Ocwen Financial Corp., the mortgage company that's faced attacks from regulators and bond investors, had its proficiency grades reduced by Fitch Ratings.
The credit grader cut the servicer ratings to the second-lowest tier of "4," citing "weaknesses in the company's control environment" and "senior management's lack of oversight in connection with identifying and resolving operational deficiencies," it said in an emailed statement Wednesday.
While the cuts may create default events under some mortgage-bond contracts that give deal trustees and investors the option of transferring servicing, that step has only been taken in a "few" cases in the past, according to Fitch. Trustees for numerous securities told investors last quarter that default events had occurred as a result of downgrades to Ocwen's ratings by other graders, and in some cases asked holders of the debt whether to fire the company, according to Nomura Holdings Inc. analysts.
Ocwen, the largest servicer of loans within mortgage bonds without government backing, last month rejected as "groundless" accusations by an investor group including Pacific Investment Management Co. and BlackRock Inc. that the company's practices created default events for 119 mortgage-debt deals.
Fitch said that it believes less than 10% of all transactions would experience defaults as a result of its action. Ocwen, which has grown by more than 300% in recent years to manage $388 billion of loans, also has shown an "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 ratings firm said.
David Millar, a spokesman for Atlanta-based Ocwen at Sard Verbinnen & Co., declined to immediately comment. The company, whose shares have declined 85% over the past year to trade at $6.61, has reached settlements in the past two months with New York and California while facing separate investigations from other regulators.
