News Column

Fitch Affirms Ocwen's RMBS Primary, Special and Master Servicer Ratings

August 8, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following U.S. residential mortgage servicer ratings for Ocwen Loan Servicing, LLC (Ocwen):

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

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

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

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

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

--Residential special servicer rating at 'RSS3', Outlook Negative;

--Residential master servicer rating at 'RMS3', Outlook Negative.

The rating affirmations are based on Ocwen's highly integrated technology environment and robust borrower and investor websites. The primary and special servicer rating actions incorporate a number of internal audit findings that had a negative impact on the assessment of the operating areas involved and also reflect Fitch's concerns surrounding Ocwen's high concentration of servicing operations located off-shore. The master servicer rating is based on the established master servicing platform that Ocwen acquired from Residential Capital LLC (ResCap) through the bankruptcy court in February 2013. In addition, all of the ratings take into account the company's financial condition. Ocwen is rated 'B' with a Stable Outlook by Fitch.

The ratings also reflect Fitch's overall concerns for the U.S. residential servicing industry which include Fitch's concerns for the servicers' ability to maintain high performance standards while addressing the rising cost of servicing and the ongoing changes to industry practices being mandated by regulators and other parties.

The Negative Outlook reflects the financial and operational risks associated with Ocwen's aggressive acquisition strategy, high concentration of offshore servicing operations, and potential conflicts of interest with the use of related companies for property valuations, managing real estate owned (REO) and short sales, title services on REO sales, and handling force-placed insurance.

Ocwen acquired the residential primary and special servicing platform previously used by ResCap's GMAC Mortgage LLC (GMAC Mortgage) and master servicing platform previously used by GMAC-RFC LLC (RFC) from the bankruptcy court in February 2013. Ocwen has largely completed the integration of the GMAC Mortgage and RFC platforms into its existing residential servicing operations.

Ocwen's servicing sites are located in West Palm Beach and Orlando, FL; Coppell and Houston, TX; Fort Washington, PA; Waterloo, IA; Bangalore, Mumbai and Pune, India; Montevideo, Uruguay; and Manila, the Philippines. The master servicing operation is in Burbank, CA. All of the global operations are wholly owned and operated by Ocwen. 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. Fitch will continue to monitor Ocwen's ability to manage its large-scale off-shore operations and pursue its servicing initiatives in this high delinquency environment.

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.

The master servicing operation reports into Ocwen's investor reporting department. Since Fitch's prior review, master servicing has reduced the number of on-site reviews it performed in the last 12 months to two which covered 2.9% of the master servicing portfolio by principal balance. At the time of Fitch's prior review, master servicing's on-site reviews covered 97.1% of the portfolio. The company stated this shift was due to master servicing's focus on the integration with Ocwen's primary servicing operation and the transfer of loans from the GMAC Mortgage platform to Ocwen's servicing platform. Fitch will continue to monitor the master servicing platform's ability to maintain its performance as it is integrated into Ocwen's existing servicing infrastructure.

In December 2013, it was announced that Ocwen entered into a consent agreement with the Consumer Financial Protection Bureau (CFPB) and all state attorneys general except for Oklahoma. Pursuant to the consent agreement, Ocwen will be expected to perform principal reduction modifications totaling $2 billion to account for the alleged faulty servicing practices of Ocwen and other entities from which Ocwen acquired servicing responsibilities. In addition, Ocwen is required to pay $67 million into a $127 million fund designed to provide cash payments to borrowers whose homes were sold in a foreclosure sale between Jan. 1, 2009, and Dec. 31, 2012. Fitch expects that the principal reduction modifications under this agreement will be made primarily on mortgage loans in non-agency RMBS transactions.

In February 2014, the New York Department of Financial Services (NY DFS) requested that Ocwen's indirect parent, Ocwen Financial Corporation, indefinitely suspend its previously announced purchase of mortgage servicing rights from Wells Fargo Bank, N.A. due to its concerns regarding Ocwen's portfolio growth and capacity to service additional loan volume while maintaining appropriate servicing standards. Fitch believes a pause in the pace of Ocwen's acquisitions would help the company to fully complete its integration of recent acquisitions. In August 2014, NY DFS announced that it is looking into Ocwen's use of a related company, Altisource Portfolio Solutions, in its force-placed insurance process.

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 31, 2014);

--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 31, 2014).

Applicable Criteria and Related Research:

Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers

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

Global Rating Criteria for Structured Finance CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751136

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=848274

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



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

Grant Bailey, +1 212-908-0544

Managing Director

or

Media Relations:

Sandro Scenga, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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