Mere days after Standard & Poor’s cut the servicer rankings of Ocwen Loan Servicing from “average” to “below average," citing a “deficient” internal controls environment that has not kept pace with the company’s growth, the Ocwen Financial (OCN) ratings rollercoaster continues.
On Wednesday, Fitch Ratings released a new report on Ocwen Loan Servicing’s servicer ratings that’s basically the opposite of S&P’s report. Fitch’s report states that it is affirming Ocwen’s servicer ratings across seven categories and upgrading its outlook for Ocwen’s servicer ratings from “stable” to “positive.”
Fitch cites “recent progress made by Ocwen in its corporate governance and operational control framework,” as one of the reasons for upgrading its outlook for Ocwen.
Fitch also affirmed its ratings of Ocwen in the following categories:
- Residential primary servicer rating for Prime product at 'RPS4'
- Residential primary servicer rating for Alt-A product at 'RPS4'
- Residential primary servicer rating for Subprime at 'RPS4'
- Residential primary servicer rating for HELOC product at 'RPS4'
- Residential primary servicer rating for Closed-end Second Lien product at 'RPS4'
- Residential special servicer rating at 'RSS4'
- Residential master servicer rating at 'RMS4'
Fitch rates servicers on a 1-5 scale, with 1 being the highest rating.
Fitch notes that its ratings reflect its assessment of evidenced proficiencies in Ocwen's servicing operation, noting its own downgrade of Ocwen’s servicer ratings in February due to “weaknesses in Ocwen's corporate governance and operational control framework.”
At the time, Fitch said that Ocwen's “aggressive portfolio growth, staff expansion, and integration process did not result in a unified and cohesive risk management framework for its entire servicing business.”
While Ocwen achieved greater economies of scale as a result of its acquisitions and use of technology, its investment in risk management lagged, Fitch said, adding that these factors resulted in serious deficiencies being identified by external parties and a number of regulatory settlements over the past several years.
Fitch notes that Ocwen is “currently constrained” from acquiring any additional mortgage servicing rights due to its settlement with the New York Department of Financial Services.
But Fitch said that Ocwen has made improvements in the wake of the NYDFS settlement.
“Ocwen continues to enhance its 'three lines of defense' approach to risk management which incorporates risk management responsibility at the employee level first; within risk management, compliance, and legal groups second; and within internal audit third,” Fitch said in the report.
“The company has hired additional staff to support the risk management function and internal audit, and has expanded its regulatory compliance and compliance testing departments,” Fitch continued.
“The company also recently completed a risk and control self-assessment to identify inherent and residual risks in its business operations, and to assess mitigating controls for inherent risks and the status of any residual risks,” Fitch said. “Risk and control self-assessment is expected to be an annual exercise for process mapping and risk assessment. Fitch believes these changes should contribute to more effective business operations for the benefit of all constituents.”
Fitch also noted that Ocwen initiated a process to compile and review all of its servicing policies and procedures, and to identify controls in all policies to be monitored for compliance. Fitch also said that Ocwen is developing new training programs in an effort to ensure that all employees are performing their functions in accordance with approved policies and procedures.
“Ocwen is in the implementation stage of needed improvements, and recent steps taken to strengthen its risk management framework and management oversight have been positive,” Fitch said. “Fitch views the changes required by the recent regulatory settlements to be a net positive.”