In what has seemingly become a daily occurrence, a ratings agency has downgraded its ratings for Ocwen Financial (OCN) over Ocwen’s ongoing issues with the New York Department of Financial Services, the Securities and Exchange Commission, and other agencies.
In just the last week, Moody's Investors Service, Bank of America (BAC) and Evercore Partners all issued downgrades to Ocwen’s ratings after NYDFS Superintendent Benjamin Lawsky sent a letter to the company which alleged that the company had been backdating potentially hundreds of thousands of letters to borrowers “likely causing them significant harm.”
Compass Point also 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.
Barclays also warned its clients that investors in non-agency residential mortgage-backed securitizations “should be more wary of a worst-case scenario,” when it comes to Ocwen.
Fitch Ratings also sounded the alarm on Ocwen, announcing Friday that it was placing all the U.S. residential mortgage servicer ratings for Ocwen Loan Servicing on “Rating Watch Negative.”
Now, Morningstar has weighed in on Ocwen and its regulatory troubles, and the news isn’t positive for the beleaguered company.
In a new report, Morningstar said that is has lowered its operational risk assessment rankings for two of Ocwen’s servicing subsidiaries, Ocwen Loan Servicing and Ocwen Financial Solutions Pvt. Ltd. because of the ongoing NYDFS-related issues.
Morningstar said that is has lowered its outstanding residential nonprime mortgage servicer and residential mortgage special servicer rankings for Ocwen Loan Servicing to “MOR RS2” from “MOR RS1.”
Morningstar notes that Ocwen’s outstanding residential mortgage servicer and residential vendor rankings were already on alert. Morningstar placed Ocwen’s ratings on alert in January, after Ocwen announced that it had reached a $2.1 billion settlement with the Consumer Financial Protection Bureau over an investigation into Ocwen’s servicing practices.
Now Morningstar has removed the alert from Ocwen’s ratings and downgraded them as a result of “continuing regulatory scrutiny and allegations of improper servicing practice.”
Morningstar notes that it reviewed Ocwen’s loan-servicing performance metrics and found that the company’s results were better than average compared to the rest of the industry, but said that the NYDFS investigation raises further concerns about he company’s processes and systems and the effectiveness of compliance-monitoring practices.
“A recent review of OFC’s internal audit reports validates some of these ongoing concerns,” Morningstar said.
“The forecast for the residential mortgage servicer, residential vendor, and residential prime mortgage servicer rankings is ‘Unfavorable.’ Morningstar believes that continuing regulatory scrutiny could have further negative consequences for OFC’s residential mortgage servicing business.”
In Ocwen’s earnings statement, released Thursday, it said that it has booked a $100 million pretax charge for a potential settlement with the NYDFS over the backdating charges.
The potential settlement dragged down Ocwen’s earnings, and the company reported a pretax loss of $75.3 million in the third quarter, compared to a profit of $60.6 million in 2013’s third quarter.
The news of the potential settlement has actually been a positive for Ocwen’s stock, which dropped from more than $26 per share to $19.10 within 45 minutes of the release of Lawksy’s letter.
As of 12:25 p.m. Eastern, Ocwen’s stock was trading at $22.18, up 6.58% for the day.