Moody’s downgrades Ocwen’s servicer ratings
Cites increased regulatory scrutiny and force-placed insurance concerns
The flagging reputation of Ocwen Financial Corporation (OCN) has taken another hit as Moody’s Investors Service has downgraded Ocwen Loan Servicing’s servicer quality ratings as a primary servicer of subprime mortgage loans and as a special servicer of residential mortgage loans from SQ2- to SQ3+.
Moody’s rates servicers’ quality based on its view of the servicer’s ability to prevent or mitigate asset pool losses “across changing markets” on a scale from SQ1 (strong) to SQ5 (weak).
Additionally, Moody’s lowered its rating of Ocwen’s loan administration functions from “above average” to “average.”
In the new report from Moody’s, the ratings agency cites the subpoena Ocwen received in June from the Securities and Exchange Commission over the convoluted relationship between Ocwen and its affiliated companies, Altisource Residential (RESI), Altisource Asset Management Corp (AAMC), Altisource Portfolio (ASPS), and Home Loan Servicing Solutions (HLSS), among the reasons for lowering Ocwen’s ratings.
The subpoena was revealed in an August SEC filing from Ocwen. In the filing, Ocwen stated that it received an SEC subpoena on June 12, in which the SEC requested “production of various documents relating to our business dealings with Altisource, HLSS, AAMC and Altisource Residential and the interests of our directors and executive officers in these companies.”
Moody’s also notes the ongoing investigation into Ocwen’s business dealings by the New York Department of Financial Services as another concern.
The NYDFS has been looking into Ocwen’s business since February, when it sent a letter to Ocwen’s general counsel about the company’s dealings with its affiliates.
"Presently, Ocwen’s management owns stock or stock options in the affiliated companies,” NYDFS Superintendent Benjamin Lawsky said in his February letter. “This raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result."
In its report, Moody’s said the mounting regulatory scrutiny from both organizations is concerning.
“Based on their findings, these agencies could restrict Ocwen's activities, levy monetary fines, or take additional actions that could negatively affect the company's financial strength and servicing stability,” Moody’s report states.
“The review for downgrade for the special servicer and the subprime servicer assessments reflects Moody's continuing concerns about Ocwen's challenges integrating the acquired servicing platforms and managing the distressed loan portfolios,” the report continues. “It also reflects uncertainty regarding the impact of the regulatory scrutiny and possible regulatory actions on the company's servicing stability.”
On the loan administration front, Moody’s cites the increasing regulatory scrutiny on Altisource’s practice of force-placed insurance as a reason for the downgrade in that area.
Lawsky and the NYDFS have also questioned Ocwen’s relationship with Altisource, suggesting that Ocwen and Altisource’s relationship “appears designed to funnel as much as $65 million in fees annually from already-distressed homeowners to Altisource for minimal work.”
Moody’s cautions that all of the ratings “remain on review for further downgrade.”
Moody’s also states that it is currently reviewing Ocwen Financial Corp.’s senior secured and unsecured ratings for downgrade as well.
For more of a look at HousingWire's coverage of Ocwen's outstanding issues, click here.