Just two weeks after being upgraded by Moody's Investor Service and being placed Standard & Poor's CreditWatch list for a downgrade, S&P cut Ocwen Financial's ratings for residential mortgage prime, subprime, special, and subordinate-lien from Average to Below Average.
S&P said that it believed "regulatory and investor scrutiny and/or actions" had affected Ocwen's operations. 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.
“We are disappointed with Standard and Poor’s decision," an Ocwen spokesman said in a statement emailed to DS News. "Their conclusions do not reflect the significant progress Ocwen has made in resolving past regulatory concerns, enhancing our risk, compliance, and internal audit functions, and strengthening the company’s financial condition."
The Atlanta-based servicer has made many improvements this year, however. One of the reasons why Ocwen expressed surprise and disappointment at S&P's decision to downgrade its rankings was the recognition the servicer received from Moody's earlier this month, which were prompted largely by sales of nearly $100 billion in Agency mortgage servicing rights portfolios this year. Moody's upgraded Ocwen's Corporate Family Rating and the Senior Secured Bank Credit Facility from B3 to B2, the Senior Unsecured Debt from Caa1 to B3, and all ratings were given a "stable" outlook.
"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," Ocwen said. "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. Ocwen also notes that this past Monday (June 15, 2015), Moody’s confirmed its servicer quality assessments of Ocwen as a primary servicer of subprime residential mortgage loans as a special servicer of residential mortgage loans, and that Moody’s announced that its servicer quality assessments of Ocwen are no longer on review for downgrade due to the progress Ocwen has made resolving its regulatory issues, integrating previously acquired servicing portfolios and platforms, and enhancing oversight of its servicing operations.”
This past year, Ocwen has made 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 of that group in his report.
"With the changing environment and increased focus on compliance, our internal audit function has increased the breadth and depth of its audit scope," Ocwen said. "Ocwen would also highlight its conservative approach to flagging certain audit findings as higher risk, which is consistent with its historical practice. Management of Ocwen believes it has addressed the higher risk audit issues and currently does not believe that any of the identified higher risk audit findings pose a material financial risk to the Company."