impact expected returns on all types of investments as the demand for relatively higher return assets increases and the supply decreases. Our inability to attract future separately managed accounts or to raise additional or successor funds could have a material adverse impact on our business. Institutional investors in funds that have suffered from decreasing returns, liquidity pressure, increased volatility or difficulty maintaining targeted asset allocations, may materially decrease or temporarily suspend making new fund investments. Such investors may elect to reduce their overall portfolio allocations to alternative investments such as mortgage credit funds, resulting in a smaller overall pool of available capital for real estate and mortgage credit investments. In addition, the asset allocation rules or regulations or investment policies to which such third- 26

32 party investors are subject, could inhibit or restrict the ability of third-party investors to make capital commitments to us for managed accounts or to make investments in our investment funds. Coupled with a lack of distributions from their existing investment portfolios, many of these investors may have been left with disproportionately outsized remaining commitments to, and invested capital in, a number of alternative investment managed accounts and investment funds, which significantly limited their ability to make new commitments to separately managed accounts and investment funds in the real estate and mortgage credit space such as those advised by us. Our clients or our investors in future funds may negotiate to pay us lower management fees and the economic terms of our future separately managed accounts or our future funds may be less favorable to us than our current compensation arrangements, which could adversely affect our revenues. In connection with attracting new managed accounts, raising new funds or securing additional investments in existing funds, we negotiate terms for such managed accounts, funds and investments with investors. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than the terms of prior managed accounts or funds we have advised or managed accounts or funds advised by our competitors. For example such terms could restrict our ability to raise investment funds with investment objectives or strategies that compete with existing managed accounts or funds, provide a right of first refusal with regard to certain assets, provide a Most Favored Nation status to certain investors with regard to fees paid, reduce fee revenues we earn, reduce the percentage of profits on third-party capital in which we share, include a performance hurdle that requires us to generate a specified return on investment prior to our right to receive incentive compensation or add expenses and obligations for us in managing the fund or increase our potential liabilities. Furthermore, as institutional investors increasingly consolidate their relationships with investment firms and competition becomes more acute, we may receive more such requests to modify the terms in our new managed accounts or our new funds. Agreement to terms that are materially less favorable to us could result in a decrease in our profitability. In addition, certain institutional investors, including sovereign wealth funds and public pension funds, have demonstrated an increased preference for alternatives to the traditional investment fund structure, such as managed accounts, specialized funds and co-investment vehicles. We also have entered into strategic partnerships with individual investors whereby we manage that investor s capital across a variety of our products on separately negotiated terms. There can be no assurance that such alternatives will be as profitable to us as the traditional investment fund structure would be, and the impact such a trend could have on our results of operations, if widely implemented, is unclear. Moreover, certain institutional investors are demonstrating a preference to in-source their own investment professionals and to make direct investments in alternative assets without the assistance of alternative investment advisers like us. Such institutional investors may become our competitors and could cease to be our clients. Any agreement to terms less favorable to us could adversely affect our revenues and profitability. Changes in the debt financing markets may negatively impact the ability of our client s managed accounts and our investment funds to obtain appropriate financing for their investments and may increase the cost of such financing if it is obtained, which could lead to lower-yielding investments and potentially decrease our net income. In the event that our client s managed accounts or funds are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at an increased interest rate or on unfavorable terms, our clients or funds may have difficulty completing otherwise profitable acquisitions or may generate profits that are lower than would otherwise be the case, either of which could lead to a decrease in the investment income earned by us. To the extent that credit markets render such financing difficult to obtain or more expensive, this may negatively impact the performance of our asset portfolios and, therefore, the investment returns on our managed accounts or our funds. In addition, to the extent that the markets make it difficult or impossible to refinance debt that is maturing in the near term, we may be unable to repay such debt at maturity and may be forced to sell assets. In addition, to the extent that conditions in the credit markets impair our ability to refinance or extend maturities on outstanding debt, either on favorable terms or at all, the performance of our asset portfolios may be negatively impacted, which could lead to an asset liability mismatch and decrease in the investment income earned by us. The debt financing markets also impact our ability to purchase nonperforming loans and fund loan originations, as well as the success of subsequent loan securitizations. Depending on the timing of our purchase of nonperforming loan pools, a lack of term financing may 27

33 decrease the overall yield profile achievable on each package of nonperforming loans. In addition, we utilize warehouse funding to originate non-agency loans; changes in debt financing markets and our ability to access to such facilities may have an adverse affect on our business and operations. The asset management business is intensely competitive, which could have a material adverse impact on our business. We compete as an asset manager for both separately managed account fund investors and investment opportunities. The asset management business is highly fragmented, with our competitors consisting primarily of sponsors of public and private investment funds, business development companies, investment banks, commercial finance companies and mortgage companies acting as strategic buyers of assets. We believe that competition for separately managed account fund investors is based primarily on: investment performance; investor liquidity and willingness to invest; investor perception of asset managers skill, experience, focus and alignment of interest; business reputation and industry relationships; the duration of relationships with separately managed account fund investors; capacity and infrastructure; the quality of services provided to separately managed account fund investors; pricing; fund terms (including fees); and the relative attractiveness of the types of investments that have been or will be made. We believe that competition for investment opportunities is based primarily on the pricing, industry reputation and relationships, terms and structure of a proposed investment and certainty of execution, infrastructure and ability to manage. A number of factors serve to increase our competitive risks: a number of our competitors in some of our businesses may have greater financial, marketing and other resources and more personnel than we do; some of these competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us with respect to investment opportunities; fund investors may materially decrease their allocations in new funds in light of their experiences following an economic downturn or seek to consolidate their relationships with investment firms; some of our competitors may be regarded by fund investors as having better expertise in a specific asset class or geographic region than we do; we have limited assets and some of our competitors may be able to place more competitive bids for certain assets; 28

34 some of our competitors have agreed to terms on their managed accounts or their investment funds or products that may be more favorable than our funds or products, such as lower management fees, greater fee sharing, or performance hurdles for incentive compensation, and therefore we may be forced to match or otherwise revise our terms to be less favorable than they have been in the past; some of our funds or separately managed accounts may not perform as well as competitors funds or other available investment products; fund investors may reduce their investments in their managed accounts or in our funds or not make additional investments in their managed accounts or in our funds based upon their available capital or due to regulatory requirements; our competitors have raised or may raise significant amounts of capital, and many of them have similar investment objectives and strategies to our funds or separately managed accounts, which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that many alternative investment strategies seek to exploit; some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively than us for investments; some of our competitors may be subject to less regulation or less regulatory scrutiny and accordingly may have more flexibility to undertake and execute certain businesses or investments than we do and/or bear less expense to comply with such regulations than we do; because we are subject to pending and current investigations by state and federal regulatory agencies, some of our competitors may enjoy a greater competitive advantage in undertaking and executing certain businesses and investments, or in raising and attracting investor capital than we do, see Our asset management segment is subject to investigation by the SEC; there are relatively few barriers to entry impeding the formation of new funds, including a relatively low cost of entering these businesses, and the successful efforts of new entrants into our various lines of business, including major commercial and investment banks and other financial institutions, have resulted in increased competition; and other industry participants will from time to time seek to recruit our investment professionals and other employees away from us. We may lose investment opportunities in the future if we do not match investment prices, structures and terms offered by competitors. Our competitors that are mortgage companies may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding for certain assets. Alternatively, we may experience decreased investment returns and increased risks of loss if we match investment prices, structures and terms offered by competitors. Moreover, if we are forced to compete with other investment firms on the basis of price, we may not be able to maintain our current compensation arrangement or other terms. There is a risk that fees and incentive compensation in the alternative asset management industry will decline, without regard to the historical performance of a manager. Fee or incentive compensation reductions on existing or future managed accounts or funds, without corresponding decreases in our cost structure, would adversely affect our revenues and profitability. In addition, if interest rates were to rise or if market conditions for competing mortgage credit and real estate products become or are favorable and such products begin to offer rates of return superior to those achieved by our clients managed accounts or our funds, the attractiveness of our funds relative to investments in other investment products could decrease. This competitive pressure could adversely affect our ability to make successful investments and limit our ability to attract future managed accounts or to raise future funds, either of which would adversely impact our business, results of operations and cash flow. 29

35 Our asset management segment is subject to investigation by the SEC. In September 2013, our asset manager received a subpoena for documents and other information from the U.S. Securities and Exchange Commission. The subpoena seeks documents and information relating to the business and operations of our asset manager, CMS and Carrington Investment Partners, LP, a fund managed by the asset manager. There are no assurances that regulatory inquiries such as those discussed above will not result in investigations of the asset manager, CMS or their affiliates, enforcement actions, fines or penalties or claims, which could materially adversely affect the asset manager s ability to manage the funds or CMS s ability to service the underlying mortgage pools. This subpoena and any resulting investigation or enforcement action by the Securities and Exchange Commission may have a material impact on our ability to raise capital. We will continue to produce and supply documents and cooperate fully with the Securities and Exchange Commission regarding the document request. See Business Legal Proceedings. Our asset management segment is currently highly dependent on business from one client. For the nine months ended September 30, 2013, one managed account contributed 81.6% of the revenues of our asset manager. This investor has recently informed us that they have no present intention of investing further capital with us. If this managed account were to withdraw all or a portion of the current invested capital, or if we failed to attract new capital from an alternative investor, then our business, results of operation and cash flow could be adversely impacted. We can provide no assurance that we will be able to attract new capital from an alternative investor. Valuation methodologies for certain assets in our managed accounts and funds can be subjective and the fair value of assets established pursuant to such methodologies may never be realized, which could result in significant losses for our funds. There are no readily ascertainable market prices for a substantial majority of non-exchange traded and illiquid investments of our managed accounts, investment funds and finance vehicles. When an investment does not have a readily available market price, the fair value of the investment represents the value, as determined by us in good faith, at which the investment is reasonably expected to be traded on an arm s length basis and in an orderly fashion in the open market (to the extent a liquid, orderly market exists). There is no single standard for determining fair value in good faith and in many cases fair value is best expressed as a range of fair values from which a single estimate may be derived. In certain circumstances we will use best efforts to solicit quotes for nonexchange traded or illiquid assets from an unaffiliated dealer or a recognized asset pricing service. We may also use last sale information, sales of comparable instruments or generic pricing quotes supplied by dealers of similar instruments. However, these pricing quotes may not be available for many of the assets of our managed accounts, investment funds and finance vehicles. When pricing quotes are not available, we will use internal mark-to-model in an effort to calculate the present dollar value of certain assets. The use of internal mark-to-model valuation is highly dependent upon certain assumptions and the predictability of the relationships that drive the resulting cash flows. Changes in these assumptions can have a significant effect on the results of the valuation methodologies used to value our portfolio, and our reported fair values for these assets could vary materially if the inputs and other assumptions used were to change significantly. Because valuations, and in particular valuations of investments for which market quotations are not readily available, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, determinations of fair value may differ materially from the values that would have resulted if a ready market had existed. Even if market quotations are available for our investments, such quotations may not reflect the value that we would actually be able to realize because of various factors, including possible illiquidity. Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of investments reflected in a managed account s, an investment fund s or finance vehicle s net asset value, or NAV, do not necessarily reflect the prices that would actually be obtained by us on behalf of the managed account, the investment fund or finance vehicle when such investments are realized. Realizations at values significantly lower than the values at which investments have been reflected in prior fund NAVs would result in losses for the applicable managed account, fund or finance vehicle and the loss of potential incentive compensation and other fees. Also, if realizations of our investments produce values materially different 30

36 than the carrying values reflected in prior portfolio NAVs, investors may lose confidence in us, which could in turn result in difficulty in raising capital for future managed accounts, funds or finance vehicle. The due diligence process that we undertake in connection with our investments may not reveal all facts that may be relevant in connection with an investment. Before making our investments, we conduct due diligence that we deem reasonable and appropriate based on the facts and circumstances applicable to each investment. The objective of the due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment, to identify possible risks associated with that investment and, in the case of asset acquisitions, to attempt to understand the risks contained in the specific pool of assets, remove certain assets from the pool or make any necessary adjustments to the purchase price to account for such risk. Nevertheless, when conducting due diligence and making an assessment regarding an investment, we rely on resources available to us, including information provided by the seller of the assets and, in some circumstances, third-party investigations. The due diligence process may at times be subjective with respect to assets for which only limited information is available. Accordingly, we cannot be certain that the due diligence investigation that we will carry out with respect to any asset pool will reveal or highlight all relevant facts (including fraud, bribery and other illegal activities and contingent liabilities) that may be necessary or helpful in evaluating such investment opportunity, including the existence of contingent liabilities. We also cannot be certain that our due diligence investigations will result in investments being successful or that the actual financial performance of an investment will not fall short of the financial projections we used when evaluating that investment. Our asset management activities involve investments in relatively high-risk, illiquid assets, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of the capital invested. Our managed accounts and our funds hold investments that are not readily tradable on an established market. Accordingly, under certain conditions, our managed accounts or our funds may be forced to either sell assets at lower prices than they had expected to realize or defer sales that they had planned to make, potentially for a considerable period of time. In some instances there may be no buyer of certain assets and our funds must hold the investments or assets to maturity. We often pursue investment opportunities that involve business, regulatory, legal or other complexities. As an element of our investment style, we often pursue complex investment opportunities such as investments in MSRs and mortgage loans. This can often take the form of substantial business, regulatory or legal complexity that would deter other investment managers. Our tolerance for complexity presents risks, as such transactions can be more difficult, expensive and time-consuming to finance and execute; it can be more difficult to manage or realize value from the assets acquired in such transactions; and such transactions sometimes entail a higher level of regulatory scrutiny, the application of complex tax laws or a greater risk of contingent liabilities. We may cause our funds to acquire an investment that is subject to contingent liabilities, which could be unknown to us at the time of acquisition or, if they are known to us, we may not accurately assess or protect against the risks that they present. Acquired contingent liabilities could thus result in unforeseen losses for our managed accounts or our funds. In addition, in connection with the disposition of an asset in an asset portfolio, a managed account or a fund may be required to make representations about assets typical of those made in connection with the sale of assets. A managed account or a fund may also be required to indemnify the purchasers of such investment to the extent that any such representations are inaccurate. These arrangements may result in the incurrence of contingent liabilities by a managed account or a fund, even after the disposition of an investment. Any of these risks could harm the performance of our managed accounts or our funds. Our business activities may give rise to a conflict of interest with our funds or other Carrington affiliates. As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to investment activities among our various managed accounts and funds and also our own account. For example, 31

37 We may be required to allocate investment opportunities among managed accounts, funds and investment vehicles that may have overlapping investment objectives, including vehicles that may have different fee structures, and among co-investment vehicles (including vehicles in which certain of our employees may invest) and third party co-investors. Conflicts may arise in allocating time, services or resources among the investment activities of our managed accounts, funds and investment vehicles. The asset manager s entitlement to receive incentive compensation from many of our managed accounts, funds and investment vehicles may create an incentive for the asset manager to make riskier and more speculative investments on behalf of our managed accounts, our funds or our investment vehicles than would be the case in the absence of such an arrangement. The investors in our investment vehicles are based in a wide variety of jurisdictions and take a wide variety of forms, and consequently have diverging interests among themselves from a regulatory, tax or legal perspective or with respect to investment policies and target risk/return profiles. We or our affiliates, including our servicer and property manager, may receive fees or other compensation in connection with specific transactions or different clients that may give rise to conflicts. The decision to take on an opportunity in one of our businesses may, as a practical matter, also limit the ability of one or our other businesses to take advantage of other related opportunities. Appropriately dealing with conflicts of interest is complex and difficult and we could suffer reputational damage or potential liability if we fail, or appear to fail, to deal appropriately with conflicts as they arise. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation which could in turn materially adversely affect our business in a number of ways, including as a result of an inability to secure capital commitments for future managed accounts, an inability to raise additional funds and a reluctance of counterparties to do business with us. d. Servicing Our servicing segment provides high-touch mortgage servicing and collection services for performing and nonperforming residential mortgage loans. The servicing business is divided into four subsegments including securitized loans, acquired non-performing loans, newly originated GSE loans and subserviced loans. Our servicing segment aims to maintain the cash flow of the loans that it services for our clients while enabling borrowers to remain in their homes. See Business Our Business Mortgage Servicing. We may not be able to maintain or grow our business if we cannot identify and acquire MSRs or enter into additional servicing and subservicing agreements on favorable terms or achieve organic growth through mortgage lending and real estate services. Our servicing portfolio is subject to run off, meaning that mortgage loans serviced by us may be prepaid prior to maturity, refinanced with a mortgage not serviced by us or liquidated through foreclosure, deed-in-lieu of foreclosure or other liquidation process or repaid through standard amortization of principal. As a result, our ability to maintain the size of our servicing portfolio depends on our ability to originate additional mortgages or to acquire the right to service additional pools of residential mortgages. We may not be able to acquire MSRs or enter into additional servicing and subservicing agreements on terms favorable to us or at all, which could adversely affect our business, financial condition and results of operations. In determining the purchase price for MSRs and servicing and subservicing agreements, management makes certain assumptions, many of which are beyond our control, including, among other things: the rates of prepayment and repayment within the underlying pools of mortgage loans; projected rates of delinquencies, defaults and liquidations; future interest rates; 32

38 our cost to service the loans, including any costs associated with engaging subservicers to service the loans; uncertainty of financing costs; costs, expenses and unreimbursed amounts related to the servicing of defaulted loans in Ginnie Mae securities; ancillary fee income; and amounts of future servicing advances. We may not be able to recover our significant investments in personnel and our technology platform if we cannot identify and acquire MSRs or enter into additional subservicing agreements on favorable terms, which could adversely affect our business, financial condition and results of operations. We have made, and expect to continue to make, significant investments in personnel and our technology platform to allow us to service additional loans. In particular, prior to acquiring a large portfolio of MSRs or entering into a large subservicing contract, we invest significant resources in recruiting, training, technology and systems. We may not realize the expected benefits of these investments to the extent we are unable to increase the pool of residential mortgages serviced, we are delayed in obtaining the right to service such loans or we do not appropriately value the MSRs that we do purchase or the subservicing agreements we enter into. Any of the foregoing could adversely affect our business, financial condition and results of operations. The servicing industry is highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations. We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes. In the servicing industry, we face competition in areas such as fees and performance in reducing delinquencies and entering successful modifications. Competition to service mortgage loans comes primarily from non-bank servicing companies and financial institutions. Comparatively, such institutions may have more favorable advance financing terms and greater access to capital than we do, and may have more established relationships with sellers and GSEs, which can result in better bargaining power with respect to bidding on servicing rights. These financial institutions generally have significantly greater resources and access to capital than we do, which gives them the benefit of a lower cost of funds. As is described in Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus or legislative or regulatory changes could adversely affect our business, changes in legislation and the regulatory framework may impose additional capital requirements on us, which may limit our ability to expand our servicing operations and compete in the servicing industry. Additionally, our servicing competitors may decide to modify their servicing model to compete more directly with our servicing model, or our servicing model may generate lower margins as a result of competition or as overall economic conditions improve. In addition, technological advances and heightened e-commerce activities have increased consumers accessibility to products and services. This has intensified competition among banks and non-banks in servicing mortgage loans. We may be unable to compete successfully and this could adversely affect our business, financial condition and results of operations. A significant increase in prepayment speeds would reduce the unpaid principal balance of the mortgage loans underlying our mortgage servicing assets and could adversely affect our operating results. Prepayment speeds significantly affect our business. Prepayment speed is the measurement of how quickly borrowers pay down the unpaid principal balance of their loans or how quickly loans are otherwise brought current, modified, liquidated or charged off. Prepayment speeds, which are presently driven primarily by involuntary liquidations of subprime mortgage loans, have a significant impact on our servicing fees, our expenses and the valuation of our mortgage servicing assets as follows: 33

39 Servicing Fees. If prepayment speeds increase, our servicing fees will decline more rapidly than estimated because of the greater than expected decrease in the unpaid principal balance of the mortgage loans on which servicing fees are based. Expenses. Amortization of mortgage servicing assets will be our largest operating expense. Since we amortize mortgage servicing assets in proportion to total expected income over the life of the mortgage servicing assets, an increase in prepayment speeds will lead to increased amortization expense as we revise downward our estimate of total expected income. Valuation of Mortgage Servicing Assets. We base the price we pay for mortgage servicing assets and the rate of amortization of those assets on, among other things, our projection of the cash flows from the related pool of mortgage loans. Our expectation of prepayment speeds is a significant assumption underlying those cash flow projections. If prepayment speeds are significantly greater than expected, the carrying value of our mortgage servicing assets could exceed their estimated fair value. If the carrying value of our mortgage servicing assets exceeds their fair value, we will be required to record a non-cash charge for impairment or unrealized loss, which would have a negative impact on our operating results. If our assumptions regarding subprime borrower refinancing options in the current environment prove incorrect, the unpaid principal balance of the mortgage loans underlying mortgage servicing assets could decline, which would adversely affect our operating results. In preparing our business and economic model, we made a number of assumptions about future servicing fees, expenses, assets and liabilities relating to our mortgage servicing assets. In connection with this process, we made certain assumptions about likely prepayment speeds on the mortgage loans underlying our mortgage servicing assets in the current environment. These assumptions were based on our view that subprime borrowers would have limited refinancing options. Refinancings, also known as voluntary prepayments, are a small component of total prepayments, with involuntary prepayments and liquidations being the larger component. If subprime borrowers were able to refinance their mortgage loans, prepayment speeds would increase, leading to lower unpaid principal balance on the mortgage loans underlying our mortgage servicing assets, which would adversely affect our operating results. If our assumptions regarding the rates at which delinquent mortgage loans will become performing or be resolved through loan modifications are higher than the actual rates, then the unpaid principal balance of the mortgage loans underlying our mortgage servicing assets will decline more quickly than we have anticipated, and the amount and duration of outstanding servicing advances would increase, which would adversely affect our operating results. In preparing our business plan and economic model, we made assumptions about the likely delinquency rates for the mortgage loans underlying our mortgage servicing assets, and the rates at which those delinquent mortgage loans would re-perform, either through a payment of past due amounts or through permitted modifications of the terms of these mortgage loans. Delinquent mortgage loans that become performing either because of a payment of past due amounts or a permitted loan modification remain outstanding as part of the aggregated unpaid principal balance of the underlying mortgage loans and therefore will continue to produce revenue for us over their remaining term. The servicer is also able to reimburse itself for outstanding servicing advances when delinquent mortgage loans re-perform. On the other hand, when delinquent mortgage loans are resolved through foreclosure, the unpaid balance of such loans ceases to be a part of the aggregate unpaid principal balance when the related mortgage properties are foreclosed on and liquidated. Also, delinquent mortgage loans resolved through foreclosure generally require more servicing advances over a longer time horizon prior to reimbursement as compared with servicing advances made with respect to delinquent mortgage loans that are resolved through repayment or permitted loan modifications. A faster amortization of the aggregate unpaid principal balance of the underlying mortgage loans and an increase in the amount and duration of outstanding servicing advances would adversely affect our operating results. 34

40 Our counterparties may terminate our servicing rights and subservicing contracts, which could adversely affect our business, financial condition and results of operations. The owners of the loans we service and the primary servicers of the loans we subservice, may, under certain circumstances, terminate our MSRs or subservicing contracts, respectively. As is standard in the industry, under the terms of our master servicing agreement with GSEs, GSEs have the right to terminate us as servicer of the loans we service on their behalf at any time and also have the right to cause us to sell the MSRs to a third party. In addition, failure to comply with servicing standards could result in termination of our agreements with GSEs. Some GSEs may also have the right to require us to assign the MSRs to a subsidiary and sell our equity interest in the subsidiary to a third party. Under our subservicing contracts, the primary servicers for which we conduct subservicing activities have the right to terminate our subservicing rights with or without cause, with little notice and little to no compensation. We expect to continue to acquire subservicing rights, which could exacerbate these risks. One of our largest subservicing customers has the ability terminate its subservicing contract with us without cause or penalty at any time. If we were to have our servicing or subservicing rights terminated on a material portion of our servicing portfolio, this could adversely affect our business, financial condition and results of operations. We may experience serious financial difficulties as some mortgage servicers have experienced, which could adversely affect our business, financial condition and results of operations. Since late 2006, a number of mortgage servicers have experienced serious financial difficulties and, in some cases, have gone out of business. The cost of servicing an increasingly delinquent mortgage loan portfolio may rise without a corresponding increase in servicing compensation. The value of many residual interests retained by sellers of mortgage loans in the securitization market has also been declining. Any of the foregoing could adversely affect our business, financial condition and results of operations. Borrowers with adjustable rate mortgage loans are especially exposed to increases in monthly payments and they may not be able to refinance their loans, which could cause delinquency, default and foreclosure and therefore adversely affect our business. Borrowers with adjustable rate mortgage loans are exposed to increased monthly payments when the related mortgage loan s interest rate adjusts upward from an initial fixed rate or a low introductory rate, as applicable, to the rate computed in accordance with the applicable index and margin. Borrowers with adjustable rate mortgage loans seeking to refinance their mortgage loans to avoid increased monthly payments as a result of an upwards adjustment of the mortgage loan s interest rate may no longer be able to find available replacement loans at comparably low interest rates. This increase in borrowers monthly payments, together with any increase in prevailing market interest rates, may result in significantly increased monthly payments for borrowers with adjustable rate mortgage loans, which may cause delinquency, default and foreclosure. Increased mortgage defaults and foreclosures may adversely affect our business as they reduce the number of mortgages we service. We service higher risk loans, which exposes us to a number of different risks. A significant percentage of the mortgage loans we service are higher risk loans, meaning that the loans are to less creditworthy borrowers or for properties the value of which has decreased. These loans are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight. As a result, these loans tend to have higher delinquency and default rates, which can have a significant impact on our revenues, expenses and the valuation of our MSRs. It may also be more difficult for us to recover advances we are required to make with respect to higher risk loans. In connection with the ongoing mortgage market reform and regulatory developments, servicers of higher risk loans may be subject to increased scrutiny by state and federal regulators or may experience higher compliance costs, which could result in higher servicing costs. We may not be able to pass along any incremental costs we incur to our servicing clients. All of the foregoing factors could therefore adversely affect our business, financial condition and results of operations. 35

41 A significant change in delinquencies for the loans we service could adversely affect our business, financial condition and results of operations. Delinquency rates have a significant impact on our revenues, our expenses and on the valuation of our MSRs as follows: Revenue. An increase in delinquencies will result in lower revenue for loans we service because we only collect servicing fees for performing loans. Additionally, while increased delinquencies generate higher ancillary fees, including late fees, these fees are not likely to be recoverable in the event that the related loan is liquidated. In addition, an increase in delinquencies lowers the interest income we receive on cash held in collection and other accounts. Expenses. An increase in delinquencies will result in a higher cost to service due to the increased time and effort required to collect payments from delinquent borrowers. It may also result in an increase in interest expense as a result of an increase in our advancing obligations. Liquidity. An increase in delinquencies could also negatively impact our liquidity. Rising delinquencies result in an increase in borrowings under our advance facilities, as additional borrowings are needed to fund the servicer obligation to advance delinquent payments. In addition, reduced advance rates and increased funding costs under these existing facilities may also negatively impact our liquidity. Valuation of MSRs. We base the price we pay for MSRs on, among other things, our projections of the cash flows from the related pool of mortgage loans. Our expectation of delinquencies is a significant assumption underlying those cash flow projections. If delinquencies were significantly greater than expected, the estimated fair value of our MSRs could be diminished. If the estimated fair value of MSRs is reduced, we could suffer a loss, which has a negative impact on our financial results. A further increase in delinquency rates could therefore adversely affect our business, financial condition and results of operations. Regulatory scrutiny regarding foreclosure processes could lengthen foreclosure timelines or increase prepayment speeds, which would negatively impact the liquidity and profitability of our servicer. Various state banking regulators and attorneys general have publicly announced that they have initiated inquiries into banks and servicers regarding compliance with legal procedures in connection with mortgage foreclosures, including the preparation, execution, notarization and submission of documents, principally affidavits, filed in connection with foreclosures. The process to foreclose on properties securing residential mortgage loans is governed by state law and varies by state. For the most part, these inquiries have arisen from the 23 so-called judicial states ; namely, those jurisdictions that require lenders or their servicers to go through a judicial proceeding to obtain a foreclosure order. In these judicial states, lenders or their servicers are generally required to provide to the court the mortgage loan documents and a sworn and notarized affidavit of an officer of the lender or its servicer with respect to the facts regarding the delinquency of the mortgage loan and the foreclosure. These affidavits are generally required to be based on the personal knowledge of the officer that executes the affidavit after a review of the mortgage loan documents. Regulators from quasi-judicial states and non-judicial states, however, have made similar inquiries as well. In these states, lenders or their servicers may foreclose on a defaulted mortgage loan by delivering to the borrower a notice of the foreclosure sale without the requirement of going through a judicial proceeding, unless the borrower contests the foreclosure or files for bankruptcy. If the borrower contests the foreclosure or files for bankruptcy in a non-judicial state, court proceedings, including affidavits similar to those provided in the judicial states, will generally be required. In connection with the recent governmental scrutiny of foreclosure processes and practices in the industry, the attorneys general of certain states and certain members of the U.S. Congress and state legislatures have called for a temporary moratorium on mortgage foreclosures, although no state has implemented a general foreclosure moratorium on mortgage loan servicers to date. In addition, some individual municipalities have begun to enact laws that may increase the time that it currently takes to complete a foreclosure or prevent foreclosures in such 36

42 jurisdictions. Such moratoria or other action by federal, state or municipal government bodies, regulators or courts could increase the length of time needed to complete the foreclosure process. When a mortgage loan is in foreclosure, our servicer is generally required to continue to advance delinquent principal and interest to the securitization trust and to also make advances for delinquent taxes and insurance and foreclosure costs and the upkeep of vacant property in foreclosure to the extent our servicer determines that such amounts are recoverable. These servicing advances are generally recovered when the delinquency is resolved. Foreclosure moratoria or other actions that lengthen the foreclosure process will increase the amount of servicing advances our servicer is required to make, lengthen the time it takes for our servicer to be reimbursed for such advances and increase the costs incurred during the foreclosure process. In addition, advance financing facilities generally contain provisions that limit the eligibility of servicing advances to be financed based on the length of time that servicing advances are outstanding, and, as a result, an increase in foreclosure timelines could further increase the amount of servicing advances that our servicer needs to fund with its own capital. Such increases in foreclosure timelines could increase our servicer s need for capital to fund servicing advances which would increase interest expense, delay the collection of interest income or servicing fee revenue until the foreclosure has been resolved and, therefore, reduce the cash that our servicer has available to pay operating expenses or to pay dividends. We may incur increased litigation costs and related losses if a borrower challenges the validity of a foreclosure action or if a court overturns a foreclosure, which could adversely affect our liquidity, business, financial condition and results of operations. We may incur costs if we are required to, or if we elect to, execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court overturns a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to a title insurer or the purchaser of the property sold in foreclosure. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. In addition, if certain documents required for a foreclosure action are missing or defective, we could be obligated to cure the defect or repurchase the loan. A significant increase in litigation costs could adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect our business, financial condition and results of operations. We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances, which could adversely affect our liquidity, business, financial condition and results of operations. During any period in which a borrower is not making payments, we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements for investors, pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds to maintain, repair and market real estate properties on behalf of investors. As home values change, we may have to reconsider certain of the assumptions underlying our decisions to make advances and, in certain situations, our contractual obligations may require us to make certain advances for which we may not be reimbursed. In addition, in the event a mortgage loan serviced by us defaults or becomes delinquent, the repayment to us of the advance may be delayed until the mortgage loan is repaid or refinanced or a liquidation occurs. In the event we receive requests for advances in excess of amounts we are able to fund, we may not be able to fund these advance requests, which could materially and adversely affect our liquidity. A delay in our ability to collect an advance may adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect our business, financial condition and results of operations. Changes to government mortgage modification programs could adversely affect future incremental revenues. Under HAMP and similar government programs, a participating servicer may be entitled to receive financial incentives in connection with any modification plans it enters into with eligible borrowers and subsequent success fees to the extent that a borrower remains current in any agreed upon loan modification. While we participate in and dedicate numerous resources to HAMP, we may not continue to participate in or realize future revenues from HAMP or any other government mortgage modification program. Changes in legislation or regulation regarding HAMP that result in the modification of outstanding mortgage loans and changes in the requirements necessary to 37

43 qualify for refinancing mortgage loans may impact the extent to which we participate in and receive financial benefits from such programs, or may increase the expense of our participation in such programs. Changes in government loan modification programs could also result in an increase to our costs. HAMP is currently scheduled to expire on December 31, If HAMP is not extended, this could decrease our revenues, which would adversely affect our business, financial condition and results of operations. Under the MHA, a participating servicer may receive a financial incentive to modify qualifying loans, in accordance with the plan s guidelines and requirements. Changes to HAMP, the MHA and other similar programs could adversely affect future incremental revenues. The geographic concentration of our servicing portfolio may result in a higher rate of delinquencies, which could adversely affect our business, financial condition and results of operations. As of September 30, 2013, approximately 19%, 15% and 9% of the aggregate outstanding loan balance in our servicing portfolio was secured by properties located in California, Florida, and New York, respectively. In the event these states experience weaker economic conditions or greater rates of decline in real estate values than the United States generally, the concentration of loans we service in those regions may increase the effect of the risks listed in this Risk Factors section. The impact of property value declines may increase in magnitude and it may continue for a long period of time. Additionally, if states in which we have greater concentrations of business were to change their licensing or other regulatory requirements to make our business cost-prohibitive, we may be required to stop doing business in those states or may be subject to higher cost of doing business in those states, which could adversely affect our business, financial condition and results of operations. A downgrade in our servicer ratings could have an adverse effect on our business, financial condition and results of operations. Fitch Ratings, Inc. rate us as a residential loan servicer. Our current favorable rating from Fitch Ratings, Inc. is important to the conduct of our loan servicing business. This ratings may be downgraded in the future. Any such downgrade could adversely affect our business, financial condition and results of operations. A change in our status as an approved Freddie Mac and Ginnie Mae servicer could have an adverse effect on our business, financial condition or results of operations. We are an approved Freddie Mac and Ginnie Mae servicer. Our status as an approved servicer is important, particularly because our ability to remain as an eligible servicer under several of our servicing agreements depends on us being an approved servicer with Freddie Mac or Ginnie Mae. Our failure to maintain approved servicer status with Freddie Mac or Ginnie Mae could result in us being terminated as servicer under existing servicing agreements and subservicing agreements, prevent us from obtaining future servicing business and adversely impact the ability to finance our operations. Our servicing-related vendor relationships subject us to a variety of risks. We have significant vendors that, among other things, provide us with financial, technology and other services to support our servicing business. With respect to vendors engaged to perform activities required by servicing criteria, we have elected to take responsibility for assessing compliance with the applicable servicing criteria for the applicable vendor and are required to have procedures in place to provide reasonable assurance that the vendor s activities comply in all material respects with servicing criteria applicable to the vendor. In the event that a vendor s activities do not comply with the servicing criteria, it could negatively impact our servicing agreements. In addition, if our current vendors were to stop providing services to us on acceptable terms, including as a result of one or more vendor bankruptcies due to poor economic conditions, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms, or at all. Further, we may incur significant costs to resolve any such disruptions in service and this could adversely affect our business, financial condition and results of operations. 38

44 Our servicing segment relies on third party data and analytics. Our servicing segment uses analytics and data from third parties. We cannot attest to the accuracy or reliability of any information, analytics or data provided by third parties. Inaccurate or misleading information and data provided by third parties may have a material impact on our business and operations, and could adversely affect our business, financial condition and results of operations. e. Lending Our mortgage lending segment is a residential wholesale and retail loan originator, which primarily originates conventional agency (GSE) and government-insured residential mortgage loans. Our lending segment is fully scalable, focuses on producing quality loans and complements and enhances our servicing segment by replenishing our servicing portfolio and offering refinancing opportunities to existing borrowers. See Business Our Business Mortgage Lending. The originations industry is highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations. We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes. In the mortgage loan originations industry, we face competition in such areas as mortgage loan product offerings, rates, fees and customer service. Competition to originate mortgage loans comes primarily from large commercial banks and savings institutions. These financial institutions generally have significantly greater resources and access to capital than we do, which gives them the benefit of a lower cost of funds. In addition, technological advances and heightened e-commerce activities have increased consumers accessibility to products and services. This has intensified competition among banks and non-banks in offering mortgage loans. We may be unable to compete successfully and this could adversely affect our business, financial condition and results of operations. We may not be able to continue to grow our loan originations volume, which could adversely affect our business, financial condition and results of operations. Our lending business historically consists primarily of refinancing existing loans. While we intend to use sales lead aggregators and internet marketing to reach new borrowers, our lending segment may not succeed because of the referral-driven nature of our industry. Because we primarily service credit-sensitive loans, many of our existing servicing customers may not be able to qualify for conventional mortgage loans with us or may pose a higher credit risk than other consumers. Furthermore, our lending segment has focused predominantly on refinancing existing mortgage loans. This type of originations activity is sensitive to increases in interest rates, which are currently rising. Our lending business also consists of providing purchase money loans to homebuyers. The origination of purchase money mortgage loans is greatly influenced by traditional business clients in the home buying process such as realtors and builders. As a result, our ability to secure relationships with such traditional business clients will influence our ability to grow our purchase money mortgage loan volume and, thus, our lending business. Our wholesale lending business operates largely through third party mortgage brokers who are not contractually obligated to do business with us. Further, our competitors also have relationships with our brokers and actively compete with us in our efforts to expand our broker networks. Accordingly, we may not be successful in maintaining our existing relationships or expanding our broker networks. If we are unable to continue to grow our lending business, this could adversely affect our business, financial condition and results of operations. We may experience serious financial difficulties, which could adversely affect our business, financial condition and results of operations. Since late 2006, a number of mortgage originators of residential mortgage loans have experienced serious financial difficulties and, in some cases, have gone out of business. These difficulties have resulted, in part, from declining markets for their mortgage loans as well as from claims for repurchases of mortgage loans previously sold 39

45 under provisions requiring repurchase in the event of early payment defaults or breaches of representations and warranties regarding loan quality and certain other loan characteristics. Higher delinquencies and defaults may contribute to these difficulties by reducing the value of mortgage loan portfolios and requiring originators to sell their portfolios at greater discounts to par. The value of many residual interests retained by sellers of mortgage loans in the securitization market has also been declining. Any of the foregoing could adversely affect our business, financial condition and results of operations. Decreasing property values have caused an increase in LTVs, resulting in borrowers having little or negative equity in their property, which may reduce new loan originations and provide incentive to borrowers to strategically default on their loans. Recently, property values have begun to rise in some markets, but that trend is not uniform in all markets. We believe that there continue to be borrowers with negative equity in their properties who are more likely to strategically default on mortgage loans, which could materially affect our business. Also, with the exception of loans modified under the Making Home Affordable plan ( MHA ), we are unable to refinance loans with high LTVs. Increased LTVs could reduce our ability to originate loans for borrowers with low or negative equity and could adversely affect our business, financial condition and results of operations. We are highly dependent upon programs administered by GSEs and other programs administered by governmental entities to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our business, liquidity, financial position and results of operations. In February 2011, the Obama Administration delivered a report to Congress regarding a proposal to reform the housing finance markets in the United States. The report, among other things, outlined various potential proposals to wind down the GSEs and other programs administered by governmental entities, and reduce or eliminate over time the role of the GSEs and other programs administered by governmental entities in guaranteeing mortgages and providing funding for mortgage loans, as well as proposals to implement reforms relating to borrowers, lenders and investors in the mortgage market, including reducing the maximum size of loans that can be guaranteed by GSEs and other programs administered by governmental entities, phasing in a minimum down payment requirement for borrowers, improving underwriting standards and increasing accountability and transparency in the securitization process. Our ability to generate revenues through mortgage loan sales to institutional investors depends to a significant degree on programs administered by the GSEs and other programs administered by governmental entities that facilitate the issuance of RMBS in the secondary market. These GSEs and other programs administered by governmental entities play a critical role in the residential mortgage industry and we have significant business relationships with many of them. Almost all of the conforming loans we originate qualify under existing standards for inclusion in guaranteed mortgage securities backed by GSEs and other programs administered by governmental entities. We also derive other material financial benefits from these relationships, including the assumption of credit risk by these GSEs and other programs administered by governmental entities on loans included in such mortgage securities in exchange for our payment of guarantee fees and the ability to avoid certain loan inventory finance costs through streamlined loan funding and sale procedures. Any discontinuation of, or significant reduction in, the operation of these GSEs and other programs administered by governmental entities, or any significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of these GSEs and other programs administered by governmental entities, could materially and adversely affect our business, liquidity, financial position and results of operations. We are currently not qualified to sell mortgage loans to Fannie Mae or Freddie Mac. Our failure to become qualified to sell mortgage loans directly to Fannie Mae or Freddie Mac or to qualify to participate in Fannie Mae s guarantee program could adversely impact our origination opportunities and financial condition. 40

46 We may be required to indemnify or repurchase loans we originated, or will originate, as well as loans originated by others for which we acquire the MSRs, if those loans fail to meet certain criteria or characteristics or under other circumstances. Our contracts with purchasers of our loans contain provisions that require us to indemnify or repurchase the related loans under certain circumstances. While our contracts vary, they contain provisions that require us to repurchase loans if: our representations and warranties concerning loan quality and loan circumstances are inaccurate, including representations concerning the licensing of a mortgage broker; we fail to secure adequate mortgage insurance within a certain period after closing; a mortgage insurance provider denies coverage; or we fail to comply, at the individual loan level or otherwise, with regulatory requirements in the current dynamic regulatory environment. We believe that, as a result of the current market environment, many purchasers of residential mortgage loans are particularly aware of the conditions under which originators must indemnify or repurchase loans and would benefit from enforcing any repurchase remedies they may have. We believe that our exposure to repurchases under our representations and warranties includes the current unpaid balance of all loans we have sold. Because of the increase in our loan originations since the founding of our lending segment, we expect that repurchase requests are likely to increase. Should home values continue to decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As such, our reserve for repurchases may increase beyond our current expectations. See Summary Consolidated Financial Data Liabilities and Members Capital. If we are required to indemnify or repurchase loans that we originate and sell or securitize that result in losses that exceed our reserve, this could adversely affect our business, financial condition and results of operations. We depend on the accuracy and completeness of information about borrowers and any misrepresented information could adversely affect our business, financial condition and results of operations. In deciding whether to extend credit or to enter into other transactions with borrowers, we may rely on information furnished to us by or on behalf of borrowers, including financial statements and other financial information. We also may rely on representations of borrowers as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. We additionally rely on representations from public officials concerning the licensing and good standing of the third party mortgage brokers through which we do business. While we have a practice of independently verifying the borrower information that we use in deciding whether to extend credit or to agree to a loan modification, including employment, assets, income and credit score, if any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected. Whether a misrepresentation is made by the loan applicant, the mortgage broker, another third party or one of our employees, we generally bear the risk of loss associated with the misrepresentation. We have controls and processes designed to help us identify misrepresented information in our loan originations operations. We, however, may not have detected or may not detect all misrepresented information in our loan originations. Any such misrepresented information could adversely affect our business, financial condition and results of operations. The success and growth of our business will depend upon our ability to adapt to and implement technological changes. Our mortgage loan originations business is currently dependent upon our ability to effectively interface with our brokers, borrowers and other third parties and to efficiently process loan applications and closings. The originations process is becoming more dependent upon technological advancement, such as our continued ability to process applications over the Internet, accept electronic signatures, provide process status updates instantly and other borrower-expected conveniences. Maintaining and improving this new technology and becoming proficient with it may also require significant capital expenditures. As these requirements increase in the future, we will have to fully 41

47 develop these technological capabilities to remain competitive and any failure to do so could adversely affect our business, financial condition and results of operations. Our originations-related vendor relationships subject us to a variety of risks. We have significant vendors that, among other things, provide us with financial, technology and other services to support our originations business. If our current vendors were to stop providing services to us on acceptable terms, including as a result of one or more vendor bankruptcies due to poor economic conditions, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms, or at all. Further, we may incur significant costs to resolve any such disruptions in service and this could adversely affect our business, financial condition and results of operations. f. Real Estate Our real estate segment provides real estate brokerage, settlement and portfolio services, as well as resolution strategies, property asset management and field and technology services to holders of single family properties. See Business Our Business Real Estate. Our company operates in the residential real estate brokerage business, which is highly competitive. Our company is generally subject to intense competition. We compete with other national and independent residential real estate organizations and those of national residential real estate franchisors, franchisees of local and regional real estate franchisors, regional independent real estate organizations, discount brokerages, Internet-based brokerages and smaller niche companies competing in local areas. Competition is particularly intense in the densely populated metropolitan areas in which we operate. In addition, in the residential real estate brokerage industry, new participants face minimal barriers to entry into the market. Our ability to retain agents is generally subject to numerous factors, including the sales commissions they receive and their perception of brand value. We also compete directly with private sales conducted directly by property owners through various platforms, including internet and print-based property listings. The failure of the U.S. residential real estate market recovery to be sustained or a prolonged decline in the number of home sales and/or home sale prices could adversely affect our revenue and profitability. The U.S. residential real estate market has recently shown signs of recovery after having been in a significant and prolonged downturn, which began in the second half of However, this recovery has not occurred in all markets and we do not know if this recovery will continue in the future or if and when the market and related economic forces will return the U.S. residential real estate industry to a period of sustained growth. A lack of a continued recovery or a prolonged decline in existing home sales, a decline in home sale prices or a decline in commission rates charged by our agents could adversely affect our results of operations. We rely on traffic to our websites, including our flagship website, carringtonrealestate.com, directed from search engines like Google, Yahoo! and Bing. If these websites fail to rank prominently in unpaid search results, traffic to these websites could decline and our business would be adversely affected. Our success depends in part on our ability to attract users through unpaid Internet search results on search engines like Google, Yahoo! and Bing. The number of users we attract to our websites, including our flagship website carringtonrealestate.com, from search engines is due in large part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not under our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our websites may not be prominent enough to drive traffic to our websites, and we may not know how or otherwise be in a position to influence the results. In some instances, search engine companies may change these rankings in order to promote their own competing services or the services of one or more of our competitors. Our websites have experienced fluctuations in search result rankings in the past, and we anticipate fluctuations in the future. Any reduction in the number of users directed to our websites could adversely impact our business and results of operations. 42

48 A failure of our websites or website-based technology, including our lead referral system, which are subject to factors beyond our control, could significantly disrupt our business and lead to reduced revenue and reputational damage. We operate a lead referral system that provides leads to our agents free of referral fees. When a prospective buyer views a property listed on our websites by one of our agents, our agent gets this lead through our lead referral system without a referral fee. However, we are vulnerable to certain additional risks and uncertainties associated with websites, including changes in required technology interfaces, website downtime and other technical failures, security breaches and consumer privacy concerns. Our failure to successfully address these risks and uncertainties could reduce our Internet exposure, generate less leads for our agents and damage our brand. Many of the risks relating to our website operations, such as governmental regulation of the Internet, increased competition from websites that facilitate private sales and online security breaches, are beyond our control. Our agents could take actions that could harm our business. Many of our agents that work for our real estate broker and property management company are independent contractors, and, as such, they are not our employees, and we do not exercise control over their day-to-day operations. If our agents were to provide diminished quality of service to customers, our image and reputation may suffer materially and adversely affect our results of operations. We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our platform is accessible. It is important to our success that users in all geographies be able to access our website at all times. We may experience, in the future, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our platform simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If our website is unavailable when users attempt to access it or it does not load as quickly as they expect, users may seek other services to obtain the information for which they are looking, and may not return to our website as often in the future, or at all. This would negatively impact our ability to attract customers and decrease the frequency with which they use our website. We expect to continue to make ongoing investments to maintain and improve the availability of our website and to enable rapid releases of new features. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed. We may experience significant claims relating to our operations and losses resulting from fraud, theft or misconduct. We issue title insurance policies, which provide coverage for real property to mortgage lenders and buyers of real property. When acting as a title agent issuing a policy on behalf of an underwriter our insurance risk is not limited if we are negligent. To date, our title underwriter has experienced claims losses on our book of business that are significantly below the industry average and the title agency has not experienced any direct losses. Our claims experience could increase in the future, which could negatively impact the profitability of that business. We may also be subject to legal claims arising from the handling of escrow transactions and closings. We carry an errors and omissions insurance policy for errors made for real estate related services up to $1,000,000 in the aggregate, subject to a deductible of $25,000 per occurrence. The occurrence of a significant title or escrow claim in excess of our insurance coverage in any given period could have a material adverse effect on our financial condition and results of operations during the period. We could be subject to significant losses if banks do not honor our escrow and trust deposits. 43

49 Our escrow and title and settlement services business act as escrow agents for numerous customers. As an escrow agent, we receive money from customers to hold until certain conditions are satisfied. Upon the satisfaction of those conditions, we release the money to the appropriate party. We deposit this money with various banks and while these deposits are not assets of Carrington Escrow, Inc. or Carrington Title Services, LLC (and therefore excluded from our consolidated balance sheet), we remain contingently liable for the disposition of these deposits. The banks may hold a significant amount of these deposits in excess of the federal deposit insurance limit. If any of our depository banks were to become unable to honor our deposits, customers could seek to hold us responsible for these deposits and, if the customers prevailed in their claims, we could be subject to significant losses. These escrow and trust deposits totaled $4,381,943 at September 30, Title insurance regulations limit the ability of our insurance underwriter to pay cash dividends to us. Our title insurance underwriter is subject to regulations that limit its ability to pay dividends or make loans or advances to us, principally to protect policy holders. Generally, these regulations limit the total amount of dividends and distributions to a certain percentage of the insurance subsidiary s surplus, or 100% of statutory operating income for the previous calendar year. These restrictions could limit our ability to receive dividends from our insurance underwriter, make acquisitions or otherwise grow our business. We may experience significant claims relating to our operations and losses resulting from property management liability. Pursuant to GSE guidelines, we may be subject to certain liabilities in managing properties as if we were the owners of those properties. Our property management contracts may transfer property ownership risks to our real estate businesses, and expose these businesses to liabilities resulting or arising from underlying properties. Such claims and potential litigation could adversely affect our business, financial condition and results of operations. Our property rental business is heavily dependent on government rental programs. Our property rental division is heavily dependent on government rental programs. As of September 30, 2013, 69% of our property rental contracts coming from or through such government programs. These government programs may be reduced or eliminated, which could have a material impact on our property rental business and could adversely affect our financial condition and results of operations. We may be subject to significant losses relating to refunds from our insurance referral program or sale of our insurance business. Certain regulators, including the New York State Department of Financial Services, have undertaken investigations into the business of lender placed insurance, also known as force-placed insurance. Specifically, these regulators have taken the position that where a loan servicer imposes a force placed policy, and the force placed insurance provider pays a commission to an insurance agency affiliated with the servicer imposing the policy, such commission may constitute an improper kickback. Should any regulator decide to take action, we may be forced to pay restitution, potentially including the return all or a portion of the pre-paid fees paid to us by obligors under forced-place insurance policies. In addition, in connection with the sale of our insurance agency business, we may be required to refund to the purchaser up to $18,994,510, as of September 30, 2013, of the consideration received from such sale if target levels of net written premiums are not produced within specified periods. Please see Management s Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations. Such refund or regulatory action could adversely affect our business, financial condition and results of operations. 44

50 2. Risks Related to the Notes The Notes are effectively subordinated to all the obligations of our subsidiaries and our ability to service our debt is dependent on the performance of our subsidiaries. None of our subsidiaries will guarantee our payment obligations on the Notes. Our and our subsidiaries right to participate in any distribution of assets of any other subsidiary ( other subsidiary ) upon that other subsidiary's dissolution, winding-up, liquidation, reorganization or otherwise is subject to the prior claims of the creditors of that other subsidiary, except to the extent that we or a subsidiary is a creditor of the other subsidiary and we or such subsidiary s claims are recognized. Therefore, the Notes will be effectively subordinated to all indebtedness and other obligations of our subsidiaries (excluding any amounts owed by such subsidiaries to us). Our subsidiaries are separate legal entities and have no obligations to pay any amounts due on the Notes. As of September 30, 2013, our subsidiaries had total liabilities of $371,519,676, excluding intercompany liabilities and obligations of a type not required to be reflected on a balance sheet, in accordance with generally accepted accounting principles in the United States, all of which would effectively have been senior to the Notes. The Indenture limits, but does not prohibit, the amount of indebtedness that our subsidiaries can incur, and the amount of such indebtedness could be significant. In addition, the Indenture generally does not restrict in any manner our subsidiaries from incurring liabilities that do not constitute Indebtedness under the Indenture, such as obligations for trade payables incurred in the ordinary course of business. The Notes will be unsecured, and therefore will effectively be subordinated to any secured debt. The Notes will not be secured by any of our assets or those of our subsidiaries. As a result, the Notes are effectively subordinated to any secured debt we may incur. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of our secured debt may assert rights against the secured assets in order to receive full payment of their debt before the assets may be used to pay the holders of the Notes. U.S. Federal and state laws regarding fraudulent conveyance allow courts, under specific circumstances, to void debts or liens and would require holders of the Notes to return payments received from us. If a bankruptcy proceeding or lawsuit were to be initiated by unpaid creditors, the Notes could come under review for federal or state fraudulent transfer violations. Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, obligations under a note or a lien could be voided, or claims in respect of a note could be subordinated to all other debts of the company if, among other things, the Company at the time it incurred the indebtedness evidenced by its note or pledged the collateral: received less than reasonably equivalent value or fair consideration for the incurrence of the debt or guarantee or grant of the pledge; and one of the following applies: o it was insolvent or rendered insolvent by reason of such incurrence; o it was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or o it intended to incur, or believed that it would incur, debts beyond its ability to pay debts as they mature. In addition, any payment by the Company under its Note could be voided and required to be returned to the Company, or to a fund for the benefit of the creditors of the debtor. A bankruptcy court would likely find that an obligor received less than fair consideration or reasonably equivalent value for its guarantee or pledge to the extent that it did not receive direct or indirect benefit from the issuance of the Notes. A bankruptcy court could also void the guarantee or pledge if it found that the subsidiary issued its guarantee or pledge with actual intent to hinder, delay or defraud creditors. 45

51 The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, the company would be considered insolvent if: the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets; the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or it could not pay its debts as they become due. We may not be able to finance a change of control offer required by the Indenture. The Indenture contains provisions relating to certain events constituting a Change of Control of the Issuer. Upon the occurrence of such a Change of Control, as further described in Description of the Notes Repurchase at the Option of the Holder (a Change of Control ), the Issuer will be required to offer to repurchase all outstanding Notes at a price equal to their aggregate principal amount, plus accrued and unpaid interest and additional amounts, if any, to the date of repurchase. If a Change of Control were to occur, the Issuer may not have sufficient funds available, or may not be able to obtain the funds needed, to pay the purchase price for all of the Notes tendered by noteholders deciding to accept the repurchase offer. Various restrictions in future indebtedness may also prohibit the Issuer from being provided with the funds necessary to purchase any Notes prior to their stated maturity, including upon a Change of Control. Before the Issuer can be provided with any funds to purchase any Notes, it may be required to repay indebtedness under future senior credit facilities, or, possibly, other future indebtedness that ranks senior to the Notes or obtain a consent from various lenders of other indebtedness, to make funds available to permit the repurchase of the Notes. United States securities laws restrict the circumstances under which you can transfer the Notes. Upon consummation of the Exchange Transaction, the Notes may be offered in reliance upon exemptions from registration under the Securities Act and applicable state securities laws. Therefore, the Notes may be transferred or resold only in transactions registered under, exempt from or not subject to the registration requirements of the Securities Act and all applicable state securities laws. You should read the section of this Offering Circular entitled Notice to Investors for further information about these and other transfer restrictions. It is your obligation to ensure that your offers and sales of Notes comply with applicable law. We cannot assure you that an active trading market will develop for the Notes. Prior to this Exchange Transaction, there was no market for the Notes. Although we will apply for listing of the Notes on the Irish Stock Exchange, we cannot assure you that the Notes will be or will remain listed on that stock exchange or that active trading markets will develop for the Notes. The price at which the Notes may trade will depend on many factors, including, but not limited to, valuation of our assets, prevailing interest rates, general economic conditions, the perception of our creditworthiness, our performance and financial results and markets for similar securities. Historically, the markets for debt such as the Notes have been subject to disruptions that have caused substantial volatility in their prices. The market, if any, for the Notes may be subject to similar disruptions which may have an adverse effect on the holders of the Notes. U.S. Foreign Account Tax Compliance Withholding The Issuer and other financial institutions through which payments on the Notes are made may be required to withhold U.S. tax at a rate of 30% on all payments made after December 31, 2013 and any gross proceeds from the sale or other disposition occurring after December 31, 2014 in respect of any Notes for U.S. federal tax purposes that are materially modified after December 31, 2012 pursuant to Sections 1471 through 1474 ( FATCA ) of the U.S. Internal Revenue Code of 1986 (the Code ) or similar law implementing an intergovernmental approach to 46

52 FATCA. This withholding tax may be triggered if (a) an investor does not provide information sufficient for the Company or its Paying Agent to determine whether the investor is a U.S. person, or (b) any foreign financial institution ( FFI )(as defined in FATCA) that is an investor, or through which payment on such Notes is made, is not an FFI that enters into and complies with an agreement within the U.S. Internal Revenue Service ( IRS ) to provide certain information on its account holders (making such FFI a Participating FFI ). The application of FATCA to interest, principal or other amounts paid with respect to the Notes is not clear. If an amount in respect of U.S. withholding tax were to be deducted or withheld from interest, principal or other payments on the Notes, neither the Company nor any Paying Agent nor any other person would, pursuant to the conditions of the Notes, be required to pay additional amounts as a result of the deduction or withholding of such tax. As a result, investors may, if FATCA is implemented as currently proposed by the IRS, receive less interest or principal than expected. Holders of Notes should consult their own tax advisers on how these rules may apply to payments they receive under the Notes. FATCA is particularly complex and its application is uncertain at this time. The above description is based in part on proposed regulations and official guidance that is subject to change. Tax Treatment of the Notes The Issuer intends to treat the Notes as indebtedness for U.S. income tax purposes and by acquiring the Notes, the holders agree to take the same position for all purposes. However, there is no assurance that the U.S. Internal Revenue Service and the courts would agree with the debt characterization. Alternatively, the Notes could be treated as equity of the Issuer. In such event, the holders of the Notes would be treated as members of the LLC for tax purposes and payments on the Notes likely would be treated as guaranteed payments. The treatment of guaranteed payments to Non-United States holders is unclear. The payments can be treated as either a distributive share of income that is effectively connected with a U.S. trade or business or as income subject to a 30% withholding tax unless reduced by treaty. Non-U.S. holders are urged to consult with their tax advisors regarding the consequences to them of guaranteed payments. Payments on the Notes could be subject to withholding under the European Savings Directive. Pursuant to Directive 2003/48/EC on the taxation of savings income, if a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Company nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. Under the Notes, the Company will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to such Directive, or if that is not practicable, in a State outside the European Union where no such withholding or deduction is required. A change in the governing law of the Notes may adversely affect Noteholders. The conditions of the Notes are based on New York law in force as at the date of this Offering Circular. No assurance can be given as to the impact of any possible judicial decision or change to New York law or administrative practice after the date of this Offering Circular. The value of your investment in the Notes may be subject to interest rate fluctuations. Investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the Notes. 47

53 Although the Company covenants in the Indenture to use its commercially reasonable best efforts to list the Notes on the Irish Stock exchange and to maintain such listing, the Company may not be able to maintain such listing of the Notes under certain circumstances. The Company covenants in the Indenture to use its commercially reasonable best efforts to list the Notes on the Irish Stock Exchange and to maintain such listing, but listing could require preparation of financial statements in accordance with standards other than those accounting principles generally accepted in the United States. The Company may determine that the preparation of such financial statements is unduly burdensome such that it can no longer comply with the requirements for listing the securities on the Irish Stock Exchange. Additionally, other circumstances pursuant to which the European Union Transparency Obligations Directive (the Transparency Directive ) is implemented may be administered in a manner that, in the opinion of the Company, is unduly burdensome. In such cases, the Company may no longer be able to maintain the listing of the Notes on the Irish Stock Exchange. Although no assurance is made as to the liquidity of the Notes as a result of its listing on the Irish Stock Exchange, delisting the Notes from the Irish Stock Exchange may have a material affect on the ability of noteholders to resell the Notes in the secondary market. Legal investment considerations may restrict certain investments. The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Notes are legal investments for it, (2) Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules. 48

54 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Statements made in this Offering Circular that are not statements of historical fact are forward-looking statements. In addition, from time to time, we and our representatives may make statements that are forwardlooking. All forward-looking statements involve risks and uncertainties. This section provides you with cautionary statements identifying important factors that could cause our actual results to differ materially from those contained in forward-looking statements made in this Offering Circular or otherwise made by us or on our behalf. You can identify these forward-looking statements by the use of forward-looking words such as outlook, believes, expects, potential, continues, may, will, should, could, seeks, approximately, predicts, intends, plans, estimates, anticipates, target, projects, contemplates or the negative version of those words or other comparable words. Any forward-looking statements contained in this Offering Circular are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to: the delay in our foreclosure proceedings due to inquiries by certain state Attorneys General, court administrators and state and federal government agencies; the impact of the ongoing implementation of the Dodd-Frank Act on our business activities and practices, costs of operations and overall results of operations; changes to our capitalization and capital ratio requirements; the impact on our servicing practices of enforcement consent orders and agreements entered into by certain federal and state agencies against the largest mortgage servicers; increased legal proceedings and related costs; the continued deterioration of the residential mortgage market, increase in monthly payments on adjustable rate mortgage loans, adverse economic conditions, decrease in property values and increase in delinquencies and defaults; our ability to efficiently service higher risk loans; our ability to compete successfully in the mortgage loan servicing and mortgage loan lending industries; our ability to maintain or grow the size of our servicing portfolio and realize our significant investments in personnel and our technology platform by successfully identifying attractive acquisition opportunities, including MSRs, subservicing contracts, servicing segment and lending segments; our ability to scale-up appropriately and integrate our acquisitions to realize the anticipated benefits of any such potential future acquisitions; our ability to obtain sufficient capital to meet our financing requirements; our ability to grow our loan originations volume; the termination of our servicing rights and subservicing contracts; changes to federal, state and local laws and regulations concerning loan servicing, loan origination, loan modification or the licensing of entities that engage in these activities; 49

55 loss of our licenses; our ability to follow the specific guidelines of GSEs and other programs administered by government entities, or a significant change in such guidelines; delays in our ability to collect or be reimbursed for servicing advances; changes to HAMP, MHA or other similar government programs; changes in our business relationships with Fannie Mae, Freddie Mac, Ginnie Mae and others that facilitate the issuance of RMBS; changes to the nature of the guarantees of Fannie Mae and Freddie Mac and the market implications of such changes; errors in our financial models or changes in assumptions; requirements to write down the value of certain assets; changes in prevailing interest rates; our ability to successfully mitigate our risks through hedging strategies; changes to our servicer ratings; the accuracy and completeness of information about borrowers and counterparties; our ability to maintain our technology systems and our ability to adapt such systems for future operating environments; failure of our internal security measures or breach of our privacy protections; failure of our vendors to comply with servicing criteria; the loss of the services of our senior managers; changes to our income tax status; failure of our asset manager to maintain current investors or attract new investors; damage to our brand and reputation, and certain actions of our employees and agents; transfer of property ownership risks under property management contracts; failure to attract and retain a highly skilled work force; changes in public opinion concerning mortgage originators or debt collectors; changes in accounting standards; and other risks described in the Risk Factors section of this Offering Circular beginning on page 12. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Offering Circular. The forward-looking statements made in this Offering Circular relate only to events as of the date on which the statements are made. We do not undertake any obligation to 50

56 publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forwardlooking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this Offering Circular that could cause actual results to differ from what we have expressed or implied by these forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. AVAILABLE INFORMATION To permit compliance with Rule 144A in connection with any subsequent sales of the Notes following the Exchange Transaction, the Company will be required to furnish, upon the request of any holder of the Notes, to such holder and a prospective purchaser designated by such holder, the information required to be delivered under Rule 144A(d)(4). OVERVIEW You should read this entire Offering Circular carefully. The following overview highlights selected information contained in this Offering Circular. Company Overview The Company We are a holding company that owns and operates multiple businesses that cover virtually every aspect of single family real estate and residential real estate transactions. We are uniquely positioned to execute on various opportunities in the single-family residential markets. To capitalize on these opportunities we are organized into four distinct, but related operating segments: asset management, which oversees investments in U.S. real estate and mortgage markets; mortgage servicing, which services residential loans; mortgage lending, which is a national lender; and a real estate company, which is comprised of real estate services and property logistics divisions. Our business started as a fund investing in mortgage backed securities and has evolved into a group of vertically and horizontally integrated operating businesses that direct every aspect of the life cycle of single-family residential assets. Our executives, led by Mr. Bruce Rose who currently serves as the Chief Executive Officer of the Company, have more than three decades of experience in the residential mortgage and real estate industries and have built the infrastructure necessary to maximize value to the Company during any market cycle. The below timeline shows the evolution of the Company from its inception: In 2003, Mr. Rose founded Carrington Capital Management, LLC ( CCM ). By the end of 2006 CCM had 30 employees and 3 office locations and had grown into a $1 billion asset manager, which acquired and securitized over $23 billion in residential mortgage loans. From the evolution of CCM s loss mitigation strategy focusing on property management and disposition, Carrington Property Services, LLC ( CPS ) was established. Carrington Investment Services, LLC ( CIS ) was also established as a registered broker dealer. In 2007, we grew to 475 employees and 6 office locations. With our purchase of New Century Financial Corporation s ( New Century ) servicing platform out of bankruptcy, we established a new subsidiary: Carrington Mortgage Services, LLC ( CMS ). As part of the acquisition, our servicing portfolio grew to approximately $40 billion. CMS is able to service in all fifty states and is an approved Federal Home Loan Mortgage Corp and Government National Mortgage Association servicer. Building on the momentum in the prior year, 2008 saw the creation of four affiliate businesses to replace certain of our outside vendors in order to allow us to better perform and service our customers. The businesses include a national real estate broker, Carrington Real Estate Services, LLC (including its licensed subsidiaries, CRES ), a foreclosure services provider, Carrington Foreclosure Services, LLC ( CFS ), a deficiency collections service, 51

57 Carrington Resolution Services, LLC ( CRS ), and a document services provider, Carrington Document Services, LLC ( CDS ). To complement the CMS servicing segment, we created a loan origination business in Additionally, we founded Carrington Escrow, Inc. ( CE ) in order to provide escrow services to our customers. On March 11, 2009, we formed the holding company, Carrington Holding Company, LLC ( CHC ), to optimize the operating structure of our growing family of companies. We also founded Carrington Home Solutions, L.P. ( CHS ) to provide property preservation and restoration services for residential properties, and Carrington Title Services, LLC ( CTS ) to provide title services for our affiliates and retail clients. As of September 30, 2013, we had 2,696 fulltime employees and independent agents across 99 offices. In 2013 we launched Carrington Technology Solutions ( CTech ), which was formed to leverage its industryspecific operational expertise and technology experience to provide leading solutions to third-party customers in the real estate and mortgage technology markets. Finally, CCM has started offering certain advisory and consulting services primarily focused on residential mortgage backed securities. This decade of evolution from CCM to a family of fully integrated companies, has allowed us to become a leading provider of services to the residential mortgage and U.S. housing markets and offer a broad spectrum of products. We are one of only a few non-bank financial services companies with a fully integrated business that includes asset management, loan servicing, lending and real estate segments. These businesses complement and enhance each other through strategic relationships that stretch beyond their core expertise. Our asset management segment complements and enhances our three other business segments by providing revenue opportunities that support the other segments. Our servicing segment complements and enhances our lending segment by providing a sustainable source of new loans through the refinancing of loans of current servicing customers. Our lending segment complements and enhances our servicing segment by allowing us to replenish our servicing portfolio as loans pay off or resolve over time. Our real estate segment is supported in part by business from our asset management, origination and servicing segments. Our servicing and real estate segments support our asset management business by allowing us to provide continuous life of loan management of capital for loans that convert to real property. We are unique among non-bank financial services companies because each of our business segments is supported by sustainable, independent sources of revenue, rather than being supported primarily by our servicing segment. As of September 30, 2013, 8% of our revenues were supported by business from the asset management segment, 43% of our revenues were supported by business from the servicing segment, 21% of our revenues were supported by business from our lending segment, and 27% of our revenues were supported by business from our real estate segment. We believe our integrated approach, together with the strength, diversity and independence of each of our business segments, positions us to take advantage of the recovery in the U.S. housing market and the major structural changes currently occurring across the mortgage industry. 52

58 The following chart illustrates each of our four business segments and the entities from the Carrington family of companies that reside under each business segment. CARRINGTON HOLDING COMPANY, LLC ASSET MANAGEMENT MORTGAGE SERVICING MORTGAGE LENDING REAL ESTATE CARRINGTON CAPITAL MANAGEMENT, LLC CARRINGTON MORTGAGE SERVICES, LLC CARRINGTON MORTGAGE SERVICES, LLC REAL ESTATE SERVICES REAL ESTATE LOGISTICS CARRINGTON INVESTMENT SERVICES, LLC CARRINGTON RESOLUTION SERVICES, LLC CARRINGTON REAL ESTATE SERVICES (US), LLC CARRINGTON PROPERTY SERVICES, LLC CARRINGTON FORECLOSURE SERVICES, LLC CARRINGTON HOME SOLUTIONS, L.P. CARRINGTON ESCROW, INC. CARRINGTON TECHNOLOGY SOLUTIONS, LLC CARRINGTON TITLE SERVICES, LLC CARRINGTON DOCUMENT SERVICES, LLC Growth Strategies We expect to drive future growth in the following ways: grow the asset management business grow residential mortgage servicing expand lending to complement servicing expand the real estate segment 53

59 meet evolving needs of the residential mortgage and U.S. housing industries Our Strengths We believe our four fully integrated yet independent businesses that focus on the mortgage loan and the U.S. housing market position us well for a variety of market environments. The following competitive strengths contribute to our leading market position and differentiate us from our competitors: our complementary business segments build value for each other attractive business model with strong recurring revenues top performing preferred servicing partner scalable technology and infrastructure attractive business model with strong recurring revenues strong and seasoned management team Our Businesses Asset Management Our asset manager is one of a small group of asset managers who has the experience, technology and adjacent operating segments required to manage private investments in the mortgage loan and U.S. housing markets. We have been managing capital invested in the mortgage loan market since 2004 and have developed several scalable investment strategies and vehicles by levering the expertise of our management team and the capabilities of our other operating segments. These strategies and investment vehicles include advising third-party investors deploying capital into mortgage loan and U.S. housing investments through managed accounts and forming funds to aggregate capital to invest in mortgage loans and U.S. housing. As of September 30, 2013, we had $1,637,725,192 of assets under management ( AUM ). Our servicing and real estate segments support our asset management business by allowing us to provide continuous life of loan management of invested capital for mortgage loans that convert to real property. Our asset management segment provides revenue opportunities for our other segments. As of September 30, 2013, 8% of the revenue generated by our other segments was sourced by invested capital managed by our asset manager. Our asset management segment is comprised of two businesses, CCM and CIS that focus on the investment of capital in the mortgage loan and the U.S. housing market. Carrington Capital Management CCM, founded in 2003, is an alternative asset management firm focused on control-based investing in the U.S. real estate, mortgage and fixed income markets. CCM offers investment strategies where its portfolio management team maintains an identifiable competitive advantage created by the firm s resources, market expertise and local property market penetration. In addition, CCM also provides mortgage litigation advice and expert witnesses. This sector of our asset management business, however, is still developing and is not a significant generator of revenue. CCM is a registered investment advisor with the U.S. Securities and Exchange Commission (the SEC ). As of September 30, 2013, CCM had 27 employees, with offices in Greenwich, Connecticut, Aliso Viejo, California and Oceanside, California. Carrington Investment Services 54

60 CIS is a registered broker-dealer with the SEC and is a member of the Financial Industry Regulatory Authority, Inc. ( FINRA ) responsible for capital raising, distribution, marketing and client management activities. CIS sources capital and delivers solutions to clients serving as a single point of access to a full range of residential mortgage and real estate products services. CIS works in concert with CCM to raise invested capital for our asset management segment and as a selected dealer on structured finance debt issued to leverage the mortgage loan and U.S. housing investments managed by CCM. As of September 30, 2013, CIS had 2 employees, with offices in Greenwich, Connecticut and in Aliso Viejo, California. Mortgage Servicing Our residential mortgage servicing segment is comprised of two businesses that provide mortgage servicing and collections services. Carrington is uniquely positioned as a non-bank servicer to grow our platform. Our residential mortgage servicing businesses includes CMS and CRS. Carrington Mortgage Services Our mortgage servicer, CMS, is a fully-integrated mortgage servicing company with capabilities to service performing and non-performing assets. We approach servicing as an asset manager, serving both our borrower and investor constituencies, which enables families to maintain homeownership while maximizing the value of the underlying assets for its investors. CMS is a high-touch special servicer with an experienced management team and expertise in servicing distressed residential real estate assets. CMS is able to service loans in all 50 states. As of September 30, 2013, CMS had 462 employees, with primary offices located in Santa Ana, California and Fishers, Indiana. Our residential mortgage servicing business is divided into four subsegments, including securitized loans, acquired non-performing loans, newly originated GSE loans, and subserviced loans. As of September 30, 2013, CMS serviced over 68,800 residential mortgage loans with an aggregate unpaid principal balance ( UPB ) of approximately $12.5 billion. We attribute our success to our strong servicer performance and high touch servicing model, which emphasizes borrower interaction to improve loan performance and minimizes loan defaults and foreclosures. We believe our exceptional track record as a servicer, coupled with our ability to scale our operations without compromising servicer quality, have enabled us to add new mortgage servicing portfolios with relatively low capital investment. We are a preferred partner of large financial organizations, including GSEs and other regulated institutions that value our strong performance and also place a premium on our entirely U.S.-based servicing operations. In addition, CMS is rated by Fitch Ratings as a U.S. residential primary servicer for subprime product at RPS3, Outlook Stable, and as a special servicer at RSS3, Outlook Stable. As of September 30, 2013, our securitized loans, acquired performing and non-performing loans, newly originated government loans and subserviced loans represented 57.7%, 25.6%, 8.1% and 8.6%, respectively, of our total servicing portfolio in UPB. Carrington Resolution Services Carrington Resolution Services, LLC (CRS) is a part of our mortgage servicing segment. CRS is a specialized debt resolution provider focusing on the acquisition, management and collection of charged-off debt inventories for servicers, including our affiliated servicer, and financial institutions. CRS develops and implements individualized settlement and repayment plans based on each consumer's current and unique circumstances. Through education and a detailed assessment of a consumer's individual financial situation, CRS provides opportunities for consumers to restore their credit while simultaneously resolving charged off debts for their clients. CRS s consumer-focused approach to achieving resolution enables its clients to maintain strong customer relationships and protect brand integrity. As of September 30, 2013, CRS's portfolio consisted of 28,919 accounts with an unpaid principal balance of $2.9 billion. As of September 30, 2013, CRS had 11 employees located in our Santa Ana, California facility 55

61 Mortgage Lending Our mortgage lending segment is a separate division of CMS, which we refer to as MLD. MLD is a residential wholesale and retail loan originator that is licensed to originate loans in 41 states, the District of Columbia and Puerto Rico, with an experienced team focused on producing high quality loans and error-free transactions. MLD originates primarily conventional agency and government-insured residential mortgage loans and has a strong purchase-origination production business. We are one of only a few non-bank servicers with a fully integrated scalable lending segment to complement and enhance our servicing segment and other business segments, including our real estate segment. Our lending segment complements and enhances our servicing segment by allowing us to replenish our servicing portfolio and offer opportunities to our existing borrowers to refinance their homes. In 2012, our lending segment originated approximately $975.1 million in loan volume, with 64% derived from our wholesale operations and 36% derived from our retail channel. For the nine months ended September 30, 2013, our lending segment originated approximately $998.5 million in loan volume, with 67% derived from our wholesale operations and 33% derived from our retail channel. In addition, given the changing market conditions and rising interest rates environment, we have shifted our production efforts on purchase originations from refinancing. In 2012, we originated 34% of purchase volume and 66% of refinance volume. For the nine months ending September 30, 2013, we originated 47% of purchase volume and 53% of refinance volume. Our wholesale operation utilizes a vast network of independent mortgage brokers to source loans. Our retail channel is comprised of 36 branch offices spread across 10 states with a highly trained and qualified sales force. All of our loans are underwritten through centralized processing with pre-funding audits of every loan and one hundred percent call-recording for compliance and quality assurance. Our lending platform is fully scalable and is focused on producing quality loans. As of September 30, 2013 MLD had approximately 443 employees located in our headquarters in Santa Ana, CA, centralized processing centers in Fishers, IN and Enfield, CT, as well as our 36 branch offices throughout the U.S. Real Estate Our real estate segment is comprised of two sub-segments, our real estate services group and our real estate logistics group: Real Estate Services Our real estate services group is an integrated provider of residential services to the institutional and retail markets. Our business is comprised of three complementary business segments, including real estate brokerage services, real estate settlement services and portfolio services. These three business segments work together to provide a one-stop shop for clients, both institutional and retail, looking to buy or sell single family properties. The synergies between these businesses and the other Carrington family of companies, including our mortgage servicer, lending operations and real estate logistics help our retail clients to simplify the home purchase and sale process, and our institutional investors efficiently manage their residential portfolios. Given our unique value-add structure and the breadth of our complementary services, our businesses are well positioned to perform through various market cycles. Moreover, these three business segments can derive revenue from the same real estate transaction. Carrington Real Estate Services CRES offers a full service real estate brokerage operation that uses its network of licensed real estate agents to manage the sale or purchase of residential properties. We are one of the fastest growing real estate companies in the nation. CRES offers full-service residential brokerage services through approximately 38 branches across 24 states. As of September 30, 2013, CRES had approximately 1,194 independent sales associates supported by a staff of 54 full-time employees. CRES was founded in 2008 in the height of the distressed real estate market and quickly 56

62 became a leader specializing in the disposition of Real Estate Owned assets having sold over 25,867 properties since inception. Recognizing the beginning of an improvement in the residential real estate market in 2011, we have managed to transition our real estate businesses to capitalize on the sustained recovery over the past 2 years. We currently have a balanced portfolio of properties sourced from both our institutional relationships and independent sales associates. For the nine months ended September 30, 2013, CRES had approximately $935.3 million in total property sales, of which $419.4 million was derived from our institutional clients and $515.2 million was generated by our network of independent sales associates. Our real estate brokerage business derives revenue primarily from sales commissions received at the closing of real estate transactions, which we refer to as gross commission income. Generally in U.S. home sale transactions, the broker for the home seller instructs the closing agent to pay a portion of the sales commission to the broker for the buyer and keeps the remaining portion of the home sale commission. In addition, as a full-service real estate brokerage company, we promote the complementary services of our title and settlement services businesses. We believe we provide integrated services that enhance the customer experience. When we assist the seller in a real estate transaction, our independent sales associates generally provide the seller with a full service marketing program, which may include developing a direct marketing plan for the property, assisting the seller in pricing the property and preparing it for sale, listing it on multiple listing services, advertising the property (including on websites), showing the property to prospective buyers, assisting the seller in sale negotiations, and assisting the seller in preparing for closing the transaction. When we assist the buyer in a real estate transaction, our independent sales associates generally help the buyer in locating specific properties that meet the buyer s personal and financial specifications, show properties to the buyer, assist the buyer in negotiating (where permissible) and in preparing for closing the transaction. Our real estate brokerage business markets our real estate services and specific real estate listings primarily through individual property signage, the Internet, and by hosting open houses of our listings for potential buyers to view in person during an appointed time period. In addition, contacts and communication with other real estate sales associates, targeted direct mailings, and local print media, including newspapers and real estate publications, are effective for certain price points and geographical locations. Our offices are geographically diverse with a strong presence in the east and west coast areas, and certain midwest metropolitan centers, where home prices are generally higher and more stable. We intend to grow our business into markets that are conducive to this strategy by opening up branches in such locations. To grow organically, we will continue to develop our brand by focusing on several marketing strategies: Signage displaying the Carrington logo; Features in the appropriate section on our Internet site and other third party websites; Targeted mailings to prospective purchasers using specific mailing lists; and Collateral marketing material, magazines and brochures highlighting the property and our services. Initial brokerage opportunities were sourced to our real estate services business by our servicing and real estate logistics businesses, but each year a decreasing percentage of gross revenues from the real estate services segment comes from referrals from the servicing and real estate logistics segments. As of September 30, 2013, 52% of our real estate services gross revenues came from referrals from our servicing and real estate logistics businesses, which represents a 9% decrease over the same period ending as of September 30, Because of our initial referral business, a substantial majority of our revenues comes from representing sellers of homes, but each year we are representing a larger percentage of home buyers and we expect that our knowledge of local markets and commitment to customer support will continue to build that aspect of our business. Carrington Settlement Services 57

63 Our settlement services business is comprised of our title company, Carrington Title Services, LLC, and our escrow company, Carrington Escrow, Inc. We assist with the closing of real estate transactions by providing fullservice title and settlement (i.e. closing and escrow) services to customers, real estate companies, including our real estate brokerage, and affiliated mortgage servicer and lending divisions. Carrington Title Services, LLC is a leader in providing title and settlement services on a nationwide basis for both institutional clients and the real estate community. Our dedicated team has specific expertise in managing REO, short sale and refinance transactions and incorporates curative resources to assure on-time closings. Our escrow and title and settlement services business leverages its advanced technology and diverse product menu to provide cost efficient and service driven solutions for clients. In addition, we provide property abstract reports in all states and also have the ability to examine and prepare a summary for foreclosure attorneys to help expedite the default process for our affiliated mortgage servicer and third party customers. For the nine months ended September 30, 2013, our settlement services group assisted on approximately 11,733 transactions. Our portfolio services group is comprised of Carrington Foreclosure Services, LLC and Carrington Document Services, LLC. This group of businesses provides a host of complementary services to the Carrington family of companies, including our mortgage servicer, lending divisions, and third party clients. Our services include foreclosure trustee services in California, Nevada, Texas and Arizona and outsourced document preparation services. We derive revenue through fees charged in real estate transactions for rendering the services described above as well as a percentage of the title premium on each title insurance policy sold. We provide many of these services in connection with our residential real estate brokerage operations. Fees for escrow and closing services are separate and distinct from premiums paid for title insurance and other real-estate services. We coordinate a national network of escrow and closing agents (some of whom are our employees, while others are attorneys in private practice and independent title companies) to provide full-service title and settlement services to a broad-based group that includes lenders, home buyers and sellers, developers, and independent real estate sales associates. Our role is generally that of an intermediary managing the completion of all the necessary documentation and services required to complete a real estate transaction. We also derive revenues by providing our title and settlement services to various financial institutions in the mortgage lending industry. Such revenues are primarily derived from providing our services to customers who are refinancing their mortgage loans. We intend to continue to grow our title and settlement services business by leveraging our relationship scale, capabilities and reputation in the marketplace. Carrington Portfolio Services Our portfolio services group is comprised of Carrington Foreclosure Services, LLC and Carrington Document Services, LLC. This group of businesses provides a host of complementary services to the Carrington family of companies, including our mortgage servicer and lending divisions, and third party clients. Our services include foreclosure trustee services in California, Nevada, Texas and Arizona and outsourced document preparation services. These businesses support our affiliated group of companies and enhance our one-stop shop model. By having these businesses under one-roof, our affiliates are able to provide more efficient and expedited services to our customers and drive results. Real Estate Logistics Our real estate logistics segment is comprised of a group of companies that provide resolution strategies, property asset management and field and technology services to holders of single family properties. Carrington differentiates itself by offering integrated solutions through its entire family of companies and delivering products for each stage of the lifecycle of the single-family asset. Our real estate logistics businesses include Carrington Property Services, Carrington Home Solutions and Carrington Technology Solutions. Carrington Property Services 58

64 CPS is an industry-leading property asset management company. CPS provides a comprehensive set of property asset management and marketing services that can be customized to meet the specific needs of each of its customers. Unlike traditional property asset management companies, which focus exclusively on the disposition of REO assets, CPS is uniquely qualified to work with our customers across the entire default lifecycle providing information and analytics at both the pre and post-foreclosure stage of the process to help our customers make the most educated decisions regarding optimal asset resolution. CPS offers a broad array of specialized capabilities designed to help holders of single family properties manage their assets. Our services include: Property assessment/inspections Property valuations Property resolution services, including cash-for-keys, short sale, deed-in-lieu, deed-for lease and tenant-inplace strategies Marketing Disposition Rental Management As a property asset manager, our customers include mortgage servicers, including our own affiliated mortgage servicer, financial institutions, GSEs and holders of residential portfolios. These customers engage us to manage the disposition of their assets in the loan-default life cycle through a variety of strategies to help them maximize resolution proceeds. As of September 30, 2013, CPS managed approximately 2,808 properties. CPS has also developed a market leading rental management segment to provide services for holders of singlefamily rental portfolios. Our customers include GSEs, servicers and investors. Since inception, CPS has managed over 27,000 rental properties on behalf of its clients. As of September 30, 2013, CPS had 3,844 rental properties under management. Established in 2006 to address challenges in the housing market through new strategies for managing REO assets, CPS evolved from a property management company into an REO asset management company focused on providing property-specific, customized solutions that maximize the value of the underlying property for the owner(s) of such properties. CPS rental program, specializing in Single Family Residential properties, was launched in 2007 and selected in 2009 by a GSE as one of its primary vendors to manage their rental programs. In addition to our internal property management offices, CPS has a carefully-screened national network of active thirdparty property managers, and thousands of field services professionals who provide property preservation and repair services and collectively provide local market knowledge, presence and support. CPS has extensive property management experience and monitors every step of the rental process. CPS utilizes a hybrid management approach that includes company owned branch offices and contracted affiliates. CPS has developed the specific skills, expertise and resources necessary to successfully provide property management services for large, geographically diverse portfolios over an extended period of time. CPS has spent significant energy and resources to build and fine-tune the infrastructure and capabilities needed to ensure managed properties are appropriately maintained. Through its extensive network, national field staff, proprietary management software and its affiliate, Carrington Home Solutions, CPS maintains each property s curb appeal as well as utility and ongoing maintenance needs. Carrington Home Solutions CHS offers a full range of property preservation, maintenance and repair services to lenders, servicers and asset managers, as well as institutional clients, private real estate investors, real estate agents and retail home owners. Our wide range of products and services include: 59

65 Vacant property registration Utility management Inspection services Preservation services Property maintenance Property repairs and rehabilitation We offer nationwide coverage through our network of experienced professionals who provide prompt, responsive, reliable and quality services that preserve and enhance property values to turn listings into dispositions and/or rentals. In addition, we have dedicated field staff, including licensed contractors and trade professionals. As of September 30, 2013, CHS was providing services on approximately 6,025 properties throughout the United States. CHS has a centralized group which oversees repairs and rehabilitations on properties across the country. CHS s scope of work includes managing maintenance items, home repairs and major rehabilitation projects. Repair and rehabilitation requests are prescreened and reviewed by CHS employees for validity and to ensure that the repairs meet client guidelines (i.e., scope, timeline and costs). To help ensure quality and compliance with local ordinances (zoning/permits, etc.), CHS employs local, licensed, insured and certified vendors who are instructed to obtain any and all necessary permits/permissions from local jurisdictions to complete repairs. Initial real estate logistics opportunities for CPS and CHS were sourced by our servicing and asset management segments, but each year a decreasing percentage of gross revenues from the real estate logistics segment come from referrals from the servicing and asset management segments. As of September 30, 2013, 47% of the gross revenues of our real estate logistics segment came from referrals from our servicing and asset management segments, which represents an 7% increase over the same period ending as of September 30, Because of our distributed vendor model, our real estate logistics segment can manage assets without regard to their location or density. We intend to continue to grow CPS and CHS business by focusing on owners of large portfolios of REO, including GSEs, financial institutions and institutional investors in all geographic areas. Carrington Technology Solutions CTech is a provider of software and applications to third-party customers in the real estate and mortgage technology markets. As the technology arm of the Carrington family of companies, CTech leverages its industryspecific operational expertise and technology experience to provide leading solutions to its customers. CTech and its applications deliver a complete end-to-end asset management suite for financial institutions, institutional investors, and large-scale property management companies. Our Complementary Business Segments Build Value for Each Other Our four complementary business segments work together to form our family of companies, allowing us to generate revenue at various points in a residential real estate transaction. Unlike other industry participants who offer only one or two services, we can offer homeowners access to numerous associated services that facilitate and simplify the home purchase and sale process allowing us to act as a one stop-shop for our clients. These services provide further revenue opportunities for our owned businesses. All four of our business segments can derive revenue from the same real estate transaction. Because of the synergies among our business segments, we are able to perform in all market cycles. For illustration purposes, we have diagrammed below our unique ability to be a one-stop shop for institutional and retail clients who are looking to invest in the residential real estate market. To simplify, we have started with an acquisition of a single loan to demonstrate how each of our business segments is able to touch the asset through its 60

66 life-cycle. Our asset manager acquires a loan by deploying capital through managed accounts or funds pooled to invest in the mortgage loan and U.S. housing sector. The loan is boarded onto our servicing platform. For performing loans, the servicer remits borrower payments to investors or trusts, as applicable. If the loan is or becomes non-performing, our high touch special servicing approach emphasizes borrower contact in an effort to deploy loss mitigation strategies and reduce loan defaults and foreclosures. At each stage of the life-cycle, our mortgage loan division can assess the borrower s qualifications for a refinancing or provide a purchase money loan for prospective buyers at short-sale or REO dispositions. Our real estate logistics group monitors the distressed assets and provides property preservation services when required. In the event the asset turns into REO, the real estate logistics group provides property management, maintenance and repair services. Our real estate services group can then provide brokerage, title and escrow services to dispose of the asset at REO. Moreover, the Carrington family of companies also offers other ancillary services at various stages in the life-cycle of the asset, including foreclosure trustee services in several non-judicial states, deficiency judgment recoveries for charged-off debts, and technology solutions to leverage our industry-specific operational expertise. As market conditions improve, our business model is also evolving to meet retail consumer needs. We have the unique ability to serve our retail clients in each step of a real estate transaction in their home buying or selling experience. Our real estate brokerage company, CRES with its large network of licensed real estate agents offers brokerage services through approximately 38 branches across 24 states to assist buyers and sellers with their home or residential investment property purchases and dispositions. Through our mortgage loan division, which is part of CMS, we are able to assist buyers with obtaining financing for their real estate purchases in 42 states and the District of Columbia and Puerto Rico. Once the loan closes, our servicer can service the loan with its expert customer service for our borrowers. To assist in timely and efficient closings of our clients transactions, our settlement services companies are able to provide escrow and title services for buyers and sellers. Finally, our real estate logistics companies can provide home inspections, maintenance and repair services for our retail clients, as well as property management services for residential real estate investors who need local property management expertise through our nationwide network. 61

67 Corporate and Other Information CHC was formed in 2009 to own and manage the asset management, servicing, lending and real estate segments. Our executive offices are located at 599 West Putnam Avenue, Greenwich, Connecticut and our telephone number is (203) Our Internet website address is Information on, or accessible through, our website is not part of this Offering Circular. CHC is in good standing under the Delaware Limited Liability Company Act and possesses all powers and privileges authorized to be exercised by a limited liability company under the Delaware Limited Liability Company Act, and under all other applicable laws, including all those necessary or convenient to the conduct, promotion or attainment of its business, purpose or activities. CHC was formed to act as the holding company for various operating subsidiaries, provide direction and counsel to such operating subsidiaries, engage in such other activities as are customary incidental or ancillary to the management and operation of an investment adviser, mortgage loan servicer, mortgage loan originator, property manager and other businesses focused on the residential mortgage market and engage in any other lawful activities determined by its managing member to be necessary or advisable in furtherance of the abovementioned activities. Our Principal Common Membership Owner We are owned directly by another holding company, The Carrington Companies, LLC, which is 99.5% owned by our principal common membership holder, Mr. Bruce Rose. Following the Exchange Transaction he will continue to own membership interests sufficient for the majority vote over fundamental and significant corporate matters and transactions. See Risk Factors Risks Relating to Our Business Organizational Structure. As of the closing date of the Exchange Transaction, all of our senior executives are employed by The Carrington Companies, LLC. We are obligated to pay The Carrington Companies, LLC an allocated portion of our senior executives compensation based on the percentage of their time that they spend on our matters versus matters for The Carrington Companies, LLC and its other subsidiaries. A similar allocation is made with respect to other corporate services provided to us by The Carrington Companies, LLC, such as travel, insurance and office space. This allocation percentage is currently 100% and is expected to be at or close to 100% at all times during the terms of the Notes. Principal Officers and Executive Officers of the Company As described above, we are a vertically integrated family of companies. We are managed by our senior executive officers. For a description of our officers, including their individual experience, qualifications, attributes and skills, see Management. Long-Term Incentive Plan Effective December 15, 2009, CCM adopted a long-term incentive plan pursuant to which it awards units to eligible participants on the terms and conditions in the plan agreement. In conjunction with the internal reorganization, CHC became the plan sponsor. Employees of the Company are eligible to participate in the plan. There are 41,750,000 units reserved under the plan, representing approximately 39.8% of the economic interest of 62

68 common membership interests on a fully diluted basis. Such units vest based on years of service and are paid out only upon events specified in the plan agreement, including but not limited to events of liquidity such as the sale of CHC or one or more of its subsidiaries. The total units allocable to CHC employees outstanding at September 30, 2013 were 39,456,100. Compensation expense is measured based on the value of the units at each reporting period as determined at the sole discretion of the managing member of the Company. Asset Acquisition and Retired Preferred Membership Interests The Notes were originally issued by us on or about December 31, 2013 in connection with our purchase and acquisition of all of the assets of Carrington Investment Partners (US), LP and Carrington Investment Partners (Cayman), LP (the Legacy Carrington Funds ), which assets include the outstanding preferred membership interests in CMS. Those preferred membership interests were originally issued to an entity owned by the Legacy Carrington Funds to refinance a note issued to finance our purchase of New Century s servicing platform in Since their inception, the Legacy Carrington Funds have been managed by our asset manager, and at the time of our purchase of New Century s servicing platform, the Legacy Carrington Funds owned several subordinated mortgaged backed securities that were backed by pools of mortgage loans serviced by New Century. The original face amount of the preferred membership interests in CMS at the time of issuance was approximately $277 million, and had grown to approximately $530 million at the time that it was purchased by us. 63

69 The Notes The following description is a summary of the material provisions of the Indenture and the Notes issued thereunder. It does not restate that agreement in its entirety. Certain terms used in this summary are defined in the Notes or the Indenture; these terms have the meanings given to them in those documents. We urge you to read the Indenture because it contains additional information that may be of importance to you. Copies of the form of the Indenture will be made available to prospective purchasers of the Notes upon request to us. The Indenture contains provisions that define your rights under the Notes. In addition, the Indenture governs the obligations of the Issuer under the Notes. Issuer... Securities Exchanged... Carrington Holding Company, LLC, a Delaware limited liability company. $529,761,000 aggregate principal amount of Notes to be issued on or about December 31, Expected Issue Date... December 31, 2013 Initial Maturity Date... January 15, Final Maturity Date... January 15, Extensions of Maturity... Principal Payment... Interest Rate... Upon not less than 60 nor more than 90 days notice given prior to the then applicable maturity date of the Notes, the Issuer may elect to extend the maturity of all, but not less than all, of the then outstanding Notes so that the maturity of the Notes will be extended to (i) if the then applicable maturity date of the Notes is the Initial Maturity Date, a date (the First Extended Maturity Date ) not later than January 15, 2024 or (ii) if the then applicable maturity date of the Notes is the First Extended Maturity Date, a date (the Second Extended Maturity Date ) not later than the second anniversary of the First Extended Maturity Date; provided that in no event shall the Second Extended Maturity Date be later than the Final Maturity Date. Principal will be due and payable upon maturity of the Notes unless the Issuer exercises the extension option(s). The interest rate on the Notes initially will be 2.00% per annum and will increase 50 basis points (0.50% per annum) on each Interest Payment Date beginning on January 15, 2015, subject to a maximum interest rate of 6.50% per annum applicable to interest periods ending on or prior to the Initial Maturity Date. If the Issuer elects to extend the maturity of the Notes beyond the Initial Maturity Date to the First Extended Maturity Date, the interest rate applicable during the first extension period will be (i) 8.00% per annum during the one year period commencing on the Initial Maturity Date, (ii) 9.50% per annum for the one year period commencing on the first anniversary of the Initial Maturity Date, and (iii) 11.00% per annum for the one year period commencing on the second anniversary of the Initial Maturity Date. If the Issuer elects to extend the maturity of the Notes beyond the First Extended Maturity Date, the interest rate applicable during the second extension period will be (x) 13.50% per annum during the one year period commencing on the First Extended Maturity Date and (y) 16.00% per annum for the one year period commencing on the first anniversary of the First Extended Maturity Date. 64

70 For any interest accrual period prior to January 15, 2016, the Issuer may, at its option, elect to pay interest on the Notes (i) entirely in Cash Interest based on the Stated Interest Rate then in effect for the applicable interest accrual period for the Notes or (ii) a portion in Cash Interest and the remainder in PIK Interest, provided that (x) the amount of Cash Interest to be paid on the outstanding principal amount of the Notes will not be less than the Cash Interest Rate and (y) the amount of PIK Interest to be paid on the outstanding principal amount of the Notes will be calculated based on the PIK Interest Rate. For any interest accrual period prior to January 15, 2016, the Issuer must elect the form of interest payment with respect to each interest accrual period by delivering a notice to the Trustee at least 10 business days prior to the commencement of an interest accrual period and, if the Issuer elects to pay a portion of the interest as Cash Interest and the remainder in the form of PIK Interest, then the Issuer will also include in such notice the Cash Interest Rate and the PIK Interest Rate. For the first interest accrual period ending with the first Interest Payment Date on July 15, 2014, and in the absence of an election for any interest accrual period thereafter, interest on the Notes will be payable in both Cash Interest and PIK Interest with the Cash Interest Rate being 1.00% and PIK Interest Rate being equal to 150% of the positive difference between the Stated Interest Rate then in effect for such interest accrual period and 1.00%. After January 15, 2016, the Issuer will make all interest payments on the Notes entirely in cash calculated at the Stated Interest Rate. Interest Payment Date... Optional Redemption by the Company.. Change of Control... Ranking... Rating... Use of Proceeds and Reason for the Exchange Transaction... Interest on the Notes will be payable semi-annually in arrears on January 15 and July 15 of each year, beginning July 15, On and after July 15, 2014, the Issuer may, at its option, redeem the Notes in whole at any time or in part from time to time at 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to the redemption date; provided that the Issuer may only redeem the Notes in part in an aggregate principal amount of not less than $5,000,000. See Description of the Notes Optional Redemption. If the Issuer experiences a Change of Control, unless the Issuer has exercised its right to redeem the Notes, the Issuer may be required to offer to repurchase the Notes at 101% of their principal amount, plus accrued and unpaid interest. See Description of the Notes Repurchase at the Option of the Holder Change of Control and Risk Factors Risks Relating to Participation in the Exchange. The Notes will be senior unsecured obligations of the Issuer and will rank equally in right of payment with all of its existing and future senior unsecured indebtedness. No rating on the Notes will be obtained, and the Issuer currently is not rated by any rating agency. The Issuer will not receive any proceeds from the issuance of the Notes. For further details on the Issuer s reason for undertaking the Exchange Transaction, see The Exchange Transaction. 65

71 Tax Treatment... Certain Covenants... The Issuer will treat the Notes as indebtedness for U.S. Federal Income Tax purposes. See The Exchange Transaction. Because the Notes do not pay qualified stated interest, the Notes will be treated as issued with original issue discount for U.S. Federal Income Tax purposes. Under the original issue discount rules, the Notes will be deemed issued on a constant yield basis assuming that the Issuer takes all options regarding payment of interest and maturity that will result in the lowest yield (and therefore lowest amount of original issue discount) on the Notes. If the Issuer does not actually elect the option that results in the lowest amount of original issue discount, on the date the Issuer elects the alternative option, the Notes will be deemed reissued for new Notes with the same adjusted issued price as the old Notes but with a new original issue discount schedule. The deemed reissuance does not cause a deemed reissuance for any purpose other than the computation of original issue discount. A Holder will be able to contact the Issuer or an agent designated by the Issuer regarding the amount of original issue discount applicable to any given period. See Certain United States Federal Income Tax Consequences Original Issue Discount. We will issue the Notes under an Indenture with Wells Fargo Bank, National Association, as trustee. The Indenture will, among other things, limit our ability and the ability of our restricted subsidiaries to: incur additional indebtedness, guarantee indebtedness or issue preferred stock; make restricted payments (including paying dividends on, redeeming or repurchasing equity interests in our company); make restricted investments; redeem or repurchase subordinated debt; dispose of our assets; incur liens on our assets; engage in transactions with affiliates; enter into agreements restricting our subsidiaries ability to pay dividends or transfer assets to us; and merge, consolidate or transfer substantially all of our assets. The above covenants are subject to a number of important exceptions and qualifications. See Description of the Notes Certain Covenants. Transfer Restrictions... The Notes have not been registered under the Securities Act or any U.S. state securities law. To the extent the Notes are offered and sold to purchasers after the consummation of the Exchange Transaction, the Notes may only be offered and sold (i) to QIBs in reliance on Rule 144A under the Securities Act, (ii) to non-u.s. persons in transactions outside the United States in reliance on Regulation S and (iii) to 66

72 Accredited Investors pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act or applicable state law. See Notice to Investors. In addition, there are restrictions on the offer, sale and transfer of the Notes in the European Economic Area. See The Exchange Transaction. No Prior Market... Trustee... Listing and Admission to Trading... Governing Law... The Notes will be new securities for which there is currently no market. We cannot assure you that a liquid market for the Notes will develop or be maintained. Wells Fargo Bank, National Association Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Main Securities Market. We cannot assure you that any such approval will be granted or, if granted, that such listing will be maintained. The Indenture and the Notes will be governed by the laws of the State of New York. Risk Factors You should consider carefully the information set forth in the section of this Offering Circular entitled Risk Factors beginning on page 12 and all other information provided to you in deciding whether to participate in the Exchange Transaction. 67

73 SUMMARY CONSOLIDATED FINANCIAL DATA See Summary B.12 for consolidated financial data. You should read those tables along with Management s Discussion and Analysis of Financial Condition and Results of Operations, Business and our consolidated financial statements and the related notes included elsewhere in this Offering Circular. CAPITALIZATION The following sets forth our cash and cash equivalents and capitalization as of September 30, The following chart does not give effect to the issuance of the Notes or the acquisition of limited partnership interests pursuant to the Exchange Transaction. See Risk Factors 1. Risks Relating to Our Business: b. Organizational Structure We are a highly leveraged company. Our high level of debt could adversely affect our operating flexibility and put us at a competitive disadvantage. You should read this table in conjunction with The Exchange Transaction, Summary Consolidated Financial Data and Management s Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and related notes and other financial information included elsewhere in this Offering Circular. ASSETS For the period ended September 30, 2013 (Unaudited) Assets Cash and cash equivalents $ 52,519,615 Restricted cash 3,219,899 Servicer advances 163,882,444 Mortgage servicing rights, at fair value 53,197,779 Loans held for sale, at fair value 145,478,564 Investments in affiliated partnerships 7,879,110 Accounts and notes receivable from affiliates 2,334,417 Property, furniture and equipment, net 8,644,615 Prepaid expenses and other assets 26,417,785 Total assets $ 463,574,228 LIABILITIES AND MEMBERS CAPITAL Liabilities Servicing advances lines of credit $ 105,411,283 Warehouse line of credit 132,240,897 Servicing obligations 64,396,052 Accrued interest payable 177,365 Accounts payable and accrued liabilities 39,889,292 Accrued compensation 10,082,513 Due to affiliates 46,416 Notes payable 2,421,483 Dividends payable to noncontrolling interests 11,385,232 Other liabilities 5,983,327 Total liabilities $ 372,033,860 Commitments and Contingencies Members Capital Controlling interests (277,372,564) Noncontrolling interests 368,912,932 Total members capital 91,540,368 Total liabilities and members capital $ 463,574,228 68

74 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company Overview We are a holding company that owns and operates multiple businesses that cover virtually every aspect of single family real estate and residential real estate transactions. We are uniquely positioned to execute on various opportunities in the single-family residential markets. To capitalize on these opportunities we are organized into four distinct, but related operating segments: asset management, which oversees investments in U.S. real estate and mortgage markets; mortgage servicing, which services residential loans; mortgage lending, which is a national lender; and a real estate company, which is comprised of real estate services and property logistics divisions. Our business started as a fund investing in mortgage backed securities and has evolved into a group of vertically integrated operating businesses that direct every aspect of the life cycle of single-family residential assets. Our executives, led by Mr. Bruce Rose who currently serves as the Chief Executive Officer of the Company, have more than three decades of experience in the residential mortgage and real estate industries and have built the infrastructure necessary to maximize value to the Company during any market cycle. The below timeline shows the evolution of the Company from its inception: In 2003, Mr. Rose founded Carrington Capital Management, LLC. By the end of 2006 CCM had 30 employees and 3 office locations and had grown into a $1 billion asset manager, which acquired and securitized over $23 billion in residential mortgage loans. From the evolution of CCM s loss mitigation strategy focusing on property management and disposition, Carrington Property Services, LLC was established. Carrington Investment Services, LLC was also established as a registered broker dealer. In 2007, we grew to 475 employees and 6 office locations. With our purchase of New Century s servicing platform out of bankruptcy, we established a new subsidiary, Carrington Mortgage Services, LLC. As part of the acquisition, our servicing portfolio grew to approximately $40 billion. CMS is able to service in all fifty states and an approved Federal Home Loan Mortgage Corp and Government National Mortgage Association servicer. Building on the momentum in the prior year, 2008 saw the creation of four affiliate businesses to replace certain of our outside vendors in order to allow us to better perform and service our customers. The businesses include a national real estate broker, Carrington Real Estate Services, LLC (including its licensed subsidiaries), a foreclosure services provider, Carrington Foreclosure Services, LLC, a deficiency collections service, Carrington Resolution Services, LLC, and a document services provider, Carrington Document Services, LLC. To complement the CMS servicing segment, we created a loan lending business in Additionally, we founded Carrington Escrow, Inc. in order to provide escrow services to our customers. On March 11, 2009, we formed the holding company, Carrington Holding Company, LLC, to optimize the operating structure of our growing family of companies. We also founded Carrington Home Solutions, L.P. to provide property preservation and restoration services for residential properties, and Carrington Title Services, LLC to provide title services for our affiliates and retail clients. As of September 30, 2013, we had 2,696 fulltime employees and independent agents across 99 offices. In 2013 we launched CTech, which was formed to leverage its industry-specific operational expertise and technology experience to provide leading solutions to third-party customers in the real estate and mortgage technology markets. Finally, CCM has started offering certain advisory and consulting services primarily focused on residential mortgage backed securities. This decade of evolution from CCM to a family of fully integrated companies, has allowed us to become a leading provider of services to the residential mortgage and U.S. housing markets and offer a broad spectrum of products. We are one of only a few non-bank financial services companies with a fully integrated business that includes asset management, loan servicing, lending and real estate segments. These businesses complement and 69

75 enhance each other through strategic relationships that stretch beyond their core expertise. Our asset management segment complements and enhances our three other segments by providing revenue opportunities that support the other segments. Our servicing segment complements and enhances our lending segment by providing a sustainable source of new loans through the refinancing of loans of current servicing customers. Our lending segment complements and enhances our servicing segment by allowing us to replenish our servicing portfolio as loans pay off or resolve over time. Our real estate segment is supported in part by business from our asset management, lending and servicing segments. Our servicers and real estate segments support our asset management business by allowing us to provide continuous life of loan management of capital for loans that convert to real property. We are unique among non-bank financial services companies because each of our business segments is supported by sustainable, independent sources of revenue, rather than being supported primarily by our servicing segment. As of September 30, 2013, 8% of our revenues were supported by business from the asset management segment, 43% of our revenues were supported by business from the servicing segment, 21% of our revenues were supported by business from our lending segment, and 27% of our revenues were supported by business from our real estate segment. We believe our integrated approach, together with the strength, diversity and independence of each of our business segments, positions us to take advantage of the recovery in the U.S. housing market and the major structural changes currently occurring across the mortgage industry. 70

76 The following chart illustrates each of our four business segments and the entities from the Carrington family of companies that reside under each business segment. CARRINGTON HOLDING COMPANY, LLC ASSET MANAGEMENT MORTGAGE SERVICING MORTGAGE LENDING REAL ESTATE CARRINGTON CAPITAL MANAGEMENT, LLC CARRINGTON MORTGAGE SERVICES, LLC CARRINGTON MORTGAGE SERVICES, LLC REAL ESTATE SERVICES REAL ESTATE LOGISTICS CARRINGTON INVESTMENT SERVICES, LLC CARRINGTON RESOLUTION SERVICES, LLC CARRINGTON REAL ESTATE SERVICES (US), LLC CARRINGTON PROPERTY SERVICES, LLC CARRINGTON FORECLOSURE SERVICES, LLC CARRINGTON HOME SOLUTIONS, L.P. CARRINGTON ESCROW, INC. CARRINGTON TECHNOLOGY SOLUTIONS, LLC CARRINGTON TITLE SERVICES, LLC CARRINGTON DOCUMENT SERVICES, LLC For a further description of our family of companies, see Business. 71

77 Results of Operations Period Results The following table summarizes our consolidated operating results for the periods indicated. For the nine months ended September 30, Consolidated ($ in thousands) Revenue $148,244 $113,020 Operating expense 165, ,849 Income (loss) from operations (17,551) (829) Other income (expense), net: Interest, net (5,135) (14,304) Change in fair value of mortgage servicing rights (3,597) (6,743) Gain on investment in affiliated partnerships - 68 Income (loss) before income taxes ($26,283) ($21,808) We provide further discussion of our results of operations for each of our reportable segments under Segment Results below. Comparison of Consolidated Results for the Nine Months Ended September 30, 2013 and 2012 Revenues increased $35.2 million from $113.0 million for the nine months ended September 30, 2012 to $148.2 million for the nine months ended September 30, 2013, which represents a 31% increase in revenue for the first nine months of 2013 relative to the same period of the prior year. The increase was driven by higher mortgage servicing fees, real estate service fees, mortgage originations and asset management fees. Operating expenses increased 46% or $51.9 million from $113.8 million for the nine months ended September 30, 2012 to $165.8 million for the nine months ended September 30, The increase was primarily driven by higher compensation and benefit expenses related to increased staffing levels required to support growth in mortgage servicing and origination, real estate services, and asset management as well as various corporate support functions. Headcount increased by approximately 35% or 402 employees from 1,147employees in the period ended September 30, 2012 to 1,549 employees for the period ended September 30, Net interest expenses declined $9.2 million due to lower advancing requirements on our legacy loan portfolio as this portfolio continues to run-off over time. The change in fair value of our mortgage servicing rights declined $3.1 million when compared to the nine months ended September 30, This resulted from a lower, $693.0 million, UPB run-off of the legacy portfolio in the period ended September 30, 2013 when compared to a $1,146.5 million UPB run-off in the period ended September 30, Period Segment Results Our business is divided into four operating segments; Mortgage Servicing, Mortgage Lending, Real Estate and Asset Management. Administrative activities such as human resources, finance and accounting, technology support, legal, risk management and executive administration are included in Corporate Support. Mortgage Servicing Our Mortgage Servicing segment provides loan servicing and subservicing for Carrington owned loans and loans held by third parties. Revenue is primarily composed of servicing fees, but also includes modification incentive fees, late fees, insufficient fund fees and other ancillary fees collected during the course of business. 72

78 The following table summarizes the operating results from our Mortgage Servicing segment for the periods indicated. For the nine months ended September 30, Mortgage Servicing ($ in thousands) Revenue $64,292 $51,440 Operating expense 44,552 30,193 Income (loss) from operations 19,740 21,247 Other income (expense), net: Interest, net (2,832) (13,178) Change in fair value of mortgage servicing rights (3,597) (6,743) Income (loss) before income taxes $13,311 $1,326 Mortgage Servicing revenue increased $12.9 million from $51.4 million in the nine months ended September 30, 2012 to $64.3 million in the nine months ended September 30, 2013, a 25% increase. This increase was primarily driven by new component servicing contracts as well as growth in the aggregate UPB of our servicing book, which increased by $2.8 billion from $9.7 billion in the nine months ended September 30, 2012 to $12.5 billion for the same period this year. The growth in UPB was mainly due to purchases of non-performing loans in our Asset Management segment as well as new Ginnie Mae production from our Mortgage Lending segment. Operating expenses for the Mortgage Servicing segment increased 48% or $14.4 million from $30.2 million in the nine months ended September 30, 2012 to $44.6 million in nine months ended September 30, This increase was primarily due to higher compensation and benefit expenses for the additional staffing levels required to manage the larger servicing book. Mortgage Servicing headcount increased by approximately 128 employees during the first nine months of 2013 as compared to the same period in the prior year. Net interest expense for the Mortgage Servicing segment declined by $10.3 million from $13.2 million in the nine months ended September 30, 2012 to $2.8 million in the nine months ended September 30, This decrease was primarily driven by lower financing costs and a decline in the total amount of advancing volume, which is financed using our advance funding facilities. As noted in the consolidated segment above, the reduction in the change in the fair value of mortgage servicing rights was due to a lower amount of legacy portfolio run-off in the nine months ended September 30, 2013 when compared to the same period of the prior year. Mortgage Lending Our Mortgage Lending segment originates primarily conventional agency and government-insured residential wholesale and retail loans. The following table summarizes the operating results from our Mortgage Lending segment for the periods indicated. For the nine months ended September 30, Mortgage Lending ($ in thousands) Revenue $31,424 $18,006 Operating expense 32,391 18,842 Income (loss) from operations (967) (836) Other income (expense), net: Interest, net (779) (66) Income (loss) before income taxes ($1,746) ($902) 73

79 Mortgage Lending revenue increased 75% or $13.4 million from $18.0 million in the nine months ended September 30, 2012 to $31.4 million in the nine months ended September 30, This increase was driven by higher lending volume, which increased by $337.1 million to $998.5 million in the nine months ended September 30, 2013 as compared to the same period of the prior year. A shift in product mix from refinancing loans to purchase loans has also contributed to revenue growth as the market continues to trend away from refinancing toward purchase loans. Operating expenses for the Mortgage Lending segment increased 72% or $13.5 million from $18.8 million in the nine months ended September 30, 2012 to $32.4 million in the nine months ended September 30, This increase was due to investment in infrastructure and personnel associated with current and anticipated growth, including higher compensation and benefit expenses related to additional staff required to support higher lending volume as well as growth in our branch count from 26 locations as of the nine months ended September 30, 2012 to 34 locations as of the nine months ended September 30, We added approximately 194 employees in the first nine months of 2013 as compared to the same period of Net interest expense period-over-period fluctuation was due to the decrease in market interest rates relative to the interest rate on our funding facilities. Real Estate Our Real Estate segment includes two sub-segments; Real Estate Services and Real Estate Logistics. Real Estate Services includes our brokerage, title, settlement, and portfolio services divisions, while Real Estate Logistics includes our property asset management, property rental and property preservation and restoration divisions. The following table summarizes the operating results from our Real Estate segment for the periods indicated. For the nine months ended September 30, Real Estate ($ in thousands) Revenue $40,527 $37,880 Operating expense 29,329 24,191 Income (loss) from operations 11,199 13,689 Other income (expense), net: Interest, net (16) (134) Income (loss) before income taxes $11,183 $13,555 Our Real Estate segment revenues increased 7% from $37.9 million for the nine months ended September 30, 2012 to $40.5 million for the nine months ended September 30, This is the result of a shift in revenue mix away from captive REO management and sales toward increased third party services and transactions. Revenue increased 17% within our property preservation and restoration division, 11% in our property rental and asset management division, and 1% in our real estate brokerage division. Real estate brokerage sales volume increased to $900.0 million for the nine months ended September 30, 2013, a $15.7 million increase from $884.3 million in the nine months ended September 30, The number of closed properties in our real estate brokerage division increased by 483 properties from 4,586 properties in the first nine months of 2012 to 5,069 properties in the same period of Operating expenses in the Real Estate segment increased by 21% or $5.1 million from $24.2 million in the nine months ended September 30, 2012 to $29.3 million in the nine months ended September 30, This increase was primarily driven by an increase in marketing expenses and compensation and benefit expenses related to additional staffing across all divisions of the Real Estate segment as well as non-recurring expenses of $0.3 million related to the rebranding of our real estate companies under the Carrington name. The agent count in our real estate brokerage division increased from 1,183 agents at the end of the first nine months of 2012 to 1,194 agents at the end of the same period in

80 Asset Management Our Asset Management segment is comprised of two businesses; Carrington Capital Management ( CCM ) and Carrington Investment Services ( CIS ). CCM manages private investment capital focused on investment strategies in the mortgage loan and US residential housing markets. CIS is a SEC registered broker-dealer and a member of FINRA. CIS and CCM provide capital sourcing services and consulting services to third party clients in the mortgage loan and US residential housing markets. The following table summarizes the operating results from our Asset Management segment for the periods indicated. For the nine months ended September 30, Asset Management ($ in thousands) Revenue $11,628 $4,629 Operating expense 11,839 5,902 Income (loss) from operations (211) (1,274) Other income (expense), net: Interest, net (248) (248) Gain on investment in affiliated partnerships - 68 Income (loss) before income taxes ($459) ($1,453) Our Asset Management segment revenue increased 151% or $7.0 million from $4.6 million in the nine months ended September 30, 2012 to $11.6 million in the nine months ended September 30, This increase was primarily driven by growth in AUM by $563.6 million from $1,074.1 million in the nine months ended September 30, 2012 to $1,637.7 million for the nine months ended September 30, 2013 due to increased investment in our nonperforming loan strategy. Operating expenses in the Asset Management segment increased 101% or $5.9 million from $5.9 million in the nine months ended September 30, 2012 to $11.8 million in the nine months ended September 30, This increase was primarily due to increased compensation and benefit expenses as staffing levels increased in order to support additional investment strategies and expand the consulting services, as well as litigation settlement costs recorded in the period. Asset Management headcount increased by approximately 7 employees during the first nine months of 2013 as compared to the same period in Corporate Support Our Corporate Support segment consists of centralized services including human resources, finance and accounting, technology support, legal, risk management and executive administration that provide support services to all of our operating segments. Operating expenses within the Corporate Support segment increased 38% or $13.7 million from $36.1 million for the nine months ended September 30, 2012 to $49.7 million from the period ended September 30, This increase was driven by compensation and benefit expenses related to higher staffing levels as well as an increase in office space needed within Corporate Support in order to support the growth in our Mortgage Servicing, Mortgage Lending, Real Estate and Asset Management segments. 75

81 Full Year Results The following table summarizes our consolidated operating results for the periods indicated. We provide further discussion of our results of operations for each of our reportable segments under Segment Results below. Comparison of Consolidated Results for the Year Ended December 31, 2012 and 2011 Revenues remained flat from $158.2 million for the year ended December 31, 2011 to $158.2 million for the year ended December 31, Operating expenses increased 13% or $18.5 million from $143.8 million for the year ended December 31, 2011 to $162.3 million for the year ended December 31, The increase was primarily driven by higher compensation and benefit expenses related to increased staffing levels required to support growth in mortgage servicing and origination, real estate services, and asset management as well as various corporate support functions. Headcount increased by approximately 41% or 250 employees from 618 employees in the year ended December 31, 2011 to 868 employees for the year ended December 31, Net interest expense declined $16.6 million from $34.2 million for the year ended December 31, 2011 to $17.6 million for the year ended December 31, The decline was due to decreased advancing requirements on legacy loan portfolios as well as the termination of one of our higher interest rate advancing facilities. The change in fair value of our Mortgage Servicing Rights declined $3.9 million when compared to the year ended December 31, This improvement was due to a lower, $1.4 billion, UPB run-off of the legacy portfolio in the period ended December 31, 2012 when compared to a $2.6 billion UPB run-off in the period ended December 31, Gain on investments in affiliated partnerships improved $0.1 million. This includes investments in our legacy fund, Carrington Investment Partners, LP ( CIP ). Full Year Segment Results Our business is divided into four operating segments; Mortgage Servicing, Mortgage Lending, Real Estate and Asset Management. Administrative activities such as human resources, finance and accounting, technology support, legal, risk management and executive administration are included in Corporate Support. Mortgage Servicing For the Year Ended December 31, Consolidated ($ in thousands) Revenue $158,205 $158,173 Operating expense 162, ,795 Income (loss) from operations (4,113) 14,377 Other income (expense), net: Interest, net (17,588) (34,220) Change in fair value of mortgage servicing rights (8,454) (12,398) Gain on investment in affiliated partnerships 65 (58) Income (loss) before income taxes ($30,090) ($32,298) Our Mortgage Servicing segment provides loan servicing and subservicing for Carrington owned loans and loans held by third parties. Revenue is primarily composed of servicing fees, but also includes modification incentive fees, late fees, insufficient fund fees, and other ancillary fees collected during the course of business. 76

82 The following table summarizes the operating results from our Mortgage Servicing segment for the periods indicated. Mortgage Servicing revenue declined by 15% or $12.4 million from $84.0 million for the year ended December 31, 2011 to $71.7 million for the year ended December 31, This decline was primarily driven by the portfolio UPB run-off of our legacy assets, which resulted in management s deliberate shift in the business away from captive, legacy assets toward increased third-party business including component servicing, sub-servicing and MSR purchases. Approximately 94% of servicing revenues for the period ended December 31, 2011 resulted from servicing legacy assets as compared to approximately 80% for the period ended December 31, Operating expenses remained relatively flat, increasing only $1.9 million from $41.5 million in 2011 to $43.4 million in This slight increase was due to higher compensation and benefit expenses required to retain key employees while the Mortgage Servicing segment was repositioned toward external business. Net interest expense for the Mortgage Servicing segment declined by $17.4 million from $33.4 million in the year ended December 31, 2011 to $16.0 million in the year ended December 31, This decrease was primarily driven by a decline in the total amount of advancing volume, which is financed using our advance funding facilities as well as lower financing costs due to the termination of a higher interest rate advance funding facility. As noted in the consolidated segment above, the reduction in the change in fair value of Mortgage Servicing Rights was due to a lower amount of portfolio run-off in the year ended December 31, 2012 when compared to the prior year. Mortgage Lending For the Year Ended December 31, Mortgage Servicing ($ in thousands) Revenue $71,678 $84,033 Operating expense 43,402 41,454 Income (loss) from operations 28,276 42,579 Other income (expense), net: Interest, net (15,981) (33,365) Change in fair value of mortgage servicing rights (8,454) (12,398) Income (loss) before income taxes $3,842 ($3,183) Our Mortgage Lending segment originates primarily conventional agency and government insured residential wholesale and retail loans. The following table summarizes the operating results from our Mortgage Lending segment for the periods indicated. For the Year Ended December 31, Mortgage Lending ($ in thousands) Revenue $27,301 $10,982 Operating expense 27,244 18,510 Income (loss) from operations 57 (7,528) Other income (expense), net: Interest, net (328) (30) Income (loss) before income taxes ($271) ($7,558) 77

83 Our Mortgage Lending revenue increased 149% or $16.3 million from $11.0 million in the year ended December 31, 2011 to $27.3 million in the year ended December 31, This increase was due to new senior management, an expansion of the business with the opening of new branch offices as well as improving fundamentals in the residential real estate market. Operating expenses for the Mortgage Lending segment increased 47% or $8.7 million from $18.5 million in the year ended December 31, 2011 to $27.2 million in the year ended December 31, This increase was due to investment in infrastructure and personnel associated with current and anticipated growth, including direct production costs associated with greater lending volume, higher compensation and benefit expenses related to additional staff required to support higher lending volume and growth in our branch count from 26 locations as of the year ended December 31, 2011 to 30 locations as of the year ended December 31, Net interest expense increased by $0.3 million in 2012 as compared to the prior year due to the increased use of our warehouse financing facilities associated with the higher lending volumes achieved in 2012 as compared to Real Estate Our Real Estate segment includes two sub-segments; Real Estate Services and Real Estate Logistics. Real Estate Services includes our brokerage, title, settlement, and portfolio services divisions, while Real Estate Logistics includes our property asset management, property rental and property preservation and restoration divisions. The following table summarizes the operating results from our Real Estate segment for the periods indicated. Our Real Estate segment revenue declined 18% or $10.7 million from $60.5 million in the year ended December 31, 2011 to $49.8 million in the year ended December 31, This decline was primarily driven by a reduction in REO sales in our real estate services division. Revenue within our real estate services division declined $12.6 million to $24.9 million for 2012 versus the prior year. However, revenue increased 95% or $4.4 million in our property preservation and restoration division to $9.0 million in 2012 versus the prior year, which helped to offset declines within the brokerage division. The growth in our property preservation and restoration division was driven by improving residential market fundamentals and the resulting increase in home renovation demand. Operating expenses in the Real Estate segment declined 4% or $1.4 million from $35.2 million in 2011 to $33.7 million in This decline was due to lower compensation and benefit expenses resulting from decreased staffing levels as well as reduced shared service expenses due to less need for third party services such as human resources, legal and technology support. Asset Management For the Year Ended December 31, Real Estate ($ in thousands) Revenue $49,824 $60,479 Operating expense 33,717 35,156 Income (loss) from operations 16,107 25,323 Other income (expense), net: Interest, net 56 (31) Income (loss) before income taxes $16,163 $25,292 Our Asset Management segment is comprised of two businesses; CCM and CIS. CCM manages private investment capital focused on investment strategies in the mortgage loan and US residential housing markets. CIS is an SEC registered broker-dealer and a member of FINRA. CIS and CCM provide capital sourcing services and consulting services to third party clients in the mortgage loan and US residential housing markets. 78

84 The following table summarizes the operating results from our Asset Management segment for the periods indicated. Our Asset Management segment revenues increased 336% or $6.0 million from $1.8 million for the year ended December 31, 2011 to $7.8 million for the year ended December 31, This increase was primarily driven by growth in AUM by $1,078.8 million from $288.3 million in the year ended December 31, 2011 to $1,367.1 million for the year ended December 31, 2012 due to increased investment in our non-performing loan and REO-to-rent strategies. Operating expenses in the Asset Management segment increased 9% or $0.7 million from $7.6 million in the year ended December 31, 2011 to $8.2 million in the year ended December 31, This increase was primarily due to increased compensation and benefit expenses as staffing levels increased in order to support additional investment strategies and expand the consulting services. Asset Management headcount increased by approximately 9 employees as of the end of Corporate Support For the Year Ended December 31, Asset Management ($ in thousands) Revenue $7,801 $1,789 Operating expense 8,227 7,569 Income (loss) from operations (426) (5,781) Other income (expense), net: Interest, net (331) (334) Gain on investment in affiliated partnerships 65 (58) Income (loss) before income taxes ($691) ($6,172) Our Corporate Support segment consists of centralized services including human resources, finance and accounting, technology support, legal, risk management and executive administration that provide support services to all of our operating segments. Operating expenses within the Corporate Support segment increased 21% or $9.1 million from $42.7 million for the year ended December 31, 2011 to $51.8 million from the year ended December 31, This increase was driven by compensation and benefit expenses required to support higher staffing levels as well as an increase in office space needed within Corporate Support in order to support the growth in our Mortgage Servicing, Mortgage Lending, Real Estate and Asset Management segments. 79

85 Liquidity and Capital Resources As of September 30, 2013, we had cash and cash equivalents of $52.5 million, not including restricted cash of $3.2 million. Additional assets include servicer advances of $163.9 million, loans held for sale of $145.5 million, Mortgage Servicing Rights of $53.2 million and investments in affiliated partnerships of $7.9 million. Corresponding liabilities as of September 30, 2013 include servicing advances lines of credit with $105.4 million outstanding, a draw on warehouse lines of credit of $132.2 million and servicing obligations of $64.4 million. Total assets amounted to $463.6 million as of September 30, 2013 as compared to total liabilities of $370.7 million for the same period. Financing Facilities We maintain financing facilities that support our Mortgage Servicing and Lending businesses in their daily operations. As of September 30, 2013 our Mortgage Servicing segment maintained an advance funding facility with Wells Fargo Bank with a commitment amount of $115.0 million. The total amount outstanding on this facility was $105.4 million as of September 30, This facility carries an interest rate of LIBOR per annum, payable monthly. As of September 30, 2013, our Mortgage Lending segment maintained four warehouse lines of credit with aggregate line limits of $246.0 million and advance limits ranging from 95% to 98%. As of September 30, 2013 the outstanding balance across the four lines was $132.2 million. Additional debt includes $2.4 million of notes payable related to transportation assets. For more information regarding liquidity and capital resources please refer to the notes of the consolidated financial statements. Critical Accounting Policies Fair Value Option The Company follows Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) 825, Financial Instruments, which permits entities to choose, at specified election dates, to measure eligible items at fair value (the Fair Value Option ). Changes in the fair value of eligible items are reported in operations and additionally, fees and costs associated with instruments for which the Fair Value Option is elected are recognized as earned and expensed as incurred, rather than deferred. The Fair Value Option is applied on an instrument by instrument basis (with certain exceptions), is irrevocable (unless a new election date occurs) and is applied only to an entire instrument. The Company has elected the Fair Value Option on its MSRs and mortgage loans held for sale ( LHFS ) and plans to elect the Fair Value Option for the Notes. Fair Value of Financial Instruments The Company follows FASB ASC , Fair Value Measurements and Disclosures, with respect to financial and nonfinancial assets and liabilities that are measured at estimated fair value. The Company s financial instruments measured at fair value on a recurring basis include MSRs, LHFS and derivative financial instruments. The Company does not have any assets and liabilities that are measured at fair value on a nonrecurring basis, except for goodwill. Management has concluded that it is not practical to determine the estimated fair value of amounts due from/to affiliates, as reported in the accompanying consolidated statements of financial condition. Disclosure rules for fair value measurements require that for financial instruments for which it is not practicable to estimate fair value, information pertinent to those instruments be disclosed. Fair Value Measurements Fair value measurements under FASB ASC 820 establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. FASB ASC 820 defines fair value as the price that would be 80

86 received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. FASB ASC 820 also prioritizes the use of market-based assumptions, or observable inputs, over entity-specific assumptions or unobservable inputs when measuring fair value and establishes a three-level hierarchy based upon the relative reliability and availability of the inputs to market participants for the valuation of an asset or liability as of the measurement date. The fair value hierarchy designates quoted prices in active markets for identical assets or liabilities at the highest level and unobservable inputs at the lowest level. FASB ASC provides additional guidance for estimating fair value in accordance with FASB ASC when the volume and level of market activity for the asset or liability have significantly decreased. FASB ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly. It acknowledges that in these circumstances quoted prices may not be determinative of fair value. FASB ASC emphasizes that even if there has been a significant decrease in the volume and level of market activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Under FASB ASC , quoted prices for assets or liabilities in inactive markets may require adjustment due to uncertainty as to whether the underlying transactions are orderly. There is little information, if any, to evaluate if individual transactions are orderly in an inactive market. Accordingly, the Company is required to evaluate the facts and circumstances to determine whether the transaction is orderly based on the weight of the evidence. FASB ASC does not designate a specific method for adjusting a transaction or quoted price, however, it does provide guidance for determining how much weight to give a transaction or quoted price. Price quotes derived from transactions that are not orderly are not considered to be determinative of fair value and should be given less weight, if any, when estimating fair value. Recent Developments On or about December 31, 2013, we entered into the Exchange Transaction, as discussed in The Exchange Transaction in this Offering Circular. Immediately following the completion of the Exchange Transaction, all assets of the Legacy Carrington Funds, including preferred membership interests in CMS, were owned by us and all of the Notes were owned by the limited partners of the Legacy Carrington Funds. The following are significant subsequent events affecting the Company during 2013: In September and October 2013, CHC received approximately $6.2 million as a return of capital from its investment in non-performing loan funds. In November 2013, CMS acquired Mortgage Servicing Rights for approximately $4.5 billion in unpaid principal balance of residential mortgage loans originally originated through Ginnie Mae loan programs. The purchase price of approximately $9.4 million was financed by a third-party, who contemporaneously acquired the excess servicing strip from CMS of 27 basis points out of a total of 45 basis point of servicing fee, for approximately $30.8 million, leaving CMS with approximately $21.4 million in cash. Contractual Obligations On February 15, 2013, CMS entered into a Flow Subservicing Agreement with a large financial institution to subservice a portfolio of non-performing loans. This agreement is terminable by the client with or without cause or penalty at any time. Please see Risk Factors Risks Relating to Our Business Servicing Our counterparties may terminate our servicing rights and subservicing contracts, which could adversely affect our business, financial condition and results of operations. On November 28, 2012, CRES and Carrington Insurance Agency, LLC entered into an asset purchase agreement with a third party buyer to sell certain assets and liabilities of Carrington Insurance Agency, LLC s insurance agency business for total consideration of $21,250,000. Under the agreement, the sellers may be required to refund to the buyer up to $18,994,510, as of September 30, 2013, of the consideration received from such sale if target levels of net written premiums are not produced within specified periods. Please see Risk Factors Risks 81

87 Relating to Our Business Real Estate We may be subject to significant losses relating to refunds from our insurance referral program. On January 8, 2010, CPS entered into a Property Management Agreement with a GSE, whereby CPS provides property management and other related services for the GSE s REO inventory in various states. The Property Management Agreement, as amended and restated on November 11, 2011, has a two year term that may be renewed for up to two additional two year terms at the sole option of the GSE. The parties are currently negotiating the terms of a Second Amended and Restated Property Management Agreement. Please see Risk Factors Risks Relating to Our Business Real Estate Our property rental business is heavily dependent on government rental programs and Lending We are highly dependent upon programs administered by GSEs and other programs administered by governmental entities to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our business, liquidity, financial position and results of operations. Starting in late 2008 through November 30, 2013 CCM and CMS have entered into asset management and servicing agreements to manage and service approximately $4.4 billion of mortgage loans and REO properties (by UPB) owned in trusts funded by a number of investors. Each of these agreements provides for payment of certain management fees and servicing fees to CCM and CMS, respectively. The investors that funded these trusts can terminate these agreements upon certain customary events of default. With respect to approximately 33 of the trusts, accounting for approximately $3.66 billion of Mortgage Loans (by UPB as of October 31, 2013), the investor has the right to terminate the agreements at any time with only a minimal financial penalty payable to CCM and CMS. The investor with respect to 32 of these trusts, accounting for approximately $3.64 billion of Mortgage Loans (by UPB as of October 31, 2013) has indicated that it has no present intention of investing further capital with us, but no investor has terminated any of their servicing and asset management agreements with us. Please see Risk Factors- Risks Relating to Our Business Asset Management The asset management business is intensely competitive, which could have a material adverse impact on our business and Our asset management segment is subject to investigation by the SEC and the Our asset management segment is currently highly dependent on business from one client Financing Facilities Our servicing segment s debt consists of advance financing facilities. Advance Financing Facilities Our advance financing facilities are used to finance our obligations to pay advances as required by our servicing agreements. These servicing agreements may require us to advance certain payments to the owners of the mortgage loans we service, including P&I advances, T&I advances, or legal fees, maintenance and preservation costs, or corporate advances. We draw on one or more of our advance financing facilities periodically throughout the month, as necessary, and we repay any facilities on which we have drawn when advances are recovered through liquidations, prepayments and reimbursement of advances from modifications. In March 2013 CMS sponsored a securitization of servicing advances and deferred servicing fees funded by a $100,000,000 rated floating rate term note and a $45,000,000 unrated variable funding note, each with a maturity date of February 14, CMS expects that substantially all of its servicing advance and deferred servicing fee financing needs will be supported by this securitization until the maturity date of the notes. Lending Segment Our lending segment s debt consists of warehouse facilities. Warehouse Facilities Our warehouse facilities are used to finance our loan originations on a short-term basis. In the ordinary course, we originate mortgage loans on a near-daily basis, and we use a combination of our four warehouse facilities and 82

88 cash to fund the loans. We agree to transfer to our counterparty certain mortgage loans against the transfer of funds by the counterparty, with a simultaneous agreement by the counterparty to transfer the loans back to us at a date certain, or on demand by us, against the transfer of funds from us. We typically renegotiate our warehouse facilities on an annual basis. See Industry Originations Industry Overview. We sell our newly originated mortgage loans to our counterparty to finance the originations of our mortgage loans and typically repurchase the loans within 30 days of origination when we sell the loans to an investor or into a government securitization. Warehouse Lender Maximum Borrowing Borrowings as of Maturity Date Amount September 30, 2013 Pacific Premier Bank $20,000,000 - (1) UBS $100,000,000 61,357,218 September 3, 2014 Barclays $125,000,000 70,883,679 August 13, 2014 Wells Fargo $1,000,000 - March 20, 2014 Totals: $246,000,000 $132,240,897 (1) This agreement terminates within 90 days written notice by either party. Derivatives We enter into interest rate lock contracts with prospective borrowers. These commitments are carried at fair value in accordance with ASC 815, Derivatives and Hedging. ASC 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of interest rate lock contracts are based on quoted market values and are recorded in other assets in the consolidated balance sheets. The initial and subsequent changes in the value of interest rate lock contracts are a component of gain (loss) on mortgage loans held for sale. We actively manage the risk profiles of our interest rate lock contracts and mortgage loans for sale on a daily basis. To manage the price risk associated with interest rate lock contracts, we enter into forward sales of RMBS in an amount equal to the portion of the interest rate contract expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, we enter into forward sales of RMBS to deliver mortgage loan inventory to investors. The estimated fair values of forward sales of RMBS and forward sale commitments are based on quoted market values and are recorded as a component of other assets and mortgage loans held for sale, respectively, in the consolidated balance sheets. The initial and subsequent changes in value on forward sales of RMBS and forward sale commitments are a component of gain (loss) on mortgage loans held for sale. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of market risks which include interest rate risk, consumer credit risk and counterparty credit risk. Interest Rate Risk Changes in interest rates affect our operations primarily as follows: 83

89 Asset Management Segment an increase in interest rates could slow resolutions and slow the payment of our incentive based income; an increase in interest rates would generally decrease the attractiveness of opportunities for the asset manager that funds out other businesses. Servicing Segment an increase in interest rates would increase our costs of servicing our outstanding debt, including our ability to finance servicing advances; a decrease (increase) in interest rates would generally increase (decrease) prepayment rates and may require us to report a decrease (increase) in the value of our MSRs; a change in prevailing interest rates could impact our earnings from our custodial deposit accounts; and an increase in interest rates could generate an increase in delinquency, default and foreclosure rates resulting in an increase in both operating expenses and interest expense and could cause a reduction in the value of our assets. Lending Segment a substantial and sustained increase in prevailing interest rates could adversely affect our lending volume because refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; and an increase in interest rates would increase our costs of servicing our outstanding debt, including our ability to finance loan originations. Real Estate Segment an increase in interest rates could slow the sales of real estate properties. We actively manage the risk profiles of interest rate lock contracts and mortgage loans held for sale on a daily basis and enter into forward sales of RMBS in an amount equal to the portion of the interest rate lock contract expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, we enter into forward sales of RMBS to deliver mortgage loan inventory to investors. Consumer Credit Risk We sell our loans on a non-recourse basis. We also provide representations and warranties to purchasers and insurers of the loans sold that typically are in place for the life of the loan. In the event of a breach of these representations and warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. If there is no breach of a representation and warranty provision, we have no obligation to repurchase the loan or indemnify the investor against loss. The outstanding UPB of loans sold by us represents the maximum potential exposure related to representation and warranty provisions. We maintain a reserve for losses on loans repurchased or indemnified as a result of breaches of representations and warranties on our sold loans. Our estimate is based on our most recent data regarding loan repurchases and indemnity payments, actual credit losses on repurchased loans, recovery history, among other factors. Our assumptions are affected by factors both internal and external in nature. Internal factors include, among other things, level of loan sales, as well as to whom the loans are sold, the expectation of credit loss on repurchases and indemnifications, our success rate at appealing repurchase demands and our ability to recover any losses from third 84

90 parties. External factors that may affect our estimate includes, among other things, the overall economic condition in the housing market, the economic condition of borrowers, the political environment at investor agencies and the overall U.S. and world economy. Many of the factors are beyond our control and may lead to judgments that are susceptible to change. Counterparty Credit Risk We are exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements. We monitor the credit ratings of our counterparties and do not anticipate losses due to counterparty nonperformance. GLOSSARY OF INDUSTRY AND OTHER TERMS Adjustable Rate Mortgage. A mortgage loan where the interest rate on the loan adjusts periodically based on a specified index and margin agreed to at the time the loan is originated. Agency and Government Conforming Loan. A mortgage loan that meets all requirements (loan type, maximum amount, LTV ratio and credit quality) for purchase by Fannie Mae, Freddie Mac or FHA. Basic Servicing Fee. The servicing fee paid in an excess MSR arrangement to a servicer in exchange for the provision of servicing functions on a portfolio of mortgage loans, after which the servicer and the co-investment partner share the excess fees on a pro rata basis. Compensating Interest. Money paid to the owner of a mortgage loan or pool of mortgage loans on a monthly basis (typically by the servicer from its own funds) to compensate the owner of the mortgage loan for interest shortfalls caused by intra-month prepayments. Consumer Direct Retail Originations. A type of mortgage loan origination pursuant to which a lender markets refinancing and purchase money mortgage loans directly to selected consumers through telephone call centers or the Internet. Conventional Mortgage Loans. A mortgage loan that is not guaranteed or insured by the FHA, the Department of Veterans Affairs or any other government agency. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of GSEs. Corporate Advance. A servicing advance to pay costs and expenses incurred in foreclosing upon, preserving and selling REO, including attorneys and other professional fees and expenses incurred in connection with foreclosure and liquidation or other legal proceedings arising in the course of servicing the mortgage loans. Credit-Sensitive Loan. A mortgage loan with certain characteristics such as low borrower credit quality, relaxed original underwriting standards and high LTV, which we believe indicates that the mortgage loan presents an elevated credit risk. Delinquent Loan. A mortgage loan that is 30 or more days past due from its scheduled due date. Department of Veterans Affairs. The Department of Veterans Affairs is a cabinet-level department of the U.S. federal government, which guarantees certain home loans for qualified borrowers. Distributed Retail Originations. A type of mortgage loan origination pursuant to which a lender markets primarily purchase money mortgage loans directly to consumers from local branches. Excess Fees. In an excess MSR arrangement, the servicing fee cash flows on a portfolio of mortgage loans after payment of the basic servicing fee. 85

91 Excess MSRs. MSRs with a co-investment partner pursuant to which the servicer receives a basic servicing fee and the servicer and co-investment partner share the excess fees. This co-investment strategy reduces the required upfront capital from the servicer. Fannie Mae. The Federal National Mortgage Association, a federally chartered association that buys mortgage loans from lenders and resells them as securities in the secondary mortgage market. Federal Housing Administration. The FHA is a U.S. federal government agency within HUD. It provides mortgage insurance on loans made by FHA-approved lenders in compliance with FHA guidelines throughout the United States. Float Income. Interest income earned by a servicer on (i) funds collected from borrowers during the period of time between receipt of the funds and the remittance of the funds to investors and (ii) funds collected from borrowers for the payment of taxes and insurance, where applicable. Freddie Mac. The Federal Home Loan Mortgage Corporation, a federally chartered corporation that buys mortgage loans from lenders and resells them as securities in the secondary mortgage market. Ginnie Mae. The Government National Mortgage Association, a wholly-owned U.S. federal government corporation that is an agency of the Department of Housing and Urban Development ( HUD ). The main focus of Ginnie Mae is to ensure liquidity for U.S. federal government-insured mortgages including those insured by the FHA. Ginnie Mae guarantees to investors who purchase RMBS the timely payment of principal and interest. Ginnie Mae securities are the only RMBS to carry the full faith and credit guarantee of the U.S. federal government. Government-Sponsored Enterprise ( GSE ). Financing corporations established by the U.S. Congress, including Fannie Mae, Freddie Mac and the Federal Home Loan Banks. High Touch Servicing. A servicing model that is designed to increase borrower repayment performance with a view towards home ownership preservation and to decrease borrower delinquencies and defaults on mortgage portfolios. This model emphasizes a focus on loss mitigation and frequent interactions with borrowers via telephone, mail, electronic communications and other personal contact methods. Home Affordable Modification Program ( HAMP ). A U.S. federal government program designed to help eligible homeowners avoid foreclosure through mortgage loan modifications. Participating servicers may be entitled to receive financial incentives in connection with loan modifications they enter into with eligible borrowers and subsequent success fees to the extent that a borrower remains current in any agreed upon loan modification. Independent Loan Servicer. A loan servicer that is not affiliated with a depository institution. Loan Modification. Temporary or permanent modifications, including re-modifications, to the terms and conditions of a borrower s original mortgage loan. Loan modifications are usually made to loans that are in default, or in imminent danger of defaulting. Loan-to-Value Ratio ( LTV ). The UPB of a mortgage loan as a percentage of the total appraised value of the property that secures the loan. LTV is one of the key risk factors that originators assess when qualifying borrowers for a mortgage loan. A loan with a low LTV is seen as less of a credit risk than a loan with a high LTV. An LTV over 100% indicates that the UPB of the mortgage loan exceeds the value of the property. Loss Mitigation. The range of servicing activities designed by a servicer to minimize the losses suffered by the owner of a mortgage loan in connection with a borrower default. Loss mitigation techniques include short-sales, deed-in-lieu of foreclosures and loan modifications, among other options. Making Home Affordable Plan ( MHA ). Also known as the President of the United States Homeowner Affordability and Stability Plan. A U.S. federal government program designed to help eligible homeowners avoid 86

92 foreclosure and keep their homes by refinancing their existing mortgages. MHA loans are available to eligible homeowners with LTVs ratios of up to 125%. Mortgage Servicing Right. The right to service a loan or pool of loans and to receive a servicing fee. MSRs may be bought and sold, resulting in the transfer of loan servicing obligations. Non-Conforming Mortgage Loan. A mortgage loan that does not meet the standards of eligibility for purchase or securitization by Fannie Mae, Freddie Mac or Ginnie Mae. Non-Recoverable Advance. A servicing advance made by a servicer, which will not ultimately be recoverable by the servicer from funds received upon liquidation of the underlying property of the mortgage loan. Originations. The process through which a lender provides a mortgage loan to a borrower. P&I Advance. A servicing advance to cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I Advances serve to ensure the cash flows paid to holders of securities issued by the residential RMBS trust. Prepayment Speed. The rate at which mortgage prepayments occur or are projected to occur. The statistic is calculated on an annualized basis and expressed as a percentage of the outstanding principal balance. Primary Servicer. The servicer that owns the right to service a mortgage loan or pool of mortgage loans. This differs from a subservicer, which has a contractual right with the primary servicer to service a mortgage loan or pool of mortgage loans in exchange for a subservicing fee. Prime Mortgage Loan. Generally, a high-quality mortgage loan that meets the underwriting standards set by Fannie Mae, Freddie Mac and Ginnie Mae and is eligible for purchase or securitization in the secondary mortgage market. Conventional mortgage loans generally have lower default risk and are made to borrowers with good credit records and a monthly income at least three to four times greater than their monthly housing expenses (mortgage payments plus taxes and other debt payments). Mortgages not classified as conventional mortgages are generally called either jumbo prime or non-prime. QRM. Residential mortgages that are qualified under the risk retention rules of the Dodd-Frank Act. Real Estate Owned ( REO ). Property acquired by the servicer on behalf of the owner of a mortgage loan or pool of mortgage loans, usually through foreclosure or a deed-in-lieu of foreclosure on a defaulted loan. The servicer or a third party real estate management firm is responsible for selling the REO. Net proceeds of the sale are returned to the owner of the related loan or loans. In most cases, the sale of REO does not generate enough to pay off the balance of the loan underlying the REO, causing a loss to the owner of the related mortgage loan. Recapture Rate. For refinance eligible portfolios, the ratio of the UPB of loans re-originated to the UPB of the loans voluntarily paid off by the borrowers over a defined measurement period. The present calculation of the denominator includes borrowers who may have paid off their mortgage by any means including selling their house. Re-origination. The process of actively working with existing borrowers to refinance their mortgage loans. By re-originating loans for existing borrowers, we retain the servicing rights, thereby extending the longevity of the servicing cash flows. Residential Mortgage-Backed Security ( RMBS ). A fixed income security backed by pools of residential mortgages. Servicing. The performance of contractually specified administrative functions with respect to a mortgage loan or pool of mortgage loans. Duties of a servicer typically include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic reports and managing insurance. A servicer is generally 87

93 compensated with a specific fee outlined in the contract established prior to the commencement of the servicing activities. Servicing Advance. In the course of servicing loans, servicers are required to make servicing advances that are reimbursable from collections on the related mortgage loan. There are typically three types of servicing advances: P&I Advances, T&I Advances and Corporate Advances. Servicing advances are reimbursed to the servicer if and when the borrower makes a payment on the underlying mortgage loan or upon liquidation of the underlying mortgage loan. The types of servicing advances that a servicer must make are set forth in its servicing agreement with the owner of the mortgage loan or pool of mortgage loans. Servicing Advance Facility. A secured financing facility backed by a pool of mortgage servicing advance receivables made by a servicer to the owner of a mortgage loan or pool of mortgage loans. Special Servicers. Special servicers are responsible for enhancing recoveries on delinquent loans and REO assets. Loans are transferred to a special servicer based on predetermined delinquency or other performance measures. Subservicing. Subservicing is the process of outsourcing the duties of the primary servicer to a third party servicer. The third party servicer performs the servicing responsibilities for a fee and is typically not responsible for making servicing advances. T&I Advance. A servicing advance to pay specified expenses associated with the preservation of a mortgaged property or the liquidation of defaulted mortgage loans, including but not limited to property taxes, insurance premiums or other property-related expenses that have not been timely paid by borrowers in order for the lien holder to maintain their interest in the property. Unpaid Principal Balance. The amount of principal outstanding on a mortgage loan or a pool of mortgage loans. UPB is used as a means of estimating the future revenue stream for a servicer. Warehouse Facility. A type of facility used to finance mortgage loan originations. Pursuant to a warehouse facility, a loan originator typically agrees to transfer to a counterparty certain mortgage loans against the transfer of funds by the counterparty, with a simultaneous agreement by the counterparty to transfer the loans back to the originator at a date certain, or on demand, against the transfer of funds from the originator. Wholesale Originations. A type of mortgage loan origination pursuant to which a lender acquires refinancing and purchase money mortgage loans from third party mortgage brokers or correspondent lenders. INDUSTRY CHC owns and operates multiple businesses that cover virtually every aspect of single-family real estate and single family real estate transactions. We are organized into four distinct, but related, operating segments: asset management, which oversees investments in U.S. real estate and mortgage markets; mortgage servicing; mortgage lending; and a real estate segment, which is divided into a real estate logistics sub-segment, which provides property asset management, preservation and rental services and a real estate brokerage sub-segment which is comprised of a retail residential brokerage company as well as title and escrow services. Set forth below is a general overview of the industries in which we operate. Asset Management Overview Our ability to grow our revenue and net income depends on our ability to continue to attract capital and investors, secure investment opportunities, obtain financing for transactions, consummate investments and deliver attractive investment returns. These factors are impacted by a number of market conditions, including: The strength and competitive dynamics of the alternative asset management industry, including the amount of capital invested in, and withdrawn from, alternative investments. Our share of the capital that is allocated 88

94 to alternative assets depends on the strength of our investment performance relative to the investment performance of our competitors. The amount of capital that we attract and our investment returns directly affect the level of our AUM, which in turn affects the fees, carried interest and other amounts that we earn in connection with our asset management activities. The success of our managed accounts, funds and finance vehicles depends primarily on price dislocation in the markets for U.S. housing and MSRs. As a result, our business generally benefits from a recovering U.S. housing market. The success of our investment vehicles also depend on available leverage for U.S. housing investments. Deep liquidity in these markets will allow us to effectively leverage the investments of our investment vehicles to increase their returns. The availability of investment opportunities and prevalence of willing seller in the marketplace. The presence of asset prices that allow us to achieve our investment and return objectives. Beginning in the second half of 2007 and throughout 2008 and the first half of 2009, global financial markets experienced significant disruptions and the United States and many other economies experienced a prolonged economic downturn, resulting in heightened credit risk, reduced valuation of investments and decreased economic activity. Concerns over the availability and cost of credit, the mortgage market, a declining real estate market, inflation, energy costs and geopolitical issues contributed to increased volatility and diminished expectations for the economy and the financial markets. Market conditions began to show initial signs of recovery in the last several months of Most global equity and debt markets moved higher in the second half of 2009 in anticipation of sustained economic recovery. Credit markets experienced similar significant improvement, fueled by improving economic data and a significant increase in demand and liquidity, as credit spreads tightened and implied default rates declined. Recent U.S. economic data have been improving and stabilizing in part, as unemployment rates began to stabilize since October 2009 and the gross domestic product has returned to growth in the latter part of U.S. housing prices have increased every quarter since the beginning of 2010, although such increases have not been evenly experienced in all geographies. In addition, the recent increase in mortgage interest rates has the potential to slow the nascent recovery of the U.S. housing market. While economic conditions have recently improved, that trend may not continue and the extent of the current economic improvement is unknown. Even if growth continues, it may be at a slow rate for an extended period of time and other economic conditions, such as the residential real estate environment and employment rates, may continue to be weak. In addition, some economists believe that steps taken by national governments to stabilize financial markets and improve economic conditions could lead to an inflationary environment. Furthermore, financial markets, while somewhat less volatile than in 2007, 2008 and early 2009, continue to experience disruption and volatility. Although certain segments of our business operations may be adversely affected by these market disruptions, the diversity of our operations and product lines has allowed us to generate attractive returns, including during periods of housing market volatility and disruptions by using our affiliated servicer and real estate services platform to make investments at attractive prices and on favorable terms. Mortgage Servicing Industry Overview Loan servicing predominantly involves the calculation, collection and remittance of principal and interest payments, the administration of mortgage escrow accounts, the collection of insurance claims, the administration of foreclosure procedures, the management of REO and the disbursement of required advances. A residential mortgage loan is generally serviced by a loan servicer. Primary servicers, which are loan servicers that own the MSRs they service, generally earn a contractual per loan fee on the UPB of loans serviced, as well as incentive fees and associated ancillary fees, such as late fees. Subservicers, which are loan servicers that service loans on behalf of other MSR or mortgage owners, generally receive a contractual per loan fee. Consequently, a loan 89

95 servicer can create value for both itself and the mortgage owner and, in the case of a subservicing arrangement, for the owner of the MSRs, by increasing the number of borrowers that remain current in their repayment obligations and resolving delinquent assets in an efficient manner. In a weak economic and credit environment with elevated delinquencies and defaults, servicing is operationally more challenging and more capital intensive as servicers need to add and train staff to manage the increase in delinquent borrowers. In addition, servicers are generally required to make advances on delinquent mortgage loans for principal and interest payments, taxes, insurance, legal fees and property maintenance fees, all of which are typically recovered upon foreclosure or liquidation. Current trends in the mortgage servicing industry include elevated borrower delinquencies, a significant increase in loan modifications and the need for high touch servicing expertise, which emphasizes borrower interaction to improve loan performance and reduce loan defaults and foreclosures. In the aftermath of the U.S. financial crisis, the residential mortgage industry is undergoing major structural changes that affect the way residential mortgage loans are originated, owned and serviced. These changes have benefited and should continue to benefit non-bank mortgage servicers. Moreover, bank owned servicers are currently under tremendous pressure to exit or reduce their exposure to the mortgage servicing business as a result of increased regulatory scrutiny and capital requirements, headline risk associated with sizeable legal settlements, as well as potentially significant earnings volatility. In addition, as the mortgage industry continues to struggle with elevated borrower delinquencies, the special servicing function has become a particularly important component of a mortgage servicer s role and, we believe, a key differentiator among mortgage servicers, as GSEs and other mortgage owners are focused on home ownership preservation and superior credit performance. However, banks servicing operations, which are primarily oriented towards payment processing, are often ill-equipped to maximize loan performance through high touch servicing. This trend has led to increased demand for experienced high touch servicers and provides us opportunities to acquire additional MSRs, including co-investing with financial partners in excess MSRs, and to enter into additional subservicing contracts. As a result of these factors and the overall increased demands on servicers by mortgage owners, mortgage servicing is shifting from banks to non-bank mortgage servicers. We believe this represents a fundamental change in the mortgage servicing industry and expect the trend to continue in the future. Because the mortgage servicing industry is characterized by high barriers to entry, including the need for specialized servicing expertise and sophisticated systems and infrastructure, compliance with GSE and client requirements, compliance with state-bystate licensing requirements and the ability to adapt to regulatory changes at the state and federal levels, we believe we are one of the few mortgage servicers competitively positioned to benefit from the shift. However, we cannot predict how many, if any, MSRs or subservicing opportunities will be available in the future; if we will be able to acquire MSRs from third parties, on a standalone basis or by co-investing with financial partners in excess MSRs, if at all; if we will be able to enter into additional subservicing contracts, including any transactions facilitated by GSEs; or whether these MSRs will be available at acceptable prices or on acceptable terms. See Risk Factors Servicing We may not be able to maintain or grow our business if we cannot identify and acquire MSRs or enter into additional servicing and subservicing agreements on favorable terms or achieve organic growth through mortgage lending and real estate services and we may not be able to recover our significant investments in personnel and our technology platform if we cannot identify and acquire MSRs or enter into additional subservicing agreements on favorable terms, which could adversely affect our business, financial condition and results of operations. One of the significant challenges facing servicers is the requirement for making advances on delinquent mortgage loans. There are generally three types of advances: P&I Advances: Advances to cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I Advances serve to smooth the cash flows paid to holders of securities issued by the residential RMBS trust. 90

96 T&I Advances: Advances to pay specified expenses associated with the preservation of a mortgaged property or the liquidation of defaulted mortgage loans, including, but not limited to, property taxes, insurance premiums or other property-related expenses that have not been timely paid by borrowers. Corporate Advances: Advances to pay costs and expenses incurred in loan foreclosure and REO preservation and sale, including attorneys and other professional fees and expenses incurred in connection with foreclosure and liquidation or other legal proceedings arising in the course of servicing mortgage loans. A servicer may decide to stop making P&I Advances prior to liquidation of the mortgage loan if the servicer deems future P&I Advances to be non-recoverable. In this circumstance, T&I Advances and Corporate Advances will likely continue in order to preserve the existing value of the mortgage loan and complete the foreclosure and REO sale process. In each of these instances, non-bank servicers typically borrow funds to make these advances until they are able to recover the amounts advanced. For additional information about our advance facilities see Management s Discussion and Analysis of Financial Condition and Results of Operations Financing Facilities Advance Financing Facilities. Mortgage Lending Industry Overview The U.S. residential mortgage market consists of a primary mortgage market that links borrowers and lenders and a secondary mortgage market that links lenders and investors. In the primary mortgage market, residential mortgage lenders such as commercial banks, mortgage companies, savings institutions, credit unions and other financial institutions originate or provide mortgages to borrowers. Lenders obtain liquidity for originations in a variety of ways, including by selling mortgages or mortgage-related securities into the secondary mortgage market. The secondary mortgage market consists of institutions engaged in buying and selling mortgages in the form of whole loans, which represent mortgages that have not been securitized, and mortgage-related securities. The GSEs and a government agency, Ginnie Mae, participate in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed mortgage-related securities. Following the financial crisis, the U.S. residential mortgage originations sector has primarily offered conventional agency and government conforming mortgage loans to borrowers. Non-prime and alternative lending programs and products represent only a small fraction of total originations since the crisis. This has led to a consolidation among mortgage lenders in both the retail and wholesale channels and has resulted in less competition. In addition to such consolidation, some mortgage originators have exited the market entirely. Originations in the mortgage sector include both purchase and refinance transactions. Originations volume is impacted by changes in interest rates and the housing market. Accordingly, purchase-driven mortgages are expected to increase substantially as the economy continues to stabilize, the housing market continues to recover and interest rates begin to climb. In addition, there continue to be changes in legislation and licensing in an effort to simplify the consumer mortgage experience, which require technology changes and additional implementation costs for loan originators. We expect legislative changes will continue in the foreseeable future. See Risk Factors Extensive regulation of our business affects out activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus or legislative or regulatory changes could adversely affect our business. Loan Originations Process Residential mortgage loans are generally originated through either a direct retail lending channel or a wholesale mortgage brokerage network. A direct retail lending channel consists of a centralized retail segment and/or distributed retail branches. A centralized retail segment is a telephone based segment with multiple loan officers in one location. Typical loan originations channels for a direct retail lending network include realtors, homebuilders, credit unions, banks, the Internet and refinances from existing servicing portfolios. In a direct lending retail network, the lender controls all 91

97 loan originations processes, including sourcing the borrower, taking the application and setting the interest rate, ordering the appraisal and underwriting, processing, closing and funding the loan. In the wholesale channel, loans are sourced by mortgage brokers and funded by the lender and generally closed in the lender s name. When originating loans through mortgage brokers, the mortgage broker s role is to identify the applicant, assist in completing the loan application, gather necessary information and documents and serve as the liaison to the borrower through the lending process. The lender reviews and underwrites the application submitted by the mortgage broker, approves or denies the application, sets the interest rate and other terms of the loan and, upon acceptance by the borrower and satisfaction of all conditions required by the lender, funds the loan. Because mortgage brokers conduct their own marketing, employ their own personnel to complete the loan applications and maintain contact with the borrowers, mortgage brokers represent an efficient loan originations channel. An important source of capital for the residential mortgage industry is warehouse lending. These facilities provide funding to mortgage loan originators until the loans are sold to investors in the secondary mortgage loan market. For additional information about our warehouse lines, see Management s Discussion and Analysis of Financial Condition and Results of Operations Lending Segment Warehouse Facilities. Real Estate Industry Overview Our real estate services business primarily operates in the U.S. residential real estate industry and derives the majority of its revenues from serving the needs of buyers, sellers and owners of residential homes. Residential real estate brokerage companies typically realize revenues in the form of a commission that is based on a percentage of the price of each home sold and/or a flat fee. As a result, the real estate industry generally benefits from rising home prices and increased volume of home sales (and conversely is harmed by falling prices and decreased volume of home sales). We believe that existing home transactions and the services associated with these transactions, such as property management, property restoration, real estate brokerage, title services and escrow services, represent an attractive segment of the residential real estate industry The industry is recovering from a significant and lengthy downturn that began in 2007 after having experienced significant growth since In response to the housing downturn, the U.S. government implemented certain actions during the past several years to help stabilize and assist in a recovery of the residential real estate market. These measures have included: (1) the placement of Fannie Mae and Freddie Mac in conservatorship in September 2008 and the funding by the government of billions of dollars to these entities to backstop shortfalls in their capital requirements; (2) the establishment, and subsequent expansion and extension, of a federal homebuyer tax credit for qualified buyers (that, as extended, required signed contracts on or before April 30, 2010); (3) as part of a broader plan to bring stability to credit markets and stimulate the housing market, the purchase of mortgage-backed securities by the Federal Reserve Board in an attempt to maintain low mortgage rates; (4) the continuation of the 2008 higher loan limits for the FHA, Freddie Mac and Fannie Mae loans most recently extended to the end of 2013; and (5) the availability of low-cost refinancing through Fannie Mae and Freddie Mac to certain homeowners negatively impacted by falling home prices, encouraging lenders to modify loan terms, including reductions in principal amount, with borrowers at risk of foreclosure or already in foreclosure. Based in part on these measures, the residential real estate market has shown signs of stabilization, particularly with respect to the number of home sale transactions and appreciation in housing prices. However, continued high unemployment and stagnant overall economic conditions could affect this nascent recovery. We believe that long-term demand for housing and the growth of our industry is primarily driven by affordability, the economic health of the domestic economy, positive demographic trends such as population growth, increases in the number of U.S. households, low interest rates, increases in borrowers that qualify as homebuyers and locally based dynamics such as demand relative to supply. In addition, since the beginning of the economic recovery, there have been opportunities for providers of real estate services, including property and asset management companies to service institutional owners of residential properties. These owners include institutional investors, banks and GSEs, who have large property inventories and require the services of property and asset managers with national capabilities and a wide scope of services, including preservation, rehabilitation, valuation, rental deployment, management and disposition. 92

98 BUSINESS Growth Strategies We expect to drive future growth in the following ways: Grow the Asset Management Business Our asset manager provides hands on management, through our other operating segments, for capital invested in mortgage loans and U.S. housing. We are distinct among our peers by connecting asset management with affiliated servicing, lending and real estate segments that have been designed to maximize the returns from investments in mortgage loans and U.S. housing. This asset level focus positions us to attract new capital for investment across a broad spectrum of opportunities, including non-performing and re-performing mortgage loans, REO, excess MSRs, GSEs and non-agency lending under the new QRM rules. All of our segments, including our asset management segment, are highly scalable, which allows us to profitably and efficiently take on new capital for investments without adding additional resources. Grow Residential Mortgage Servicing We believe there are significant opportunities to grow our business by acquiring additional MSRs and complementary assets, and we actively explore potential acquisition opportunities in the ordinary course of our business. As such, we intend to pursue capital-light strategies that will allow us to grow our MSR and subservicing portfolios with minimal capital outlays. Within our subservicing portfolio, since 2008, we have grown our servicing UPB to $1.1 billion with no capital outlays. Many of our recent subservicing transfers have been facilitated by GSEs and other large mortgage owners and we expect to leverage our relationships to complete additional subservicing transfers as mortgage owners seek to transfer credit stressed loans to high touch servicers through subservicing arrangements. Within our MSR portfolio, we have developed an innovative strategy for co-investing on a capitallight basis in excess MSRs with financial partners. In November 2013, we executed our first excess MSR transaction which, once fully boarded onto our platform, will add approximately $4.5 billion of loan servicing through excess MSRs. We expect to continue to deploy this co-investment strategy and other similar MSR acquisition strategies in the future. We are currently in discussions with several financial institutions to acquire additional MSRs relating to residential mortgage loans and complementary assets that could result in our entering into one or more definitive acquisition agreements prior to or immediately following the completion of this offering. We can provide no assurances that we will enter into these agreements or as to the timing or value of any potential acquisition. We anticipate that these capital-light strategies will allow us to significantly expand our mortgage servicing portfolio with reduced capital investment. Expand Lending to Complement Servicing We also expect our lending segment to play an important role in driving our growth and, in particular, enhancing the profitability of our servicing business. As one of only a few non-bank servicers with a fully integrated lending segment, we originate new GSE-eligible and FHA-insured loans for sale into the securitization market and retain the servicing rights associated with those loans. More importantly, we re-originate loans from existing borrowers seeking to take advantage of improved loan terms, thereby extending the longevity of the related servicing cash flows, which increases the profitability and the credit quality of the servicing portfolio. Through our lending segment, we generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market. Finally, we facilitate borrower access to government programs designed to encourage refinancings of troubled or stressed loans, improving overall loan performance. We believe this full range of abilities makes us a more attractive counterparty to entities seeking to transfer servicing to us, and we expect it to contribute to the growth of our servicing portfolio. Expand the Real Estate Segment Our real estate services sub-segment is a 41 state business that has representative agents in major metropolitan areas. The growth of brokerage business was supported and enhanced with referrals from our servicing segment. 93

99 Now that this business sub-segment is visible nationwide, opportunities that are not sourced from the servicer are generating new business. Similar to our other segments, our real estate segment is highly scalable, which allows us to profitably and efficiently expand our business without adding new resources. We believe that our commitment to client service and national reach distinguishes us from our peers, and allows us to effectively compete for expanded market share in the geographies where we operate. Similarly, our real estate logistics sub-segment was built on referral business from our servicing segment, but has developed independent sources of revenue that continue to grow. Real estate logistics is an underserved segment of the U.S. housing market, particularly on a nationwide basis. For the first time in history, institutional owners of REO, GSEs and certain bank servicers have emerged that require real estate logistics support across the country. We were early to identify this need, and have built our real estate logistics business to accommodate these types of REO owners, GSEs and bank servicers. Because our real estate logistics business uses a network of independent local vendors, it is highly scalable without further investments by us. We expect the profitability of this business to continue to grow as new engagements from institutional investors are added. Meet Evolving Needs of the Residential Mortgage and U.S. Housing Industries We expect to drive growth across all of our businesses by being a solution provider to a wide range of financial and government organizations as they navigate the structural changes taking place across the mortgage loan industry and the U.S. housing market. With banks under pressure to reduce their exposure to the mortgage loan market and the U.S. housing market, with the U.S. government under pressure to address its large mortgage exposure and with weak market conditions contributing to elevated loan delinquencies and defaults, we expect there to be numerous compelling situations requiring our expertise. We believe the greatest opportunities will be available to companies with the proven track record, scalable infrastructure and range of services that can be applied flexibly to address different organizations needs. To position ourselves for these opportunities, since our inception we have been focused on identifying, evaluating and enhancing acquisition and partnership opportunities across the mortgage loan industry and the U.S. housing market, including with national and regional banks, mortgage and bond insurers, private investment funds and various government agencies. Our Strengths We believe our four fully integrated yet independent businesses that focus on the mortgage loan and the U.S. housing market position us well for a variety of market environments. The following competitive strengths contribute to our leading market position and differentiate us from our competitors: Our Complementary Business Segments Build Value for Each Other Our four complementary business segments work together to form our family of companies, allowing us to generate revenue at various points in a residential real estate transaction, as illustrated in the diagram below. Unlike other industry participants who offer only one or two services, we can offer homeowners ready access to numerous associated services that facilitate and simplify the home purchase and sale process allowing us to act as a one stopshop for our clients. These services provide further revenue opportunities for our owned businesses. All four of our business segments can derive revenue from the same real estate transaction. Because of the synergies among our business segments, we are able to perform in all market cycles. For illustration purposes, we have diagrammed below our unique ability to be a one-stop shop for institutional and retail clients who are looking to invest in the residential real estate market. To simplify, we have started with an acquisition of a single loan to demonstrate how each of our business segments is able to touch the asset through its life-cycle. Our asset manager acquires a loan by deploying capital through managed accounts or funds pooled to invest in the mortgage loan and U.S. housing sector. The loan is boarded onto our servicing platform. For performing loans, the servicer remits borrower payments to investors or trusts, as applicable. If the loan is or becomes non-performing, our high touch special servicing approach emphasizes borrower contact in an effort to deploy loss mitigation strategies and reduce loan defaults and foreclosures. At each stage of the life-cycle, our mortgage loan division can assess the borrower s qualifications for a refinancing or provide a purchase money loan for prospective buyers at short-sale or REO dispositions. Our real estate logistics group monitors the distressed assets and provides property preservation services when required. In the event the asset turns into REO, the real 94

100 estate logistics group provides property management, maintenance and repair services. Our real estate services group can then provide brokerage, title and escrow services to dispose of the asset at REO. Moreover, the Carrington family of companies also offers other ancillary services at various stages in the life-cycle of the asset, including foreclosure trustee services in several non-judicial states, deficiency judgment recoveries for charged-off debts, and technology solutions to leverage our industry-specific operational expertise. As market conditions improve, our business model is also evolving to meet retail consumer needs. We have the unique ability to serve our retail clients in each step of a real estate transaction in their home buying or selling experience. Our real estate brokerage company, CRES, with its large network of licensed real estate agents offers brokerage services through approximately 38 branches across 24 states to assist buyers and sellers with their home or residential investment property purchases and dispositions. Through our mortgage loan division, which is part of CMS, we are able to assist buyers with obtaining financing for their real estate purchases in 42 states and the District of Columbia and Puerto Rico. Once the loan closes, our servicer can service the loan with its expert customer service for our borrowers. To assist in timely and efficient closings of our clients transactions, our settlement services companies are able to provide escrow and title services for buyers and sellers. Finally, our real estate logistics companies can provide home inspections, maintenance and repair services for our retail clients, as well as property management services for residential real estate investors who need local property management expertise through our nationwide network. 95