Moody’s Investors Service has downgraded the servicer quality of Ocwen Loan Servicing, LLC amid the embattled non-bank servicer’s ongoing conflicts with federal regulators and the implications those probes pose for the company.
As a primary servicer of subprime residential mortgage loans, Moody’s downgraded Ocwen Loan Servicing to a rating of SQ3+ from SQ2-, and as a special servicer of residential mortgage loans to SQ3+ from SQ2-.
The SQ assessments represent its view of a servicer’s ability to prevent or mitigate asset pool losses across changing markets. The assessment scale ranges from a strong rating of SQ1to SQ5 at the weaker end.
In the company’s last servicer quality assessment of Ocwen in 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.
Additionally, Moody’s highlights the assessment actions reflect the heightened regulatory scrutiny faced by Ocwen Financial Corp. (NYSE: OCN) by federal regulators such as the U.S. Securities and Exchange Commission (SEC) as well as the New York Department of Financial 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,” stated Moody’s in its ratings assessment rationale.
In mid-August, Ocwen announced 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 same month, the NYDFS also issued a letter to Ocwen that raised concerns about potential conflicts of interest and potentially inconsistent statements and representations regarding corporate governance—developments that followed several actions the regulator had taken against Ocwen in the previous months, including a freeze on the company’s $2.7 billion agreement to buy mortgage servicing rights from Wells Fargo.
Ocwen, however, has not been the only non-bank mortgage servicer to be placed under the microscope of federal regulators.
The NYDFS’s Benjamin Lawsky also placed Nationstar (NYSE: NSM) under close watch to probe into the company’s relationships with its subsidiaries.
Moody’s also lowered Ocwen’s component assessment for loan administration to an average rating from above average, based on regulatory concerns regarding the force-planned insurance fees and the role of Altisource Portfolio Solutions—one of the affiliates regulators are probing for potential conflicts of interest.
Additionally, Moody’s noted that Ocwen 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. The effort, Ocwen expects, will 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,” stated Moody’s. “It also reflects uncertainty regarding the impact of the regulatory scrutiny and possible regulatory actions on the company’s servicing stability.”
Written by Jason Oliva