NEW YORK--(BUSINESS WIRE)--Fitch Ratings has resolved the Negative Rating Watch on 280 U.S. RMBS classes from 127 transactions. All of the classes were previously rated above 'Asf' and are collateralized with mortgage loans serviced in part by Ocwen Loan Servicing (Ocwen). The rating action reflects the increased risk of a temporary servicer disruption.
Rating Action Summary:
-- 273 classes downgraded to 'Asf', assigned a Stable Outlook;
-- 7 classes affirmed at 'AAAsf', assigned a Stable Outlook.
The small number of affirmed classes are expected to pay off in full imminently. The short projected time until payoff mitigates potential servicer disruption risk.
A spreadsheet detailing the actions can be found on Fitch's website by performing a title search for 'Ocwen-Serviced U.S. RMBS Rating Actions for Feb. 20, 2015' or by clicking the link.
KEY RATING DRIVERS
Fitch has applied rating constraints to Ocwen-serviced U.S. RMBS since 2012 due to the unique risks related to the rapid growth of the company's servicing portfolio. With a non-agency servicing portfolio of just under $200 billion, Ocwen is the largest servicer of non-agency U.S. RMBS loans and manages roughly one in four of all loans in non-agency U.S. RMBS mortgage pools.
To date, Fitch's rating constraints have focused primarily on subprime RMBS, where Ocwen's market share is largest. The size of the portfolio and the increased cost and heightened regulatory requirements of servicing subprime loans in particular limits the number of companies willing and able to quickly assume the servicing rights in the event a servicing transfer is required.
Today's rating actions expand the constraints to all mortgage sectors, reflecting Ocwen's growth in the Prime and Alt-A sectors. While Fitch previously allowed some Ocwen-serviced subprime RMBS to be rated above 'Asf' if the class was expected to pay off in full within one year, going forward the rating constraints will now apply to all classes. To determine whether to apply a rating cap, Fitch focuses on the relationship between the bond's payment priority and the amount of the mortgage pool that may be affected by a temporary servicing disruption of Ocwen-serviced loans.
The resolution of the Rating Watch takes into account Fitch's most recent servicer rating action relating to Ocwen. On Feb. 4, 2015, Fitch further downgraded Ocwen's primary servicer ratings to 'RPS4' from 'RPS3' due to concerns related to corporate governance and the operational control framework of the company. Fitch's servicer ratings are based on a scale of one to five, with one being the highest rating. Additionally, Ocwen continues to be subject to strict regulatory oversight and faces possible earnings pressure as a result of heightened compliance standards and any potential reduction in their portfolio size.
Fitch conducts ongoing assessments of its rated servicers with more formal reviews at least once a year but more often as necessary. The ratings of the U.S. RMBS included in today's action are influenced by Fitch's opinion of Ocwen's ability as a primary servicer, as reflected by Fitch's servicer and Issuer Default ratings.
Fitch's primary servicer rating for Ocwen of 'RPS4' currently carries a Stable Outlook. Fitch's Issuer Default Rating for Ocwen Financial Corp. of 'B-' currently has a Negative Outlook.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. RMBS Surveillance and Re-REMIC Criteria' (June 24, 2014);
--'Global Structured Finance Rating Criteria' (May 20, 2014);
--'U.S. RMBS Loan Loss Model Criteria' (Nov. 17, 2014);
--'U.S. RMBS Cash Flow Analysis Criteria' (April 16, 2014);
--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Dec. 19, 2014);
--'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' (May 28, 2014);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 14, 2014);
--'Structured Finance Recovery Estimates for Distressed Securities' (Nov. 18, 2011).
Applicable Criteria and Related Research: Ocwen-Serviced U.S. RMBS Rating Actions for Feb. 20, 2015
Structured Finance Recovery Estimates for Distressed Securities
Counterparty Criteria for Structured Finance and Covered Bonds
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions
Criteria for Interest Rate Stresses in Structured Finance Transactions
EMEA RMBS Cash Flow Analysis Criteria
U.S. RMBS Loan Loss Model Criteria
Global Structured Finance Rating Criteria
U.S. RMBS Surveillance and Re-REMIC Criteria