Fitch Places Ocwen's RMBS Primary, Special and Master Servicer Ratings on Rating Watch Negative

NEW YORK--()--Fitch Ratings has placed all the U.S. residential mortgage servicer ratings for Ocwen Loan Servicing, LLC (Ocwen) on Rating Watch Negative as follows:

--Residential primary servicer rating for Prime product at 'RPS3';

--Residential primary servicer rating for Alt-A product at 'RPS3';

--Residential primary servicer rating for Subprime product at 'RPS3';

--Residential primary servicer rating for HELOC product at 'RPS3';

--Residential primary servicer rating for Closed-end Second Lien product at 'RPS3';

--Residential special servicer rating at 'RSS3';

--Residential master servicer rating at 'RMS3'.

The Rating Watch Negative reflects concerns raised by the New York State Department of Financial Services (NY DFS) in a letter to Ocwen dated Oct. 21, 2014. The NY DFS has alleged significant issues with Ocwen's systems and processes, especially relating to borrower requests for mortgage loan modifications. The NY DFS also has alleged that Ocwen backdated letters pertaining to borrower mortgage loan modification denials. Fitch believes that improperly dated letters may have led borrowers to believe they did not have sufficient time to appeal the denial of their loan modification request. Ocwen's management has stated to Fitch that they are researching the issues raised and are currently unable to identify to Fitch the number of loans involved.

The ongoing inquiry by the NY DFS and issues identified also call into question the corporate governance and operational control framework of the company, especially as it relates to oversight of its systems and processes. These issues have the potential to bring about other investigations; result in monetary and/or other penalties; and limit the company's operating flexibility.

Fitch expects to resolve the Rating Watch Negative once there is more clarity on the NY DFS investigation and the agency can assess operational, governance, and financial condition implications. From an operational standpoint, the agency will focus on the number of loans involved; any potential borrower harm, and management's response in remediating operational and governance issues raised. The ratings may be removed from Rating Watch Negative if the issues are found to be limited in scope and management can implement a credible plan to remediate findings. However, if the problems are more wide spread and indicate more pervasive operational and governance deficiencies, then Fitch may downgrade the servicer ratings by more than one notch.

Fitch has rated Ocwen as an 'RPS3' rated servicer since it downgraded the servicer ratings in December 2011. Fitch has had long-standing concerns with Ocwen's aggressive growth and heavy concentration of off-shore resources. While Ocwen's comprehensive servicing technology has facilitated their growth and use of global servicing sites, the current issues raise concerns over Ocwen's oversight of its systems and processes. These concerns regarding the effectiveness of the company's technology may further pressure the servicer ratings.

Today, Fitch's Financial Institution Group placed Ocwen Financial Corporation (OCN) and its wholly-owned subsidiary, Ocwen Loan Servicing, LLC (OLS) on Rating Watch Negative:

OCN

--Long-term Issuer Default Rating (IDR) at 'B';

--Short-term IDR at 'B';

--Senior unsecured notes at 'CCC/RR6'.

OLS

--Long-term IDR at 'B';

--Senior secured term loan at 'B/RR4'.

Fitch's servicer ratings take into consideration the financial condition of the servicer and/or its parent company including its ability to meet obligations, advancing if applicable and the funding of its operations.

Fitch maintains its concerns regarding the company's staffing strategy which places a heavy emphasis on off-shore operations for servicing loans in non-agency RMBS transactions. Approximately 73% of all residential servicing headcount is located offshore. Ocwen's servicing portfolio has grown by more than 300% over the past two years due to sizeable portfolio and servicing business acquisition activity. Ocwen is currently the largest non-bank servicer of residential mortgages in the U.S., and fourth largest residential mortgage servicer overall.

As of June 30, 2014, Ocwen serviced 2,647,542 loans totaling $425.8 billion, including $216.8 billion of non-agency RMBS transactions. The portfolio consisted of 24.9% subprime first lien, 8.2% Alt-A first lien, 9.4% prime first lien, 2.2% HELOC, and 4.8% closed-end second lien product by loan volume. The special servicing portfolio consisted of 46,349 loans totaling $8 billion. The master servicing portfolio consisted of 307,379 loans totaling $39.7 billion.

Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. Within some of these rating levels, Fitch further differentiates ratings by plus (+) and minus (-) as well as the flat rating. For more information on Fitch's residential servicer rating program, please see Fitch's report 'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated Jan. 31, 2014 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Rating Criteria for Structured Finance Servicers' (Jan 30, 2014);

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 30, 2014).

Applicable Criteria and Related Research:

Rating Criteria for Structured Finance Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731750

Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=731747

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=907114

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Contacts

Fitch Ratings
Primary Analyst
Thomas Crowe
Senior Director
+1-212-908-0227
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roelof Slump
Managing Director
+1-212-908-0705
or
Committee Chairperson
Rui Pereira
Managing Director
+1-212-908-0766
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Thomas Crowe
Senior Director
+1-212-908-0227
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roelof Slump
Managing Director
+1-212-908-0705
or
Committee Chairperson
Rui Pereira
Managing Director
+1-212-908-0766
or
Media Relations
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com