Fitch has placed its servicer ratings on Ocwen and Homeward Residential on Ratings Watch Negative status, citing concerns about portfolio integration risk.
Among the risks are loan transfers onto a new system of record and default management platform at Ocwen, the time required for management to spend on planning the transaction plus the “execution of transfer and the assimilation of additional subprime and alt-A loans requiring immediate high-touch efforts,” the rating agency said.
The deal will increase Ocwen’s servicing portfolio by 60%. It currently has a $122.5 billion portfolio of which 81% are nonagency mortgage-backed securities transactions and 76% are subprime.
Homeward’s portfolio has an unpaid principal balance of $74.1 billion, with 77% nonagency transactions. The portfolio has 31% subprime loans and 37% alt-A loans.
Separately, the analysts at Zacks Equity Research commented, “At a time when major mortgage servicers are shying away from mortgage servicing business as a result of stringent regulations related to capitalization and balance sheet risk, Ocwen has been filling up this void by a string of acquisitions,” pointing to the
The Zacks analysts are more bullish on the deal than Fitch is. One of the items they pointed out as a benefit to the deal is that Ocwen will be acquiring loan production capabilities.
“The acquisition of Homeward is expected to be a positive catalyst for Ocwen. The company will be able to further boost its mortgage serving operations and enter the lending market. This would, thus, provide a sustainable source of organic growth going forward,” Zacks said.
Zacks has a short-term hold rating on Ocwen’s stock and a long-term neutral recommendation.
