Citing a “deficient” internal controls environment that has not kept pace with the company’s growth, Standard & Poor’s downgraded the servicer rankings of Ocwen Loan Servicing from “average” to “below average.”

Earlier this month, S&P placed its rankings of Ocwen Loan Servicing as a residential mortgage primary, subprime, special, and subordinate-lien servicer, on CreditWatch negative,” saying that the recent regulatory issues of Ocwen Loan Servicing’s parent company, Ocwen Financial (OCN), have impacted the company’s operations.

At the time, S&P said the outlooks for all four rankings were already negative prior to being placed on CreditWatch.

Now, S&P is following through with its warning to Ocwen Loan Servicing and downgrading Ocwen’s servicer rankings, saying that a review of Ocwen’s internal audits revealed “high-risk findings” in key areas of Ocwen’s servicing and default operations.

“We believe Ocwen’s overall internal controls environment has been deficient, as it had not kept pace with the company’s considerable growth and added complexity, and this deficiency has contributed to its regulatory challenges,” S&P said in its report.

“We also believe Ocwen’s first line of defense, the interdepartmental quality assurance function, may have been inadequate, because it did not reduce the number and criticality of internal audit findings,” S&P continued.

S&P said that it reviewed Ocwen’s internal audits and noted “numerous critical findings” related to Ocwen’s operations. According to S&P the number and “criticality” of those findings is not consistent with other servicers whose rankings are “average,” which prompted the downgrade.

S&P also noted the impact of Ocwen’s recent “regulatory and investor scrutiny,” including the settlements with the New York Department of Financial Services and the California Department of Business Oversight.

Unsurprisingly, Ocwen said that it is unhappy with S&P’s decision.

“We are disappointed with Standard and Poor’s decision,” Ocwen said in a statement. “Their conclusions do not reflect the significant progress Ocwen has made in resolving past regulatory concerns, enhancing our risk, compliance, and internal audit functions, and strengthening the company’s financial condition.”

Ocwen said that in the last few years it has “continually invested” in the quality and capacity of its risk, compliance, and internal audit functions and believes those investments are paying dividends.

“With the changing environment and increased focus on compliance, our internal audit function has increased the breadth and depth of its audit scope,” Ocwen continued. “Ocwen would also highlight its conservative approach to flagging certain audit findings as higher risk, which is consistent with its historical practice. Management of Ocwen believes it has addressed the higher risk audit issues and currently does not believe that any of the identified higher risk audit findings pose a material financial risk to the company.”

S&P also acknowledged Ocwen’s efforts to improve its operations but said that more time is necessary to determine the impact of Ocwen’s efforts.

“We believe Ocwen has the technology to support its operations, comprehensive training programs, and knowledgeable staff,” S&P said. “Ocwen has made efforts to remediate its internal controls issues and address its regulatory and investor challenges. However, those efforts are in a continuing stage of development and implementation, and in our view, have not had sufficient time to provide meaningful results and adequate oversight of operations.”

S&P said that it believes that Ocwen is focused on improving the company’s internal controls environment and further improving loan servicing performance, but notes that further issues could still befall the company.

“We believe Ocwen’s level of technology, knowledgeable staff, continued focus on developing and implementing its internal controls, and continued resolution of its regulatory challenges should allow it to continue providing service to its borrowers and investors,” S&P said. “However, a future degradation of its internal controls or the level of service it provides to borrowers and investors, or any new regulatory or investor issues, could affect our current rankings or outlook. If so, we will take the appropriate ranking actions.”