Concern over increased regulatory scrutiny has prompted a servicer rating downgrade for an Ocwen Financial Corp. unit. Ocwen affiliates have received a pair of notices alleging default events.
Ocwen Loan Servicing LLC’s primary subprime servicer quality assessment had been rated at SQ3 on a scale where SQ1+ is the best rating and SQ5- is the lowest.
The SQ3 rating was assigned in October 2014 as a result of a downgrade from a prior servicer quality rating of SQ3+.
But on Thursday, the rating was knocked down another notch to SQ3-.
Behind the downgrades was Moody’s Investors Service, which said the latest
action reflects heightened regulatory scrutiny and legal developments as well as their impact on servicing stability.
Moody’s additionally reported that it cut Ocwen’s special servicer rating — also from SQ3 to SQ3-.
Both ratings remain on review for a further downgrade.
The October ratings action and accompanying review status was due to “uncertainty regarding the impact of the regulatory scrutiny and possible regulatory action on the company’s servicing stability.”
Since then, Ocwen Financial entered into a consent order with the California Department of Business Oversight. Nearly a quarter of its business is in the Golden State.
It also reached a $250 million settlement with the New York State Department of Financial Services.
Moody’s noted that Ocwen has been notified by investors in 119 private-label securitizations of a potential servicer default.
If a default has occurred, Ocwen could be terminated as a servicer.
But it would likely be compensated for the mortgage servicing rights.
In another development, affiliate Home Loan Servicing Solutions LTD
received notice of an alleged event of default under its servicer advance securitization. A default would result in the loss of its primary source for funding advances on loans serviced by Ocwen — though Moody’s believes Home Loan Servicing could amend or refinance its existing facilities, if necessary.
“Both allegations claim Ocwen has failed to comply with these covenants under MBS servicer agreements,” the ratings agency stated. “If Ocwen has failed to comply with these covenants, the breach would be an deemed an event of default under HLSS’ servicer advance facility unless the facility is paid down with respect to the disqualified collateral or qualifying collateral is substituted.”
Moody’s also expressed concern about Ocwen’s ability to integrate acquired servicing platforms and manage distressed loans.
