A major upcoming acquisition will increase stress on the operations at Ocwen Loan Servicing LLC — prompting at least one ratings agency to issue a warning.
Ocwen’s stable outlook has been removed and its RPS3 primary servicing rating for subprime product was placed on ratings watch negative.
The warning also applies to the Atlanta-based servicer’s RSS3 residential special servicer rating.
Fitch Ratings, which issued the ratings watch, is concerned about Ocwen’s planned acquisition of Homeward Residential.
Fitch also placed several of Homeward’s ratings — including its primary servicer ratings for prime, Alt-A and subprime product as well as its primary specialty servicer rating for closed-end second liens and its residential special servicer rating– on ratings watch negative.
Ocwen Financial Corp. announced on Wednesday an agreement to acquire the former American Home Mortgage Servicing Inc. for $750 million in cash and stock.
Ocwen serviced 789,712 residential loans for $122.5 billion as of June 30, according to Fitch. More than 80 percent of the loans are included in non-agency residential mortgage-backed securities, and a little more than three quarters are subprime.
Homeward’s servicing portfolio totals 410,713 loans for $74.1 billion. Private-label mortgages account more than three quarters of its portfolio. Subprime share is 31 percent and Alt-A share is 37 percent.
The acquisition will boost Ocwen’s servicing portfolio by 60 percent.
Fitch explained that it is concerned about “portfolio integration risk including loan transfers onto a new system of record and default management platform, time required for management involvement in planning, and execution of transfer and the assimilation of additional subprime and Alt-A loans requiring immediate high-touch efforts.”
