Park Ha Biological Technology Co., Ltd. (PHH) Risk Analysis

Our subservicing portfolio is subject to runoff, meaning that the loans serviced by us under subservicing agreements may be repaid in full prior to maturity. Additionally, the owners of the servicing rights may elect to sell their MSRs related to some or all of the loans we subservice on their behalf, which could lead to a termination of our subservicing agreements with respect to such loans, resulting in a decrease in our revenues from subservicing. As a result, our subservicing portfolio will continue to shrink as our current additions through flow sales and portfolio retention are insufficient to offset the current level of runoff. Our ability to maintain the size of our subservicing portfolio depends on our ability to enter into agreements for additional subserviced populations with new or existing clients, and increase our portfolio retention recapture rates. Our portfolio retention business is exposed to the same client concentration and termination risks as subservicing described below, as our portfolio retention agreements cease upon the termination of the related client subservicing relationship, or as units transfer out of our subservicing portfolio to a new servicer. In addition, for the majority of our solicitable portfolio, we are authorized to seek refinance of mortgage loans on a non-exclusive basis, which may further limit our future mortgage loan originations since we must compete with other originators. We have significant client concentration risk related to the percentage of our subservicing portfolio that are under agreements with a small group of key clients, and our portfolio retention agreements are limited to two significant subservicing clients. As of December 31, 2017, 58% and 19% of our subservicing portfolio (by units) related to significant client relationships with New Residential and Pingora Loan Servicing, LLC, respectively. Our subservicing agreement with New Residential became effective in June 2017 upon the initial transfer of MSRs under the sale agreement, and the subservicing agreement contains a three-year initial subservicing term. However, in addition to having the right to terminate the subservicing contract with respect to any MSRs sold by New Residential, New Residential has the right to transfer to another servicer, without cause, 25% of the subservicing units in the second year of the subservicing contract, and an additional 25% of the subservicing units in the third year of the contract. The terms of a substantial portion of our other subservicing agreements allow the owners of the servicing to terminate the subservicing agreement without cause, or to otherwise significantly decrease the number of loans we subservice on their behalf, at any time, without cause, and with limited notice and negligible compensation. Additionally, from time to time, clients for whom we conduct subservicing activities could sell the mortgage servicing rights relating to some or all of the loans we subservice for such client, which could lead to a termination of our subservicing engagement with respect to such mortgage servicing rights and a decrease in our subservicing revenue. In recent periods, we have experienced client-driven reductions in our subservicing portfolio, and we expect the transfer of approximately 115,000 subservicing units off of our platform between May 2018 and April 2019, based upon receipt in February 2018 of formal notices and verbal indications from two of our largest subservicing clients. Approximately 65,000 of these units are subject to a portfolio retention agreement and will no longer be solicitable units upon transfer to a new servicer. Any terminations or material reductions in our subservicing portfolio would adversely affect our business, financial condition, results of operations and cash flows. Legal and Regulatory Risks

We outsource certain information technology ("IT") and other services to third parties which subjects us to significant business process and control risks.  If our outsource partners fail to perform their obligations under the terms of the agreements, or if our management of these vendors is not successful, we are subject to operational risk from our IT environment. We are heavily dependent on the strength and capability of our technology systems which we use to interface with our customers, to maintain compliance with applicable regulations and to manage our internal financial and other systems. Our business model and our reputation as a service provider to our clients, as well as our internal controls over financial reporting, are highly dependent upon these systems and processes.  In addition, our ability to run our business in compliance with applicable laws and regulations is dependent on our technology infrastructure. Although we have service-level arrangements with our counterparties, we do not ultimately control their performance, which may make our operations vulnerable to their performance failures.  Any failures in our technology systems, processes or the related internal and operational controls, or the failure of our outsourcing providers to perform as expected or as contractually required could result in the loss of client relationships, damage to our reputation, failures to comply with regulations, failure to prepare our financial statements in a timely and accurate manner, and increased costs, the result of any of which could have a material and adverse effect on our business, reputation, results of operations, financial position or cash flows. During 2016, we elected to terminate certain IT outsourcing agreements with our existing third party, and we intend to transition such services to our own systems and processes, or certain functions to a new third party by the first quarter of 2018. We face risks related to our ability to successfully transition the performance of these processes and the related internal and operational controls, and in enhancing our internal processes to support the functions that may have been previously outsourced. We may incur costs in connection with this transition that we may not have incurred, other than for our decision to end this outsourcing relationship.

Our business model and our reputation as a service provider to our clients are dependent upon our ability to safeguard the confidential personal information of our customers, as well as the confidential personal information of the customers of our clients.  Although we have put in place, and require our outsource providers to follow, a comprehensive information security program that we monitor and update as needed, security breaches could occur through intentional or unintentional acts by individuals having authorized or unauthorized access to confidential information of our customers or the employees or customers of our clients which could potentially compromise confidential information processed and stored in or transmitted through our technology infrastructure.  In addition, we have highly complex information systems, certain portions of which we are dependent upon third party outsource providers and other portions of which are self-developed and for which third party support is not generally available. The cybersecurity regulatory environment is evolving, and it is possible that the costs to us and the resources required for complying with new or developing regulatory requirements will increase. Specifically, the New York Department of Financial Services ("NYDFS") issued final Cybersecurity Requirements for Financial Services Companies that requires financial services and other institutions regulated by the NYDFS, including us, to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State's financial services industry. It is possible that similar laws and regulations may be enacted in the future in other jurisdictions and failure to comply with these obligations can give rise to monetary fines and other penalties, which could have a material and adverse effect on our business, reputation, financial position, results of operations or cash flows. In addition, a failure in or breach of the security of our information systems, or those of our outsource providers, or a cyber-attack against us or our outsource partners, could result in significant damage to our reputation or the reputation of our clients, could negatively impact our ability to attract or retain clients and could result in increased costs attributable to related litigation or regulatory actions, claims for indemnification, higher insurance premiums and remediation activities, the result of any of which could have a material and adverse effect on our business, reputation, financial position, results of operations or cash flows.

Our business is subject to extensive regulation by federal, state and local government authorities and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on how we conduct our business. These laws, regulations and judicial and administrative decisions include those pertaining to: real estate settlement procedures; fair lending; fair credit reporting; truth in lending; compliance with federal and state disclosure and licensing requirements; the establishment of maximum interest rates, finance charges and other charges; secured transactions; collection, foreclosure, repossession and claims-handling procedures; other trade practices; and privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers and guidance on non-traditional mortgage loans issued by the federal financial regulatory agencies. In addition, as an outcome of agreements or orders reached with government regulators, we have been, and may be further subject to, enhanced compliance monitoring, reporting requirements, changes to our business processes and procedures, and other agreements or obligations related to our origination and servicing activities. Further, by agreement with certain of our clients, we are required to comply with additional laws and regulations to which our clients may be subject. While we are not a bank, our business is subjected to both direct and indirect banking supervision (including examinations by certain of our clients' regulators). In recent years, we have faced intense regulation and vigorous oversight and enforcement on the part of numerous regulatory bodies. Legislatures and regulators have pursued a broad array of initiatives intended to promote the safety and soundness of financial institutions, financial market stability, the transparency and liquidity of financial markets, and consumer and investor protection, many of which have impacted us. Although the new presidential administration has indicated an intent to pursue the regulation of the financial services industry differently than was the case under the previous administration, there is significant uncertainty regarding the direction this presidential administration will take and its ability to implement its policies and objectives, as well as the ultimate impact on potential new regulatory initiatives and the enforcement of existing laws and regulations. In addition, there is uncertainty surrounding the impact changes in federal regulation may have on state and local authorities and administrative agencies and their oversight and enforcement, if any. Consistent with other mortgage originators and servicers, we are subject to litigation and regulatory investigations, examinations, inquiries and proceedings from regulators and attorneys general of certain states as well as various governmental agencies, with respect to our mortgage lending and/or mortgage servicing practices. In addition, we are defendants in various legal proceedings, including private and civil litigation. Our legal and regulatory matters are at varying procedural stages and the ultimate resolution of any of these matters may result in: (i) adverse judgments, settlements, fines, penalties, injunctions and other relief against us, including, without limitation, payments made in settlement arrangements, monetary payments; (ii) enhanced compliance requirements; (iii) changes in our business processes, procedures or agreements; (iv) limitations on our ability to pursue business strategies; or (v) other agreements and obligations, any of which could have a material adverse effect on our business, financial position, results of operations, liquidity or cash flows. For more information regarding our existing matters, see Note 13, 'Commitments and Contingencies' in the accompanying Notes to Consolidated Financial Statements. We expect the continued legislative and regulatory focus on mortgage origination and servicing practices will result in elevated legal, compliance and servicing-related costs, heightened risk for potential regulatory fines, penalties, and actions required for injunctive relief. There are currently pending numerous additional regulatory proposals, and other new initiatives are likely to be pursued in the future. The implementation of new regulatory requirements and/or limitations could further increase our compliance costs and risks associated with non-compliance, and any such developments may result in limitations on our ability to pursue business strategies or otherwise adversely affect the manner in which we conduct our business. Regulatory investigations, inquiries and proceedings all require a significant amount of our time and resources to manage. The magnitude and complexity of our responses required to meet these demands requires the time and attention of our management, which poses a risk to achieving our business goals and priorities. Further, in our mortgage origination and servicing activities, we are exposed to operational risk and events of non-compliance resulting from inadequate or failed internal processes or systems, human factors, or external events. While we maintain and update our systems and procedures to comply with applicable laws and regulations and devote resources towards managing, assessing and reacting to developments, there can be no assurances that these measures will be effective or that changes will be implemented by the required deadlines. A failure to comply with applicable laws, rules, regulations or the terms of agreements with regulators could result in: - loss of our approvals to engage in our origination and servicing businesses and/or other limitations on our ability to originate or service loans;- damage to our reputation;- government investigations, enforcement actions and litigation;- an inability to execute on our business strategy or otherwise limit the activities we are permitted to engage in;- required payments of fines, penalties, settlements or judgments; and/or - inability to fund our business, or otherwise operate our business. Any of these outcomes could have a material adverse effect on our business, financial position, results of operations or cash flows.

We expect to incur continued operating losses in 2018, as we complete the exit of our PLS business and execute our remaining reorganization actions and business transitions. Based on our current assessment of the December 2017 Tax Cuts and Jobs Act ("Tax Act"), which contains provisions that eliminate the net operating loss carryback, we recognized a full valuation allowance against our net deferred tax asset as of December 31, 2017. With respect to our expectations for continued operating losses, we expect to reflect a full valuation allowance and loss of substantially all income tax benefits against such future operating losses. Our assessment of the impact of the Tax Act on our future results is based upon our current interpretation thereof and remains subject to further clarifications. Our strategic actions to date have allowed us to make progress towards achieving our new business model of operating as a smaller, less capital intensive business that is focused on subservicing and portfolio retention services. We expect to take further actions to achieve long-term sustained profitability for our remaining subservicing and portfolio retention business, including re-engineering our overhead and cost structure to allow our business to be properly supported, and to seek growth in our subservicing and portfolio retention businesses. Our ability to generate revenue from our subservicing and portfolio retention activities and complete the transition to our new business model is highly dependent on the success of our business relationships with our significant clients and our ability to attract new clients, both of which are impacted by our capability to adequately address the competitive challenges we may face. Competition to service mortgage loans and for mortgage loan originations comes primarily from commercial banks and savings institutions, and non-bank mortgage originators and servicers. Many of our competitors are substantially larger than us and have considerably greater financial, technical and marketing resources, and typically have access to greater financial resources. The competitive nature of the subservicing business creates certain challenges that we will need to manage, including natural runoff of servicing units, our existing significant client concentrations, and short-term contractual arrangements with certain clients which provide them with termination rights at any time without cause. Also, market factors such as higher interest rates, evolving regulations, and potentially volatile capital market conditions may adversely impact demand for MSRs by non-bank investors and create a more challenging environment for subservicing. Our performance is also subject to risks associated with the loss of client or customer confidence and demand, including those associated with any reputational damage from our legal and regulatory settlements and the intense scrutiny of our business. In addition, our success in attracting and retaining clients may be impacted by our continued efforts towards executing our remaining strategic actions, and our ability to demonstrate the viability of our remaining business and stability as a subservicing partner. To achieve our financial objectives for our new business model, we need to realize our cost re-engineering reductions, subservicing growth, and portfolio retention recapture rate assumptions. There can be no assurances that we will execute these actions, or that the execution of these actions will achieve the intended results. The achievement of our goals is subject to both the risks affecting our business generally (including market, credit, operational, and legal and compliance risks) and the inherent difficulty associated with implementing these business objectives. Furthermore, our success is dependent on the skills, experience and efforts of our management team and our ability to negotiate with third parties.