Fitch Ratings put the U.S. residential mortgage servicer ratings for Ocwen Loan Servicing (OCN) and Homeward Residential on negative ratings watch, citing concerns about the merger of the firms' default servicing platforms.
Ocwen's planned acquisition of Homeward Residential will increase its portfolio by roughly 60%, creating new risks when the companies are forced to transfer thousands of subprime and Alt-A loans that require high-touch servicing, according to Fitch.
Ocwen, which is currently rated at RPS3 for primary servicing no longer maintains a stable outlook. Its residential special servicing rating remains at RSS3. Homeward no longer carries a positive outlook, Fitch added.
Ocwen's portfolio already contains 789,712 residential loans with an unpaid principal balance of $122.5 billion and 81% are nonagency RMBS deals. Seventy-six percent of the Ocwen portfolio is comprised of subprime loans.
In acquiring Homeward, Ocwen is taking on 410,713 additional loans with an unpaid principal balance of $74.1 billion. Of those, 77% of the unpaid balance is tied to residential mortgage-backed securities deals.
"Fitch anticipates that if the transaction proceeds to closing as expected, the Homeward servicer ratings would be either withdrawn or be no higher than those held by Ocwen," the ratings giant said.