OcwenÕ bad week just got worse

Fitch places Ocwen on rating watch negative

Things just keep going from bad to worse for Ocwen Financial (OCN).

In just the last few days, the company has been the subject of a letter from New York Department of Financial Services Superintendent Benjamin Lawsky, which alleged that the company had been backdating potentially hundreds of thousands of letters to borrowers “likely causing them significant harm.”

The letter caused a nosedive for Ocwen’s stock and the stock of its affiliated companies, Altisource Residential (RESI), Altisource Asset Management Corp (AAMC), Altisource Portfolio (ASPS), and Home Loan Servicing Solutions (HLSS).

Then, Moody's Investors Service, Bank of America (BAC) and Evercore Partners all issued downgrades to Ocwen’s ratings. Compass Point then downgraded Ocwen affiliate Home Loan Servicing Solutions from Buy to Neutral with a price target of $18 and Standard & Poor's Ratings Services lowered its long-term issuer credit rating to 'B' from 'B+' on Ocwen and said that the outlook for Ocwen is negative.

Later in the week, Barclays joined the chorus of negativity directed at Ocwen, telling clients that investors in non-agency residential mortgage-backed securitizations “should be more wary of a worst-case scenario,” when it comes to Ocwen.

Now, Fitch Ratings has become the latest to sound the alarm on Ocwen. Fitch announced Friday that it was placing all the U.S. residential mortgage servicer ratings for Ocwen Loan Servicing on “Rating Watch Negative.”

According to Fitch, it now lists Ocwen’s servicer ratings as follows:

  • Residential primary servicer rating for Prime product at 'RPS3'
  • Residential primary servicer rating for Alt-A product at 'RPS3'
  • Residential primary servicer rating for Subprime product at 'RPS3'
  • Residential primary servicer rating for HELOC product at 'RPS3'
  • Residential primary servicer rating for Closed-end Second Lien product at 'RPS3'
  • Residential special servicer rating at 'RSS3'
  • Residential master servicer rating at 'RMS3’

“The ongoing inquiry by the NYDFS and issues identified also call into question the corporate governance and operational control framework of the company, especially as it relates to oversight of its systems and processes,” Fitch said. “These issues have the potential to bring about other investigations; result in monetary and/or or other penalties; and limit the company's operating flexibility.”

Fitch said that it expects to resolve the rating watch once there is more clarity on the NYDFS investigation, which would allow for further evaluation on the operational, governance and financial condition implications of Ocwen’s alleged wrongdoing.

“From an operational standpoint, the agency will focus on the number of loans involved; any potential borrower harm, and management's response in remediating operational and governance issues raised,” Fitch said.

“The ratings may be removed from Rating Watch Negative if the issues are found to be limited in scope and management can implement a credible plan to remediate findings. However, if the problems are more wide spread and indicate more pervasive operational and governance deficiencies, then Fitch may downgrade the servicer ratings by more than one notch.”

In addition to placing Ocwen Loan Servicing’s servicer ratings on a rating watch, Fitch also placed Ocwen Financial and Ocwen Loan Servicing on “Rating Watch Negative” as well.

Fitch said that it has “long-standing concerns” over Ocwen's aggressive growth and heavy concentration of offshore resources, and the current issues raise more concerns “over Ocwen's oversight of its systems and processes.”

According to Fitch’s data, approximately 73% of Ocwen’s residential servicing personnel is located offshore.

Fitch also states that Ocwen currently services 2,647,542 loans totaling $425.8 billion, including $216.8 billion of non-agency RMBS transactions. Ocwen’s portfolio consists of 24.9% subprime first lien, 8.2% Alt-A first lien, 9.4% prime first lien, 2.2% HELOC, and 4.8% closed-end second lien product by loan volume, according to Fitch’s data.

With the company in Lawksy’s crosshairs again and as part of the focus of a letter sent this week from Sen. Elizabeth Warren, D-Ma., and Rep. Elijah Cummings, D-Md., to the U.S. Government Accountability Office, which requested a study of the risks posed to consumers by the “unprecedented” growth in nonbank mortgage servicing, Ocwen is probably quite glad that it’s Friday.

There can’t possibly be any more bad news over the weekend, right?

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