Fitch Maintains Negative Watch on Ocwen's US RMBS Servicer Ratings
Fitch Ratings maintains its Negative Rating Watch on the following Ocwen Loan Servicing LLC (Ocwen) U.S. residential mortgage servicer ratings:
--Primary servicer rating for subprime product 'RPS3'; Rating Watch Negative;
--Residential special servicer rating 'RSS3'; Rating Watch Negative.
Ocwen's servicer ratings were placed on Negative Watch on Oct. 4, 2012, following the announcement that Ocwen was acquiring Homeward Residential (Homeward). The acquisition of the Homeward platform is expected to be completed by year-end and to increase Ocwen's portfolio by approximately 60%.
Ocwen's servicer ratings remain on Negative Watch based on Fitch's concerns over Ocwen's potential acquisition of the majority of the GMAC Mortgage LLC (GMAC Mortgage) servicing portfolio. GMAC Mortgage is a wholly owned subsidiary of Residential Capital LLC (ResCap). The United States Bankruptcy Court, Southern District of New York, announced on Oct. 24, 2012 that Ocwen won a joint bid with Walter Investment Management Corp. (Walter) for the GMAC Mortgage servicing platform. A significant portion of GMAC Mortgage's FNMA portfolio would be transferred to Walter's Green Tree Servicing LLC with the balance of the portfolio transferred to Ocwen. The sale, which must still be approved by the Bankruptcy Court, is expected to close by March 31, 2013. The Bankruptcy Court is scheduled to commence a sale approval hearing on Nov. 19, 2012.
Fitch's concerns for the GMAC Mortgage acquisition reflect portfolio integration risk including loan transfers onto a new system of record and default management platform for a significant portion of the portfolio including non-agency RMBS transactions, the additional time required for management involvement in planning and execution of the transfer while integrating the Homeward platform, and the aggregation of additional subprime loans on the Ocwen platform requiring immediate high-touch efforts.
In addition, the Rating Watch Negative for the servicer ratings also reflects Fitch's downgrade of Ocwen's parent Ocwen Financial Corp's Long-term Issuer Default Rating (IDR) to 'B' from 'B+' on Nov. 8, 2012. Ocwen Financial Corp's Long-term IDR remained on Negative Watch and the company's Short-term IDR was placed on Rating Watch Negative.
As of June 30, 2012, Ocwen's portfolio consisted of over 798,000 loans with an unpaid principal balance (UPB) of $122.6 billion, which included over 614,000 subprime loans and 39,000 Alt-A loans. The acquisition of the Homeward portfolio will add over 410,000 loans with a UPB of $74.1 billion which includes over 149,000 subprime loans and 120,000 Alt-A loans.
As of June 30, 2012, GMAC Mortgage's residential mortgage portfolio consisted of over 2,369,000 loans with a UPB of $355.5 billion. If the sale is approved by the Bankruptcy Court, a significant portion of the FNMA portfolio would go to Green Tree while the balance of the GMAC Mortgage portfolio, including over 162,000 subprime loans and 126,000 Alt-A loans, would go to Ocwen. This will further increase the concentration of subprime and 'high-touch' loans at Ocwen.
Fitch anticipates that Ocwen will integrate GMAC Mortgage's non-agency RMBS portfolio into its existing proprietary servicing platform, with the majority of the processes conducted by Ocwen's global offshore offices. As of the recent Fitch review, more than 80% of Ocwen's servicing functions for non-agency RMBS including borrower contact are conducted off-shore.
Fitch believes the outsized scale of Ocwen's rapidly growing portfolio relative to the subprime industry and its offshore staffing strategy may pose challenges to an orderly transfer of servicing from Ocwen if a transfer were necessary at some point in the future. The risk of a servicing disruption will be considered in the high-stress and low-probability scenarios used to analyze the ratings of high investment grade bonds. Consequently, the pending acquisitions will likely result in some rating downgrades of classes which currently maintain high investment grade ratings. Fitch will continue to monitor Ocwen's servicing portfolio performance during its integration of the Homeward and GMAC Mortgage servicing platforms.
Fitch's Outlook for the U.S. Residential Mortgage Servicer ratings sector remains Negative. On Nov. 4, 2010, Fitch assigned a Negative Outlook for the entire sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure 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 'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria,' dated Jan. 31, 2011, and 'Global Rating Criteria for Structured Finance Servicers,' dated Aug. 16, 2010, both available on the Fitch web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria & Related Research:
--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria' (Jan. 31, 2011);
--'Global Rating Criteria for Structured Finance Servicers" (Aug. 16, 2010).
Applicable Criteria and Related Research:
U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria
Global Rating Criteria for Structured Finance Servicers
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