OREANDA-NEWS. Fitch Ratings has downgraded and assigned Stable Outlooks, and removed from Rating Watch Negative, the following U.S. residential mortgage servicer ratings for Ocwen Loan Servicing, LLC (Ocwen) as follows:

--Residential primary servicer rating for Prime product downgraded to 'RPS4' from 'RPS3'; Outlook Stable
--Residential primary servicer rating for Alt-A product downgraded to 'RPS4' from 'RPS3'; Outlook Stable;
--Residential primary servicer rating for Subprime product downgraded to 'RPS4' from 'RPS3'; Outlook Stable;
--Residential primary servicer rating for HELOC product downgraded to 'RPS4' from 'RPS3'; Outlook Stable;
--Residential primary servicer rating for Closed-end Second Lien product downgraded to 'RPS4' from 'RPS3'; Outlook Stable;
--Residential special servicer rating downgraded to 'RSS4' from 'RSS3'; Outlook Stable;
--Residential master servicer rating downgraded to 'RMS4' from 'RMS3'; Outlook Stable.

Fitch has downgraded Ocwen's servicer ratings due to weaknesses in Ocwen's corporate governance and operational control framework. While the company continues to perform servicing functions at a proficient level, the level '4' is based on weaknesses in the company's control environment, senior management's lack of oversight in connection with identifying and resolving operational deficiencies as well as the inability to respond satisfactorily to regulatory requests for information, and the lack of sufficient escalation procedures that would raise serious issues to senior management.

The servicer ratings continue to reflect Ocwen's highly integrated technology environment and high concentration of servicing operations located off-shore. The servicer ratings also incorporate the weakening financial condition of the company. Fitch downgraded Ocwen's Long-Term IDR to 'B-' in December 2014 and left the rating on Rating Outlook Negative.

Fitch downgraded Ocwen's servicer ratings (RPS, RSS, and RMS) to '3' in December 2011 citing concerns over Ocwen's growth strategy and heightened regulatory scrutiny for the industry. Fitch also noted that these factors increased the company's operational risk profile as it sought to manage through material portfolio integrations.

Ocwen grew its servicing portfolio by more than 300% in recent years through sizeable portfolio and servicing business acquisitions, and is currently the largest nonbank servicer in the U.S. and fourth largest overall, As of December 31, 2014 the portfolio consisted of approximately 2.4 million loans and \$387.8 billion in loan balances serviced. Most of these acquisitions resulted in portfolios being transferred onto Ocwen's platform and IT systems without commensurate developments or enhancements to the company's risk management process.

Fitch has found that Ocwen's aggressive portfolio, staff growth and integration process over the past several years have not resulted in a unified and cohesive risk management framework for its entire servicing business. Additionally, while the company has realized greater economies of scale as a result of its acquisitions and use of technology, investment in risk management has lagged and has resulted in a number of deficiencies identified over the past several years.

External settlements constrained Ocwen's servicing portfolio growth in 2014 and may cause further declines over the near-term. Fitch believes that a pause in Ocwen's acquisitions will be helpful as the company seeks to address its operational challenges.

The company has recently implemented a number of initiatives to address its corporate governance and operational control issues. Significant management changes since Fitch's prior review include the departure of the company's Executive Chairman, the addition of two new independent members to the Board of Directors, and the addition of a new chief risk officer and a new head of internal audit.

Ocwen has also embarked on a 'three lines of defense' approach to risk management, which incorporates risk management responsibility firstly at the employee level, secondly within risk management, compliance, and legal groups, and thirdly with internal audit. Over the past seven months Ocwen has hired a new head of risk management and associated staff to support this function, and has expanded its regulatory compliance and compliance testing departments.

The company is in the early stages of implementation of needed improvements; recent steps taken to strengthen its risk management framework and management oversight have been positive. Fitch also views the changes required by the recent regulatory settlements to be a net positive. Fitch will continue to monitor the developments at Ocwen as it works through these changes and its regulatory obligations. Full implementation of its governance and control initiatives and resolution of regulatory matters could contribute to future positive rating direction for the company.

The servicer rating downgrade may result in a servicer event of default (EOD) in some U.S. RMBS transactions, providing the trustee and certificateholders the option of transferring servicing in some cases. However, few transfers have resulted from EODs in the past. Based on a review of documents on a sample of approximately 450 transactions, Fitch believes the number of transactions likely to experience an EOD due to the servicer rating change is less than 10% of all transactions.

A list of the transactions reviewed by Fitch and a summary of findings can be found on Fitch's website by performing a title search for 'U.S. RMBS Servicer Event of Default Sample (2015 Q1)' or by clicking the link below:

Additionally, a complete list of U.S. RMBS transactions serviced by Ocwen can be found on Fitch's website by performing a word search for 'Fitch Publishes Ocwen-Serviced RMBS List' (January 28) or by clicking the link below.


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 'Rating U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', dated Jan. 31, 2014 which is available on the Fitch Ratings web site at 'www.fitchratings.com'.