Fitch Puts Ocwen on Negative Watch, Cites Risks after Acquisition

""Ocwen"":http://www.ocwen.com/ made waves when it ""announced an agreement"":http://dsnews.comarticles/ocwen-enters-agreement-to-buy-homeward-for-750m-2012-10-03 to acquire ""Homeward Residential Holdings"":https://www.gohomeward.com/servicing/home.asp in a nearly $750 million deal, but ""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp is doubtful about the move.

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The ratings agency announced it has placed Ocwen's ""B+"" long-term Issuer Default Rating (IDR) on Rating Watch Negative following the servicer's announcement.

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Fitch cited in its decision the risks of various difficulties involved in the integration of Homeward Residential, as well as the current regulatory environment in the mortgage sector.

""While Fitch views the acquisition as strategically complementary to Ocwen's current business model, there remains near-term integration and execution risks, which could result in potential service disruptions, which may ultimately impact cash flow generation,"" the agency said in a release.

Fitch also affirmed Ocwen's short-term IDR at ""B.""

The estimated 422,000 mortgage loans (with an aggregated unpaid principal balance of more than $77 billion) under Homeward Residential's service would provide a sizeable boost to Ocwen's mortgage servicing portfolio, and the addition of Homeward's loan origination model may expand Ocwen's servicing operations and give it a foothold in the originations market.

Ocwen's acquisition of Homeward Residential is still subject to regulatory approval. The deal is expected to be funded by approximately $588 million in cash and $162 million in convertible stock and should be complete before the end of 2012.