Home Loan Servicing (HLSS), Ocwen (OCN) Agreement Reduces Near-Term Uncertainty - Fitch

April 13, 2015 3:07 PM EDT

An amendment to an existing agreement between Ocwen Loan Servicing, LLC (NYSE: OCN) and Home Loan Servicing Solutions, Ltd. (Nasdaq: HLSS) will reduce the near-term uncertainty that Ocwen's non-agency mortgage servicing business could potentially be lost to competitors, says Fitch Ratings. The amendment, announced on April 6, extends the term over which Ocwen is entitled to be the named servicer on the loans in which the economic rights were sold to HLSS, which comprise the majority of Ocwen's non-agency servicing business, and imposes a standstill on the right of HLSS to replace Ocwen as the named servicer for a two-year period to April 2017.

The risk of Ocwen losing a large portion of its non-agency business to Nationstar Mortgage LLC arose following the announcement in February that New Residential Investment Corp. (NRZ), managed by an affiliate of Fortress was acquiring HLSS. Affiliates of Fortress also manage funds that own the majority of the parent company of Nationstar, a competitor of Ocwen's among large non-bank U.S. RMBS servicers. While Ocwen is intentionally shedding select MSRs, the loss of the servicing of the HLSS loans would have been detrimental to the company, in our view.

Ocwen received a deficiency letter from the New York Stock Exchange because it has not yet filed its annual financial report (form 10K) for the year ended Dec. 31, 2014. Ocwen has until September 2015 to file before facing delisting. The completion of the acquisition of HLSS by NRZ should allow Ocwen to file its form 10K with the SEC in the near future.

HLSS was founded by former Ocwen CEO William Erbey primarily to acquire mortgage servicing assets. The majority of the company's servicing assets were acquired from Ocwen. Ocwen is the largest non-agency RMBS servicer in the U.S. with a portfolio of approximately $200 billion.

Fitch currently rates Ocwen's residential mortgage servicing platform, which encompasses prime, Alt-A, subprime, HELOC, and closed-end second-lien products, as follows: Primary servicer: 'RPS4'; Outlook Stable; and Special servicer: 'RSS4'; Outlook Stable.

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