New Residential to repay $2.5B in mortgage servicer advances

S&P downgrades Ocwen, triggers repayment

Citing an “inadvertent” oversight in a previous downgrade of Ocwen Loan Servicing servicer rankings, Standard & Poor’s announced earlier this week that it was lowering its ranking of Ocwen as a residential mortgage master servicer from “above average” to “below average.”

In June, S&P cut Ocwen’s servicer rankings as a residential mortgage primary, subprime, special, and subordinate-lien servicer from “average” to “below average,” due to “deficient” internal controls environment and the regulatory issues of Ocwen Loan Servicing’s parent company, Ocwen Financial (OCN).

S&P did not include Ocwen Loan Servicing’s master servicer ranking in that downgrade, but announced earlier this week that Ocwen’s master servicer ranking should have been lowered at the same time.

“We are lowering our ranking because we inadvertently did not include it as part of our June 18, 2015, ranking actions in which we lowered our other residential and commercial servicer rankings on Ocwen,” S&P said in its announcement. “Today's ranking action corrects this error.”

Due to this week’s subsequent rankings downgrade, New Residential Investment (NRZ) was forced to repay $2.5 billion of term notes issued by the Home Loan Servicing Solutions Servicer Advance Receivables Trust.

“The $2.5 billion HSART term notes became immediately due and payable as a result of, and solely as a result of, the master servicer rating downgrade of Ocwen Loan Servicing, LLC announced by Standard & Poor’s Rating Services on September 29, 2015,” New Residential said in a release.

New Residential purchased HLSS in April of this year. At the time, Ocwen said in a filing with the Securities and Exchange Commission that HLSS’ ability to fund new servicing advances was a concern.

According to the SEC filing, Ocwen “continues to analyze and review” HLSS’ ability to fund servicing advances, adding that “a failure by HLSS to fund new serving advances could have a material negative impact on the company's financial condition.”

In its announcement, New Residential said that previously secured approximately $4 billion of surplus servicer advance financing commitments from its lenders. According to New Residential, the excess financing capacity was used to repay the $2.5 billion HSART term notes at par.

“From the early stages of planning for the HLSS acquisition, we were thoughtful in managing our liquidity and were diligent in securing surplus financing commitments to ensure a seamless paydown of the $2.5 billion term notes in the event of an Ocwen servicer rating downgrade,” said Michael Nierenberg, chief executive officer of New Residential.

“Under our surplus funding commitments, we are able to increase our advance rates and free up approximately $200 million of additional liquidity for near-term deployment,” Nierenberg said. “Furthermore, we look forward to continuing to work closely with Ocwen as one of our primary servicing partners.”

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