Fitch Maintains Negative Watch On Ocwen's RMBS Servicer Ratings

NEW YORK--()--The U.S. RMBS servicer ratings for Ocwen Loan Servicing, LLC (Ocwen) remain on Rating Watch Negative as follows:

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

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

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

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

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

--Residential special servicer rating 'RSS3';

--Residential master servicer rating 'RMS3'.

Fitch maintains the Negative Watch following the Consent Order Pursuant to New York Banking Law Section 44 between the New York State Department of Financial Services (NY DFS) and Ocwen announced Dec. 22, 2014 (Consent Order). In summary, the Consent Order requires Ocwen to pay a civil monetary penalty of $100 million to the NY DFS and $50 million as restitution to certain current and former New York borrowers; the appointment of an independent Operations Monitor to review and assess the adequacy and effectiveness of Ocwen's operations; and benchmark pricing and performance studies for all fees or expenses charged to New York borrowers by any related party. The Consent Order further contains restrictions on sharing common officers or employees with any related party; sharing risk, internal audit or vendor oversight functions with any related party; and on employees', officers' or directors' involvement in related party transactions. The Consent Order also prohibits Ocwen from acquiring mortgage servicing rights (MSRs) unless certain benchmarks are met and approval of the NY DFS is obtained. In addition, the Consent Order requires that William C. Erbey step down as an officer and director of Ocwen, as well as from the boards of related companies, and that Ocwen add two independent directors.

Previously, Fitch had placed Ocwen's servicer ratings on Rating Watch Negative following the Oct. 21, 2014 letter from the NY DFS alleging significant issues with Ocwen's systems and processes, especially relating to borrower requests for mortgage loan modifications. Fitch noted that the ongoing inquiry by the NY DFS and issues identified call into question the corporate governance and operational control framework of the company, especially as it relates to oversight of its systems and processes, and that these issues have the potential to bring about other investigations; result in monetary and/or or other penalties; and limit the company's operating flexibility.

Fitch expects to resolve the Rating Watch Negative based on its assessment of the operational, governance, and financial condition implications of the Consent Order, Ocwen's ability to comply with all requirements, and operational and strategic changes which may follow in the wake of the announced departure of Ocwen's Executive Chairman.

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, heavy concentration of off-shore resources, and use of related companies. While Ocwen's comprehensive servicing technology has facilitated their growth and use of global servicing sites, 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.

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 grew 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 Sept. 30, 2014, Ocwen serviced 2,507,896 loans totaling $400.8 billion, including $205.4 billion of non-agency RMBS transactions.

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).

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Contacts

Fitch Ratings
Primary Analyst
Thomas Crowe, +1-212-908-0227
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roelof Slump, +1-212-908-0705
Managing Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Thomas Crowe, +1-212-908-0227
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Roelof Slump, +1-212-908-0705
Managing Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations, New York
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com