[1]Ocwen Financial Corp. [2] reacted to the recent developments in the last week that included a ratings upgrade from Moody's [3] and being placed Standard & Poor's [4] CreditWatch list for a downgrade, with a press release on Friday [5] in which the company's president and CEO praised the company's progress and said he was "surprised" by S&P's move.
Among the improvements the Atlanta-based servicer has made in the last few months, according to Friday's release, are continued investments in Risk and Compliance Management Systems, which includes the firm's internal audit group. Independent monitor Joseph A. Smith Jr., who is overseeing Ocwen's compliance with the 2012 National Mortgage Settlement, launched an investigation of Ocwen's internal audit group in May 2014; in May 2015, Smith noted the improvements [6] of that group in his report.
Ocwen reported that it had separated its audit and risk functions after hiring Marcelo Cruz as EVP and Chief Risk Officer in June 2014, part of an initiative to add additional experienced management in line with the servicing growth, business complexity, and growing originations business the company has experienced in the last couple of years. The firm also reported its internal audit group has increased the breadth and depth of its audit scope due to the changing environment and the increased need for a focus on compliance. The firm stated in its press release that it believes it has "addressed the higher risk audit issues" and currently does not believe that any of the findings they have identified as higher risk pose a material financial risk.
"We were surprised by the S&P announcement and specifically their reasons because we believe that we have made significant progress in resolving past regulatory concerns, strengthened our financial condition, and, over the past couple of years, continually invested in the quality and capacity of our risk, compliance, and internal audit functions," Ocwen president and CEO Ron Faris said. "We also believe that our risk, compliance, and internal audit scope and effectiveness are consistent with or better than a number of other large mortgage servicers. With the recent filing of our first quarter Form 10-Q and 2014 Form 10-K, we believe that S&P is reviewing the impact of our disclosed regulatory and legal updates in those filings.
"As previously reported, we are not aware of any unresolved issues with state agencies that would have a material financial impact on the Company. Similarly, we are not aware of, nor anticipating any, material fines, penalties, or settlements and we are not aware of any pending or threatened actions to suspend or revoke any state licenses. We also continue to have frequent and transparent communications with state and federal regulators, Attorneys General, GSEs, and other important stakeholders."
Ocwen has experienced a tumultuous last year that has included multi-million dollar settlement over alleged servicing violations, a formal notice filed by major investors claiming they lost $1 billion as a result of alleged servicing infractions by Ocwen, ratings downgrades by Moody's in January and Fitch in February, and the threat of being de-listed from the New York Stock Exchange for the late filing of its 2014 10-K financial report.
The company has worked hard to reduce its Agency mortgage servicing rights portfolio in 2015, starting with sales to Nationstar (one in February [7] worth $9.8 billion and one in March [8] worth $25 billion), one to Green Tree Loan Servicing [9] in March (worth $9.6 billion), and one to Chase [10] worth $45 billion that was finalized in mid-May.
The MSR sales by Ocwen this year, which total close $100 billion, prompted Moody's to upgrade Ocwen's credit ratings earlier this week [11]. Ocwen's Corporate Family Rating and the Senior Secured Bank Credit Facility were both upgraded from B3 to B2, the Senior Unsecured Debt was upgraded from Caa1 to B3, and Moody's now has a "stable" outlook for all of Ocwen's ratings.
"We are pleased to see that the strategy we have deployed is working and achieving its objectives," Faris said. "Execution on sales of a portion of our Fannie Mae and Freddie Mac servicing portfolios has resulted in increased liquidity, reduced corporate leverage and a simplified operating structure. We are pleased that Moody’s has upgraded our Corporate Family Rating, Senior Secured Bank Credit Facility rating, and Senior Unsecured Debt rating. We are also pleased to see that Moody’s has changed its outlook for all of these ratings to stable."