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Moody’s Downgrades Ocwen Amid Regulatory Issues

Citing the beleaguered mortgage servicer’s regulatory troubles, Moody’s has downgraded the outlook for Ocwen Financial Corporation (NYSE: OCN) to negative.

It’s the latest bit of bad news for the West Palm Beach, Fla.-based firm, which originates and services reverse mortgages through its Liberty Home Equity Solutions subsidiary: After receiving cease-and-desist orders from 21 states in late April over the mishandling of escrow accounts, nine more have joined the fray, and the company still faces a lawsuit from the Consumer Financial Protection Bureau over a host of “systemic” violations.

For those reasons, Moody’s on Friday assigned a negative outlook to both Ocwen Financial Corporation and its Ocwen Loan Servicing arm, which was named in the state orders that largely prevented Ocwen from originating new forward mortgages or acquiring the servicing rights to existing loans. As RMD reported, most states declined to include Liberty in their orders, with Illinois naming the reverse mortgage subsidiary solely to ensure that Ocwen couldn’t originate forward loans through Liberty to circumvent the ban.

“The negative outlook reflects the expectation that Ocwen will continue to experience elevated legal and regulatory costs that negatively impact its profitability,” Moody’s wrote in its release announcing the downgrades.

The New York City-based investment services firm did note that Ocwen’s fortunes could rise if a $117 billion servicing-rights transfer deal with New Residential Investment Corporation (NYSE: NRZ) goes through, bringing $425 million in cash to Ocwen while also solidifying its previously murky relationship with New Residential. The rights at the center of the deal had previously been classified as “rights to servicing rights.”

Ocwen had attempted to combat the CFPB’s lawsuit by asking for an expedited ruling on the bureau’s constitutionality; were a court to invalidate the CFPB’s authority, the suit would simply disappear. But a federal judge threw out Ocwen’s request for a speedy ruling — as well as an exhortation for Attorney General Jeff Sessions to personally weigh in on the case — earlier in June.

The servicer also made headlines late last month by making a host of spicy accusations against a state-appointed regulator in a separate California regulatory saga, claiming that employees of the independent third party inflated their timesheets and expensed trips to casinos and strip clubs.

Written by Alex Spanko