Fueled by concerns that Ocwen Financial Corp. is growing too large too quickly, Fitch Ratings on Tuesday dropped two servicer ratings for the company. The agency downgraded Ocwen's primary servicer rating for subprime product to RPS3 and its special servicer rating to RSS3.
Fitch says that Ocwen's aggressive growth strategy and heavy emphasis on offshoring staff, coupled with overall regulatory scrutiny of the servicing sector, have increased Ocwen's operational risk profile, particularly as it relates to its management of near-term portfolio integrations.
In the past two years, Ocwen has executed numerous high-profile servicing acquisitions, including buyouts of Barclays' HomEq platform and Litton Loan Servicing's portfolio and operations. Ocwen has also acquired a $26 billion subprime portfolio from Saxon Mortgage Services in a deal that is scheduled to be completed in February. Additionally, Fitch reported that Ocwen is in the process of acquiring a significant subprime portfolio from an undisclosed major bank.
Once the pending acquisitions close, Ocwen's subprime servicing portfolio is expected to total $145 billion comprising 910,000 loans – up from $71.7 billion and fewer than 468,000 loans at year-end 2010.
"While these acquisitions have increased the company's economies of scale and presence in the subprime servicing sector, Fitch believes that they have also introduced the potential for material integration risk associated with portfolio boarding and rapid platform expansion," Fitch said.
Fitch also expressed concerns about Ocwen's staffing strategy. According to the rating agency, Ocwen's recent acquisitions have included replacing seasoned servicing staff at the acquired platforms with newly hired staff in its global offices. As of the third quarter, roughly 80% of the company's staff was based offshore, including 90% of customer-facing functions.
Although Fitch noted that Ocwen is currently maintaining Litton's servicing sites in Georgia and Texas, the agency said it believes the heavy offshore component may negatively impact future performance metrics.