Ocwen Financial's recent regulatory troubles may open the door for New Residential Investment Corp. to transfer its massive subservicing portfolio away from the beleaguered servicer to an affiliate, Nationstar Mortgage Holdings.

New Residential's relationship with Ocwen dates back to its 2015 acquisition of the assets of former Ocwen affiliate Home Loan Servicing Solutions, including rights to servicing fees on mortgage-servicing rights owned by Ocwen.

Earlier this month, New Residential acquired outright ownership of those MSRs, which have an unpaid principal balance of nearly $120 billion and account for more than half of the loans Ocwen services.

Until New Residential acquired full ownership of the MSRs, its ability to transfer the servicing away from Ocwen was severely limited. Even now, it can only transfer the servicing under certain circumstances, such as a downgrade of Ocwen's servicer rating.

"Servicing is a scale business and should servicing be moved, that could be financially negative to the organization and that can impact the servicing performance over the longer run," said Roelof Slump, a managing director at Fitch Ratings.

Credit rating agencies have warned of a servicer rating downgrade in light of a Consumer Financial Protection Bureau lawsuit and separate cease-and-desist orders filed by more than 20 state attorneys general alleging widespread servicing errors. Ocwen responded this week by challenging the CFPB's constitutionality and requested injunctions and restraining orders in Illinois and Massachusetts.

Should Ocwen lose New Residential's subservicing, Nationstar is a logical candidate to pick up the business. The nonbank lender and servicer is already set to begin subservicing a $97 billion portfolio of MSRs that New Residential is acquiring from CitiMortgage and both Nationstar and New Residential have ties to the private equity firm Fortress Investment Group.

Fortress, Nationstar, New Residential and Ocwen did not respond to requests for comment.

Nationstar would likely welcome the opportunity to add more loans to its servicing platform, even as it prepares to onboard a significant portfolio in the Citi deal, as leveraging economies of scale is key in the notoriously low-margin servicing business. The same could be said for subservicing specialists like Cenlar or the Credit Suisse affiliate Select Portfolio Servicing.

"I'd be surprised if anybody would say no," Slump said. "It is a scale business."

While New Residential transferring its servicing could sound Ocwen's death knell, it's not a foregone conclusion. New Residential only holds the MSRs, not the loans themselves. Mortgage-backed securities contracts can also dictate servicing transfer terms, so other parties, including MBS trustees, would have to agree to any change in subservicer.

"Investor consent can be difficult to obtain," Slump said.

There may also be reputational and compliance concerns for any servicer taking over mortgage accounts previously managed by Ocwen. The CFPB's lawsuit alleges Ocwen botched basic servicing functions by sending inaccurate monthly statements to borrowers, improperly crediting payments, and mishandling taxes and insurance in escrow accounts. If true, an incoming servicer would face challenges transferring loans to its platform and open itself up to regulatory scrutiny of its own operations.

Ocwen's stock is down 58% in the week following the regulatory actions, while New Residential's stock is down 5%. Ocwen reports first-quarter 2017 earnings on May 3; New Residential reports on May 1.

Austin Kilgore contributed to this report.

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