Ocwen Financial (OCN) is changing mortgage servicing recovery policies with its acquisition of Litton Loan Servicing. The changes may impact non-agency residential mortgage-backed securities payments Ocwen said, adding it doesn’t anticipate shortfalls and the process ultimately will be for the better. “Ocwen understands that servicing transfers can impact the timing of bond cash flows and potentially bond ratings, if certain servicing practices utilized by the transferor servicer are different in practice or execution from those employed by Ocwen,” said CEO Ronald Faris. “In certain circumstances, this can cause cash shortfalls to investment grade bonds or swap counterparties,” he said. Ocwen estimates its advance recovery changes, when implemented upon the Litton transfer, will defer up to $25 million in servicing advance recoveries for about four to six months. Ocwen acquired the Houston-based mortgage servicer from Goldman Sachs (GS) for $263.7 million in early June. The companies expect to close the deal by the end of the year. Faris said the changes are designed to avoid disrupting cash flows and eliminate shortfalls in payouts from the mortgages Ocwen services. Some examples of the changes are in circumstances where Ocwen executes mortgage modifications at a higher rate than the previous servicer. This often leads to an uptick in senior advance recoveries. However, Ocwen is confident the process of mortgage servicing transfer from Litton will go seamlessly and, once transferred, will lead to lower operating cost and higher profitability. “Even though these adjustments are not legally required and will temporarily increase our cost of advance financing, we view them as part of the investment needed to successfully execute on our planned strategy,” said Ocwen Chairman Bill Erbey. “This updated policy combined with our ongoing success in rehabilitating a greater number of delinquent borrowers through loan modifications should generate more cash and lower overall pool losses thus benefiting all bondholders,” he said. Ocwen will look over each RMBS deal transferred from Litton. Prior to remittance, Ocwen plans to eliminate short falls by providing the capital needed to maintain sufficient cash flow on highly rated bonds as well as any required swap payments. Write to Jacob Gaffney. Follow him on Twitter @jacobgaffney.