A recent escalation in regulatory scrutiny of Ocwen Financial Corp. prompted the downgrade of a servicer rating at its subsidiary.
A restatement of financials was disclosed earlier this month by the Atlanta-based company. The first-quarter 2014 and full-year 2013 reports are impacted.
Ocwen said its board of directors had determined that the financial statements for those periods “can no longer be relied upon as being in compliance with generally accepted accounting principles.”
Ocwen reduced first-quarter 2014 pre-tax income by $17 million and increased 2013 full-year income by the same amount.
The restatement relates to Ocwen’s sale of mortgage servicing rights to affiliate Home Loan Servicing Solutions Ltd.
Then, in an Aug. 18 FORM 10-Q filing, Ocwen disclosed that it received a subpoena from the Securities and Exchange Commission. on June 12 requesting documents tied to its dealings with affiliates.
The flurry of activity prompted Moody’s Investors Service to downgrade Ocwen Loan Servicing LLC’s servicer quality assessment.
Moody’s rating for Ocwen Loan Servicing as a primary servicer of subprime residential loans had been established at SQ2-.
Moody’s rates servicers on a scale ranging from SQ1+, the highest possible rating, to SQ5-, the worst rating.
Now, the ratings agency is reducing Ocwen’s rating to SQ3+.
Ocwen’s primary mortgage servicing portfolio was reported at $380 billion as of June 30. It also had a $56 billion subservicing portfolio.
It’s residential special servicer rating is also being lowered to SQ3+ from SQ2-.
Moody’s said its action reflects heightened regulatory scrutiny by the SEC and the New York Department of Services — which issued a letter to Ocwen on Aug. 4 raising concerns about conflicts of interest and inconsistencies about corporate governance.
“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,” the ratings action announcement said.
Also influencing Moody’s action were regulatory concerns about force-placed insurance fees and the role of Altisource Portfolio Solutions S.A. in the planned implementation of a new force-placed insurance program.
Moody’s noted that Ocwen plans to vastly improve its library of loan document images on its loans. The project is expected to take one year.
