Fitch Revises Outlook on Financial Freedom’s Reverse Mortgage Portfolio

Fitch Ratings recently affirmed Financial Freedom’s primary servicer rating for its reverse mortgage portfolio but revised its outlook from Positive to Negative.

Financial Freedom, a division of OneWest Bank, has an RPS3 rating, which denotes it has demonstrated “proficiency” in overall servicing ability.

“The servicer rating affirmation reflects the established operations of Financial Freedom, which continues to maintain acceptable processes in its servicing default administration department including the development of a single point of contact program,” says Fitch. “The affirmation also incorporates the stable and seasoned management which averages 25 years of industry experience and six years of company tenure.”

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However, despite Fitch’s affirmation of Financial Freedom’s current maintenance of an “adequate servicing operation with the staff, procedures, controls, default management processes, and technology” to manage its current reverse mortgage servicing portfolio, the Negative outlook reflects concern over OneWest Bank’s future strategy for the Financial Freedom platform. 

While OneWest has not originated any new reverse mortgage loans since May 2011, Financial Freedom’s servicing portfolio is of “significant size” and will take a number of years to wind down, Fitch notes, even though it has already been in “run-off mode.” 

As of March 31, Financial Freedom’s servicing portfolio consisted of 134,856 loans with an unpaid principal balance of about $24.1 billion. The reverse mortgage portfolio consists of 69% GSE loans, 16.2% non-agency RMBS, 9.4% third-party servicing, and 5.5% owned loans. 

“Fitch’s concern has been particularly heightened with the pending mortgage servicing rights sale of approximately 90% of the bank’s forward mortgage servicing portfolio being serviced by IndyMac Mortgage Services, a division of OneWest, to Ocwen Loan Servicing, LLC,” the ratings service said.

In June, Ocwen Financial Corp. announced plans to buy OneWest Bank’s mortgage servicing rights for $2.5 billion.

Fitch’s rating also takes into consideration the financial condition of OneWest, a non-rated entity; overall concerns for the U.S. residential servicing industry; and a deterioration in call metrics for Financial Freedom’s customer service department that occurred following a letter campaign informing borrowers of newly-assigned single point of contact representatives. 

Written by Alyssa Gerace

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  • It is not clear that the offshore employee base of Ocwen Servicing helps its overall ratings and reputation. This is and will continue to be a continuing issue for Liberty as its relationship with Ocwen matures over time.

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