U.S. Residential Mortgage Servicer Rating Actions
New York, March 09, 2012 -- Moody's Investors Service has downgraded Ocwen Loan Servicing, LLC's
("Ocwen") rating as a Special Servicer to SQ2- from SQ2.
The company's rating of SQ2- as a Primary Servicer of subprime
residential mortgage loans remains unchanged. Both ratings remain
on review for possible downgrade.
The downgrade of the special servicer rating and the review for downgrade
for the special servicer and the subprime servicer ratings are based on
concerns related to the rapid growth of Ocwen's servicing portfolio,
and the challenges Ocwen faces in integrating the acquired servicing platforms
and managing the additional distressed loan portfolios. Maintaining
servicing quality may be a challenge for Ocwen as it scales up its operations,
including hiring default and other mortgage servicing personnel,
in response to multiple mortgage portfolio acquisitions. Much of
the growth in the company's servicing operations will occur in its
captive sites in India and Uruguay, where the majority of the servicing
staff is based.
The ratings reflect Ocwen's above average collection abilities,
strong loss mitigation results, above average foreclosure and REO
timeline management and below average servicing stability.
Since the prior review, the company combined its customer service
and early collections teams into a single a group that operates in a blended
inbound/outbound call environment. Ocwen maintained solid inbound
call abandonment rates following the boarding of Litton's portfolio,
however the collections group made fewer outbound calls September to November
2011, the first three months following the integration.
The company's loss mitigation practices continue to be among the
most proactive of the servicer's we rate, including a high
level of modifications and re-modifications, as well as extensive
use of principal forgiveness. The company, however,
performs a lower level of short sales than many of its peers. In
May 2011, Ocwen implemented an appointment model in its loss mitigation
group through which delinquent borrowers may schedule a call session with
a loss mitigation specialist.
In light of increased industry scrutiny into servicers' foreclosure
practices, the company made a number of enhancements in its handling
of foreclosure documents, including centralizing the signing of
affidavits and hiring additional staff to improve communications with
outside counsel and to manage state foreclosure requirements.
Ocwen Financial Corporation, the servicing organization's
corporate parent, maintains a B1 senior secured rating and a B2
senior unsecured rating. On March 5, 2012, Home Loan
Servicing Solutions, Ltd, a company formed by the Chairman
of Ocwen Financial which will facilitate future servicing portfolio growth
for Ocwen, completed its initial public offering. As of December
31, 2011, Ocwen employed a staff of 5,063 employees,
of which 843 were employed in the U.S., 4,141
in India operations and 79 in Uruguay.
The previous rating action for Ocwen's SQ ratings occurred on June
30, 2011. At that time, we placed Ocwen's ratings
as a Primary Servicer of subprime loans and as a Special Servicer on review
for possible downgrade due to the challenges Ocwen faced in its integration
of Litton's servicing platform and $38.6 billion portfolio.
Since then, the company has announced a pending MSR purchase from
JPMorgan Chase and the pending acquisition of Saxon's servicing
platform and portfolio, which will grow Ocwen's portfolio
to over $130 billion from approximately $55 billion in mid-2010.
Moody's SQ ratings represent its view of a servicer's ability to prevent
or mitigate asset pool losses across changing markets. The rating
scale ranges from SQ1 (strong) to SQ5 (weak). Where appropriate,
a "+" or "-" modifier will be appended to the relevant rating
to indicate a servicer's relative servicing quality within a particular
category. Moody's servicer ratings are differentiated in the marketplace
by focusing on performance management. SQ ratings for U.S.
residential mortgage servicers incorporate assessments of delinquency
transition rates, foreclosure timeline management, loan cure
rates, recoveries, loan resolution outcomes, and REO
management -- all critical indicators of a servicer's ability
to maximize returns from mortgage portfolios.
Moody's servicer ratings also consider the company's ability to maintain
its focus on high quality servicing in an economic downturn. Servicing
operations can be stressed by increasing the number of delinquent loans
while at the same time increasing the need for liquidity. The SQ
rating reflects our expectation of the impact that the servicing will
have on the on-going credit performance of the portfolio.
For this reason, Moody's monitors SQ ratings based on periodic information
provided by servicers and conducts a formal re-evaluation of its
servicer ratings annually.
The other methodology used in this rating was "Moody's Approach to Rating
Residential Mortgage Servicers" published in January 2001. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
Other factors used in this rating are described in "Updated Moody's Servicer
Quality Rating Scale and Definitions" published in May 2005.
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obligation or credit satisfactory for the purposes of issuing a rating.
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received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
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however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
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for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Gene Berman
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
William Fricke
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Ocwen's SQ special servicer rating; SQ subprime rating unchanged; both ratings on review for downgrade
