Ocwen CEO gives baffled reaction to ratings rollercoaster

Upgraded by Moody’s, placed on Credit Watch by S&P

[Correction: This article previously referred to S&P placing the ratings of Ocwen Loan Servicing on CreditWatch, instead of Ocwen's servicer rankings. The article is now updated.]

Just days receiving a bit of good news when Moody’s Investors Service upgraded its ratings, Ocwen Financial (OCN) was hit yesterday with a bit of bad news when Standard & Poor’s placed its rankings of Ocwen Loan Servicing on “CreditWatch negative,” saying that Ocwen’s recent regulatory issues have impacted the company’s operations.

S&P currently has an “average” rankings for Ocwen Loan Servicing’s ability as a residential mortgage primary, subprime, special, and subordinate-lien servicer, and announced Thursday that it is placing all four of those rankings on “CreditWatch negative.”

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

S&P said that it is placing the ratings on CreditWatch because its believes “regulatory and investor scrutiny,” including the settlements with the New York Department of Financial Services and the California Department of Business Oversight, has affected Ocwen’s business.

Additionally, S&P cited several internal audit results, which included high-risk findings in “key areas” of Ocwen’s servicing and default operations, noting that the company’s internal audit department recently experienced turnover and reorganization.

Ocwen President and CEO Ron Faris said the company is “surprised” by S&P’s actions.

“We were surprised by the S&P announcement and specifically their reasons because we believe that we have made significant progress in resolving past regulatory concerns, strengthened our financial condition, and, over the past couple of years, continually invested in the quality and capacity of our risk, compliance, and internal audit functions,” Faris said.

“We also believe that our risk, compliance, and internal audit scope and effectiveness are consistent with or better than a number of other large mortgage servicers,” Faris continued.

Faris added the company believes the S&P’s actions are due to S&P reviewing the impact on Ocwen’s recent filing of its first quarter financials and the filing of its much-delayed 2014 financial results.

“As previously reported, we are not aware of any unresolved issues with state agencies that would have a material financial impact on the company,” Faris said.

“Similarly, we are not aware of, nor anticipating any, material fines, penalties, or settlements and we are not aware of any pending or threatened actions to suspend or revoke any state licenses,” Faris continued. “We also continue to have frequent and transparent communications with state and federal regulators, Attorneys General, GSE’s, and other important stakeholders.”

S&P did note that it expects to resolve the CreditWatch “as quickly as possible.”

On the other side of the coint, earlier this week, Moody’s upgraded Ocwen’s corporate family rating from B3 to B2; its senior secured bank credit facility rating from B3 to B2; and its senior unsecured debt rating from Caa1 to B3.

Moody’s said that that Ocwen’s recent sales of mortgage servicing rights and the proceeds of those sales improve the outlook for Ocwen, but note that the nonbank isn’t totally in the clear yet.

“The rating actions follow the company's recently announced mortgage servicing rights sales which will provide the company significant liquidity,” Moody’s said in the report.

“The company has stated their intention to use the cash generated from the sales to deleverage, if so, we estimate that the cash from the announced and proposed 2015 sales would be sufficient to fully repay the company's outstanding senior secured term loan,” the report continues.

Faris also said that the company is pleased by Moody’s actions.

“We are pleased to see that the strategy we have deployed is working and achieving its objectives,” Faris said. “Execution on sales of a portion of our Fannie Mae and Freddie Mac servicing portfolios has resulted in increased liquidity, reduced corporate leverage and a simplified operating structure. We are pleased that Moody’s has upgraded our corporate family rating, senior secured bank credit facility rating, and senior unsecured debt rating. We are also pleased to see that Moody’s has changed its outlook for all of these ratings to stable.”

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