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News about commercial and residential mortgage-backed securities. Stories about ratings actions and changes to servicer ratings. Studies and reports about the performance of securitizations and problem vintages and classes. Subprime, Alt-A, home equity and j u m b o analysis.


Subprime Servicers See Ratings Upgrades and Downgrades

Action taken on ratings for Ocwen, Specialized Loan Servicing

Dec. 21, 2011

By MortgageDaily.com staff


Both Ocwen Financial Corp. and Specialized Loan Servicing LLC saw action taken on their respective subprime servicer ratings -- though one was upgraded while the other was downgraded.

West Palm Beach, Fla.-based Ocwen has recently expanded its servicing portfolio with the acquisition of two mortgage servicers. Last year it acquired HomEq Servicing from Barclays PLC. HomEq serviced around $28 billion at the time.

Ocwen acquired Litton Loan Servicing LP from Goldman Sachs three months ago. That deal increased its servicing portfolio by around $41 billion.

During the next three months, Ocwen plans to close on the acquisition of Saxon Mortgage Services Inc. from Morgan Stanley. The transaction will add another $27 billion to its mortgage servicing portfolio.

In addition, Fitch Ratings reports that Ocwen is in the process of making an "acquisition of a significant subprime portfolio from a major bank."

After Ocwen completes the pending acquisitions, its mortgage servicing portfolio -- which stood at 448,000 loans for $68.4 billion as of June 30 -- will total around 910,000 loans for $145 billion. Based on a third-quarter analysis of servicing portfolios by Mortgage Daily, the upcoming acquisitions will leave Ocwen as the 10th-biggest U.S. mortgage servicer.

But all the growth is not necessarily a good thing, according to Fitch.

"While these acquisitions have increased the company's economies of scale and presence in the subprime servicing sector, Fitch believes that they have also introduced the potential for material integration risk associated with portfolio boarding and rapid platform expansion," the New York based ratings agency stated.

So Fitch cut Ocwen's primary servicer rating for subprime mortgages to RPS3 from RPS2. Ratings range the highest quality servicer at RPS1+ to the worst-rated servicers at RPS5-.

Fitch additionally downgraded the special servicer rating to RSS3 from RSS2.

"Servicers rated in the '3' category demonstrate proficiency in overall servicing ability," the downgrade notice stated.

The ratings action was also prompted by Fitch's concern about moving the servicing off shore from the seasoned staff at the acquired companies. Around 80 percent of Ocwen's staff is off shore.

Fitch also cited heightened regulatory scrutiny for the overall sector and expressed concern about the industry's ability to maintain high performance standards while addressing the rising cost of servicing and changes to industry practices. Fitch sees an increased operational risk profile for Ocwen.

Specialized Loan Servicing, meanwhile, saw its subprime servicer quality rating upgraded to SQ3+ from SQ3 by Moody's Investors Service.

Specialized also saw its second lien servicer rating improved to SQ2- from SQ3.

"The rating action is driven primarily by the improvement in performance
shown by Specialized Loan Servicing compared to peers in loss mitigation and second lien collections, particularly with the use of modifications," Moody's explained.

Also contributing to the upgrade was the Nov. 30 acquisition of Specialized by Computershare Limited from Shinsei Bank Limited.

Denver-based Specialized employed 618 associates as of Oct. 31. Its mortgage servicing portfolio totaled 214,000 loans for $16.1 billion.

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