INTRODUCTION

Ocwen is among the leaders in our industry in realizing loan values for investors and in keeping Americans in their homes, as evidenced by our high cure rate. Our primary goal is to make our clients' loans worth more by leveraging our superior processes and innovative technology. In a recent comparison of servicer performance in servicing non-performing residential loans, Moody's reported that we had a "cure and cash flowing rate" that exceeded the average rate for Moody's highest-rated servicers as a group.

Our current business segments, aligned within our two lines of business, are as follows:

                  Ocwen Asset Management          Ocwen Solutions


                         Servicing               Mortgage Services
                    Loans and Residuals         Financial Services
              Asset Management Vehicles (AMV)   Technology Products

In addition to our core residential servicing business, Ocwen Asset Management (OAM) includes our equity investments in asset management vehicles and our remaining investments in subprime loans and residual securities.

In addition to our unsecured collections business, Ocwen Solutions (OS) includes our residential fee-based loan processing businesses, all of our technology platforms and our equity interest in BMS Holdings, Inc. (BMS Holdings).

Our plans are to continue to sell our non-core assets, including BOK, or to finance them. In November 2008, our Board of Directors authorized management to investigate the possible sale of our remaining Global Servicing Solutions, LLC (GSS) partnerships.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Interim Consolidated Financial Statements and the related notes, included in Item 1 in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2008.

Unless specifically stated otherwise, all references to March 2009, December 2008 and March 2008 refer to our fiscal periods ended, or the dates, as the context requires, March 31, 2009, December 31, 2008 and March 31, 2008, respectively.

When we use the terms "Ocwen", "we," "us" and "our," we refer to Ocwen Financial Corporation (Ocwen) and its consolidated subsidiaries.

EXECUTIVE SUMMARY

March 2009 versus March 2008. We generated net income of $15,109 or $0.24 per share in the first quarter of 2009 compared to $5,272 and $0.08 per share for the first quarter of 2008. Income from continuing operations before taxes was $23,264 for the first quarter of 2009 as compared to $8,417 for the first quarter of 2008.

Our results benefited from cost reduction efforts announced last quarter. This was evidenced by an 18% improvement in operating expenses in the first quarter of 2009 compared to the first quarter of 2008.

No significant non-cash unrealized fair value adjustments on trading securities were recorded in the first quarter of 2009. In comparison, net income in the first quarter of 2008 included approximately $5,068 in net unrealized losses comprised of a $12,023 mark-to-market loss on trading securities and $6,955 in unrealized earnings primarily related to derivative mark-to-market gains at an unconsolidated subsidiary.

While Servicing segment revenues continued to decline as a result of lower average unpaid principal balances (UPB), this was partially offset by higher process management revenues in the first quarter of 2009 as compared to the first quarter of 2008. Servicing benefited from lower interest expense in the first quarter of 2009 compared to 2008. Loans and Residuals were adversely impacted by lower interest income primarily due to reduced loan balances. Asset Management Vehicles reported a decrease in unrealized losses due to smaller declines in the estimated market value of loans, real estate and securities at unconsolidated subsidiaries.

Mortgage Services benefited from new lines of business and from higher order volumes in existing businesses. These increases were offset by revenue declines in Financial Services as lower collection rates, due to the current economic climate and consistent with the collections industry in general, adversely impacted results in the first quarter of 2009 compared to 2008. Technology Products' income from continuing operations declined in the first quarter of 2009, as compared to 2008, because we did not recognize any earnings of BMS Holdings, an unconsolidated subsidiary, in the first quarter of 2009. We suspended the equity method of accounting for our investment in BMS Holdings in the second quarter of 2008 because of losses that reduced our investment to zero.

Ocwen is focused on a strategic plan centered on four essential initiatives:

1. Liquidity and balance sheet strength
2. Revenue opportunities
3. Quality and cost structure leadership
4. Separation of Ocwen Solutions

We are aggressively pursuing each of these priorities as more fully discussed in the following sub-sections. We believe our efforts will significantly increase shareholder value by building on our core competitive strengths to capture existing economic opportunities.

Liquidity and Balance Sheet Strength. We believe maintaining liquidity and strengthening our balance sheet will provide us with greater flexibility to pursue attractive investment opportunities that we believe are on the horizon. We focused this quarter on adding borrowing capacity and term advance financing. We were successful on both fronts, as more fully described in the Executive Summary-Liquidity section below. We believe we will benefit from the inclusion of servicer advances in the Term Asset-Backed Securities Loan Facility program (TALF), which will lead to improved access to term financing for servicer advances.

Revenue Opportunities. We believe the current economic environment combined with government financial stability actions affords us a unique opportunity to capitalize upon our long track record of: (1) demonstrated expertise with servicing rights, legacy loans and assets; (2) exceptional loss mitigation capabilities; and (3) successfully providing business processes services to the mortgage industry. Our revenue growth efforts are focused on developing opportunities in each of our segments.

Opportunities for revenue growth in the Ocwen Asset Management line of business include:

† Special Servicing Arrangements. We began to perform under a special servicing arrangement with Freddie Mac as part of a high risk loan pilot program announced in February 2009. We are in discussions with various counter parties on how we can assist them with their special servicing needs.
† Loan Modifications. We expect to accelerate work with qualifying borrowers to modify loans consistent with the federal government's Home Affordable Modification Program (HMP).
† Acquisition of Servicing Rights. We are actively pursuing several initiatives to provide us with an increased supply of servicing.

Our Ocwen Solutions line of business is focused on two primary opportunities to grow revenues:

† Product Diversification. We continue our efforts to offer a balanced service across all aspects of the mortgage lifecycle. We believe our technological capabilities are a differentiating factor across our entire product platform.

† Geographic Expansion. We are expanding our product offering into new states. We expect to continue to build our national footprint for services as part of our strategy to diversify our revenue base.

Quality and Cost Structure. According to a third-party industry study, our cost to service non-performing and performing residential loans are 60% and 21%, respectively, lower than the subprime industry. An industry trade association study shows that we are 28% less expensive than the nearest competitor in terms of servicing expense per loan. We believe that quality and cost are intrinsically related in that errors increase costs and destroy quality.

We have launched three specific initiatives which we believe are designed to not only maintain, but improve our profitability even with a declining portfolio of serviced loans. These three initiatives are: (1) consolidation and automation of manual processes; (2) improvement of process uniformity to eliminate variability; and (3) job function analyses to improve supervisory effectiveness. We are implementing our next generation of technology and processes to achieve this step function improvement in cost and quality. By eliminating variability in our processes, we can grow our industry leading programs that keep more people in their homes, generate greater cash flow for investors and reduce our costs.

Separation of Ocwen Solutions. On November 12, 2008, our Board of Directors authorized management to pursue a plan to separate, through a tax-free spin-off into a newly formed publicly-traded company, all of our business operations currently included within the OS business line except for BMS Holdings and GSS. We made our decision based upon a strategic analysis that concluded that the Separation would:

† Allow each of Ocwen and Altisource to separately focus on their core business and be better able to respond to initiatives and market challenges;
† Better position OS to pursue business opportunities with other servicers;
† Provide OS the option of offering its stock as consideration to potential acquisition targets (subject to certain limitations);
† Grant OS flexibility in creating its own capital structure which may include a subsequent raise of equity or debt; and
† Allow potential investors to choose between the contrasting business models of knowledge processing or servicing, each of which may be valued differently by the equity markets.

In connection with the Separation, OAM expects to enter into contractual agreements at prevailing market rates with OS to both provide certain corporate services as well as receive commercial services.

Outlook

Ocwen Asset Management. We are aggressively pursuing special servicing opportunities that require little capital such as our pilot program with Freddie Mac. Advances declined significantly in the first quarter. We expect this trend to continue in 2009, although the rate of decline is likely to slow.

Under the HMP, we expect to generate revenues after qualifying loan modifications pass the 90-day trial period. Late fee revenues must be waived for loan modifications included in the HMP. Accordingly, second quarter revenues will likely not include HMP qualifying loan modifications.

With the inclusion of servicer advances in TALF, we may issue TALF notes to increase the amount and duration of advance financing. We will also continue to reduce non-core assets and deploy that cash in our core businesses.

Ocwen Solutions. The primary growth engine for Ocwen Solutions will be Mortgage Services, which we are expanding by increasing the array and geographical range of the mortgage and default services that we provide to originators and servicers. These services include default processing, property inspection and preservation, homeowner outreach, real estate sales and title services.

We expect limited revenue growth but increased profitability in Financial Services in 2009. The difficult collection environment that all receivables management firms currently are facing stems from growing unemployment and consumers' limited access to credit. These issues have lowered NCI's collection rate, but NCI remains a top performer for its most important clients. NCI will continue to focus on reducing operating costs by improving processes and implementing its strategic initiatives which include: scoring, scripting and optimal debtor resolution. As NCI begins to experience positive results from these efforts, it will turn its attention toward revenue growth.

Liquidity

Cash totaled $158,855, or 7.8% of total assets at March 31, 2009. This compares to cash of $201,025, or 9% of total assets at December 31, 2008, and cash of $174,684, or 6.4% of total assets a year ago at March 31, 2008.

Servicer liabilities, which represent cash collected from borrowers but not yet remitted to securitization trusts, declined by $45,386 from December 31, 2008 to March 31, 2009. Servicer liabilities have a very short duration as funds collected must be remitted to the trust in accordance with the contractual obligation. The $148,937 decline in total advances in the first quarter of 2009 is attributable to the success of our efforts to stabilize the delinquency rate which has allowed advances to decline significantly faster than UPB.

Our borrowings as of March 31, 2009 include $186,568 borrowed under the Investment Line term note that is used to finance the investment grade auction rate securities which we are carrying at a fair value of $238,161. In the first quarter of 2009, we repaid $14,151 of Investment Line term note principal. This amount includes proceeds of $1,100 from the redemption of certain securities. On April 30, 2009, we renewed this term note through June 2010. This agreement was renewed early under terms substantially similar to the previous agreement, except amortization payments will now be $3,000 per month in place of the previous quarterly reductions in the advance rate.

Excluding the Investment Line, our borrowings have decreased by $168,968 since December 31, 2008. This decline reflects a reduction in borrowings by the Servicing segment, Loans and Residuals segment, Financial Services segment and Corporate Items and Other of $140,263, $3,058, $1,123 and $24,524, respectively. The decline in borrowings of the Servicing segment reflects a decline in advances. The decline in borrowings of the Loans and Residuals segment is primarily the result of a decline in the balance of the loans pledged as collateral. Corporate Items and Other borrowings declined as a result of the repurchase of 3.25% Convertible Notes with a face value of $25,910.

At March 31, 2009, excluding the Investment Line, $438,690 of our total maximum borrowing capacity remained unused, including $428,690 attributed to the Servicing business. Of the unused borrowing capacity of the Servicing business, none was readily available because we had no additional assets pledged as collateral but not drawn under our facilities.

In January 2009, we negotiated an early renewal of a $200,000 facility. The start of the amortization period for this note is now January 2010. With the continuing decline of our advance balances and the success of our other liquidity initiatives, we believe that we will have sufficient borrowing capacity to finance advances on our current servicing portfolio through the remainder of 2009 even if we are unable to negotiate any new facilities or any renewals or increases of existing facilities. We will endeavor to retain sufficient cash to repay any advances in excess of our borrowing capacity if such borrowing capacity declines under this worst-case scenario for financing. Another reason that we will retain cash is to cover possible additional principal repayments on our MSR term note in the event that the collateral value determined by a third party appraiser declines faster than the scheduled amortization of this note.

During these challenging times in the financial markets, we have given careful consideration to counterparty risk. Our advance facilities revolve, and in a typical monthly cycle, we repay up to one-third of the borrowings from collections. During the remittance cycle, which starts in the middle of each month, we must depend on our lenders to provide us with the cash that is required to make remittances to the Servicing investors. However, this is possible only when new advances represent eligible collateral under our advance facilities, and we can borrow additional funds against this collateral. Some of the financial institutions lending to us have experienced significant financial losses and have been the subject of investor concern. Several of these lenders are undergoing restructuring activities, including merging with stronger institutions or raising additional capital, either as part of or outside of the various government rescue plans that have been announced. These actions appear to have succeeded in stabilizing our largest lenders and thereby reducing our counterparty risk, but we continue to monitor closely the financial condition of our lenders.

In the first quarter of 2009, financing costs came down from the level in the first quarter of 2008 due to lower advance balances and a reduction in interest rates. The one-month LIBOR, which is the reference rate for most of our borrowings declined significantly in the first quarter of 2009, and this decrease was partly offset by higher average spreads over LIBOR. The rate paid on the average balance of our debt outstanding under our match funded facilities and our lines of credit and other secured borrowings was 6.01% and 6.87% in the first quarter of 2009 and 2008, respectively.

CRITICAL ACCOUNTING POLICIES

Our ability to measure and report our operating results and financial position is heavily influenced by the need to estimate the impact or outcome of risks in the marketplace or other future events. Our critical accounting policies are those that relate to the estimation and measurement of these risks. Because they inherently involve significant judgments and uncertainties, an understanding of these policies is fundamental to understanding Management's Discussion and Analysis of Results of Operations and Financial Condition. Our significant accounting policies are discussed in detail on pages 24 through 27 of Management's Discussion and Analysis of Results of Operations and Financial Condition and in Note 1 of our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITION

Operations Summary

The following table summarizes our consolidated operating results for the three
months ended March 31, 2009 and 2008. We have provided a more complete
discussion of operating results by line of business in the Segments section.


                                                2009          2008        % Change

Consolidated:
Revenue                                      $   114,590   $   128,251       (11 )
Operating expenses                                72,266        88,075       (18 )

Income from operations                            42,324        40,176         5
Other income (expense), net                      (19,060 )     (31,759 )     (40 )

Income from continuing operations before
taxes                                             23,264         8,417       176
Income tax expense                                 8,037         2,939       173

Income from continuing operations                 15,227         5,478       178
Loss from discontinued operations, net of
taxes                                               (188 )        (204 )      (8 )

Net income                                        15,039         5,274       185
Net loss (income) attributable to minority
interest in subsidiaries                              70            (2 )   3,600

Net income attributable to Ocwen Financial
Corp                                         $    15,109   $     5,272       187


Segment income (loss) from continuing
operations before taxes:
Servicing                                    $    25,196   $    21,429        18
Loans and Residuals                               (4,138 )      (3,658 )      13
Asset Management Vehicles                           (527 )      (1,446 )     (64 )
Mortgage Services                                  5,148         3,153        63
Financial Services                                (1,301 )          23    (5,757 )
Technology Products                                2,324         9,611       (76 )
Corporate Items and Other                         (3,438 )     (20,695 )     (83 )

                                             $    23,264   $     8,417       176

Income from operations improved by 5% in the first quarter of 2009 as compared to 2008, reflecting a significant reduction in operating expenses that was partially offset by a decline in revenues. Lower interest expense and lower fair value adjustments on securities and loans resulted in a 176% increase in income from continuing operations.

Total revenues declined by $13,661, or 11%, in the first quarter of 2009 as compared to 2008 principally because of a decrease in Servicing revenue due to a smaller servicing portfolio. Revenue of the Financial Services segment also declined in the first quarter of 2009 largely due to lower liquidation rates in contingency collections. Mortgage Services revenue increased over the first quarter of 2008 primarily as a result of a broader array of product offerings across the mortgage life cycle (i.e. default products) and selectively expanding in new states considering the market opportunities in each.

Total operating expenses were $15,809, or 18%, lower in the first quarter of 2009 as compared to 2008. This is primarily due to declines in operating expenses of the Servicing segment and Corporate Items and Other. Operating expenses of the Servicing segment declined primarily due to lower amortization on a smaller servicing portfolio, lower servicing and origination expense as a result of a reduction in loan payoffs and reduced staffing levels. In Corporate Items and Other, operating expenses declined largely because the first quarter of 2008 included $9,532 of due diligence and other costs related to the "going private" transaction which was initiated in January 2008 and which the parties mutually terminated in March 2008.

Other expense, net, for the first quarter of 2009 was $19,060 as compared to $31,759 for the first quarter of 2008, a favorable variance of $12,699. This variance is the result of several factors:

† In the Servicing segment, interest expense on match funded liabilities and lines of credit was $7,744 lower in the first quarter of 2009 because of a decline in the average balance of advances and a decline in interest rates.

† In the Loans and Residuals segment, interest income on loans and residual securities declined by $1,773 in the first quarter of 2009 because of declines in assets.

† In the AMV segment, our consolidated share of the earnings of OSI and ONL and affiliates for the first quarter of 2009 was $27. This compares to losses of $931 for the first quarter of 2008. The losses in 2008 reflect higher charges to reduce residual securities, loans and real estate to fair value.

† In the Technology Products segment, our share of the earnings of BMS Holdings was $7,886 for the first quarter of 2008 as compared to zero for the first quarter of 2009. Unrealized gains on derivatives in the first quarter of 2008 were largely reversed in the second quarter of 2008 as a result of volatility in LIBOR during those periods. During the second quarter of 2008, our share of the losses of BMS Holdings reduced our investment to zero and we suspended the application of the equity method of accounting for our investment.

† In Corporate Items and Other, we recorded an unrealized loss of $40 on our investment grade auction rate securities in the first quarter of 2009. This compares to an unrealized loss of $8,939 in the first quarter of 2008. In addition, the first quarter of 2008 included $1,813 of unrealized losses on CMOs which were sold in the second quarter of 2008.

Financial Condition Summary

Total assets declined by $207,584, or 9%, in the first three months of 2009. This decrease was due to declines in all asset categories other than receivables and MSRs:

† Cash declined by $42,170 to a balance of $158,855 at March 31, 2009.

† Loans held for resale declined by $5,248 due to foreclosures, charge-offs, payoffs and declines in estimated values.

† Total advances declined by $148,937 primarily because of declines in UPB serviced and because we were able to stabilize the rate of loan delinquencies and reduce average delinquencies per loan. This decline is the net result of a $219,311 decline in match funded advances and a $70,374 increase in advances as a result of moving collateral from match funded advance facilities to a non-match funded facility.

† MSRs increased by $1,103 as acquisitions of $10,241 exceeded amortization of $9,126 for the first quarter of 2009.

† Investment in unconsolidated entities declined by $3,548 primarily due to $3,246 of distributions received from our asset management entities.

Total liabilities declined by $224,621, or 14%, in the first three months of 2009. This decrease was the result of declines in all liability categories other than lines of credit and other secured borrowings:

† Match funded liabilities declined by $171,639 as a result of the decline in match funded advances.

† Lines of credit and other secured borrowings increased by $27,195 principally because of $52,373 of borrowings, net of discount, under two new facilities offset in part by $20,997 of repayments of borrowings under the senior secured credit agreement term note that is used to finance MSRs.

† The Investment Line declined by $14,151 due to repayments.

† Servicer liabilities declined by $45,386 largely because of a decrease in the amount of borrower payments that have not yet been remitted to custodial accounts. The decline in borrower payments is the result of slower repayments and a decline in UPB serviced.

† Debt securities declined by $24,524. During February 2009, we repurchased $25,910 of our 3.25% Convertible Notes in the open market at a price equal to 95% of the principal amount. We recognized total gains of $534 on these repurchases, net of the write-off of discount and unamortized issuance costs.

At March 31, 2009, total equity was $626,678, an increase of $17,037 over December 31, 2008 that was primarily due to net income of $15,109 for the first quarter of 2009, the exercise of stock options and compensation related to employee share-based awards.

. . .