Moody’s Investors Service has downgraded Ocwen Loan Servicing, LLC’s servicer quality (SQ) assessments as a primary servicer of subprime residential mortgage loans to SQ3+ from SQ2- and as a special servicer of residential mortgage loans to SQ3+ from SQ2-. Both assessments remain on review for further downgrade. The ratings agency also lowered the company’s component assessment for loan administration to average from above average.
Moody’s SQ assessments represent its view of a servicer’s ability to prevent or mitigate asset pool losses across changing markets. Moody’s servicer assessments are differentiated in the marketplace by focusing on performance management. The assessment scale ranges from SQ1 (strong) to SQ5 (weak).
In Moody’s last SQ assessment of Ocwen, on 21 August 2013, Moody’s maintained the company’s SQ2- assessment as a primary servicer of subprime loans and its SQ2- assessment as a special servicer of residential mortgage loans. Both SQ assessments remained on review for downgrade owing to concerns about Ocwen’s rapid portfolio growth and the challenges of integrating the acquired servicing platforms and managing the additional distressed loan portfolios.
The assessment action reflects the heightened regulatory scrutiny of Ocwen Financial Corp. by the US Securities and Exchange Commission (SEC) and the New York Department of Services (NYDFS). Based on their findings, these agencies could restrict Ocwen’s activities, levy monetary fines, or take additional actions that could negatively affect the company’s financial strength and servicing stability.
The assessment action follows Ocwen Financial Corp’s announcement on 18 August 2014 that it had received a subpoena from the SEC in June seeking documents related to its business dealings with corporate affiliates and a probe related to the interests of the executives in the companies. The NYDFS on 4 August 2014 also issued a letter to Ocwen that raises concerns about potential conflicts of interest and potentially inconsistent statements and representations regarding corporate governance.
Moody’s also lowered the company’s component assessment for loan administration to average from above average based on regulatory concerns regarding force-placed insurance fees and the role of Altisource Portfolio Solutions, S.A. in the planned implementation of Ocwen’s new force-placed insurance program. Ocwen also has embarked on an initiative to review all loan-related imaged documents to identify duplicate documents, index documents that are not appropriately classified and reimage documents, which are not legible. Ocwen expects the effort, which should improve the quality of servicing, to be completed in approximately one year.
The review for downgrade for the special servicer and the subprime servicer assessments reflects Moody’s continuing concerns about Ocwen’s challenges integrating the acquired servicing platforms and managing the distressed loan portfolios. It also reflects uncertainty regarding the impact of the regulatory scrutiny and possible regulatory actions on the company’s servicing stability.
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