Ocwen’s Servicing Advance Capacity Causes Fitch Double-Take

While Fitch Ratings maintains its Negative Rating Watch on Ocwen Financial Corp.'s B+ long-term Issuer Default Rating (IDR) and B short-term IDR, the rating agency expects to resolve the Negative Rating Watch within the next month, citing ‘several positive developments and further clarity into Ocwen's servicing advance capacity.’

Ocwen is positioned to generate new third-party or special servicing business, Fitch reports. The servicer's loan modification efforts have reduced default rates and, in turn, the need to making servicing advances, Fitch adds.

The agency also notes that Ocwen's recent contract with Freddie Mac to be special servicer for a high-risk-loan pilot program is an example of how the company's loss mitigation programs have created special servicing opportunities.

Ocwen has also made progress toward maintaining advance financing capacity by extended its investment line financed by auction rate securities through June 30 and repaying approximately half of the balance; maintaining match-funded advance capacity by replacing notes that entered amortization in 2008; renewing, increasing or adding advance facilities; and reducing servicer advance funding requirements by $216.3 million in 2008.

To supplement the actions above, renewing a credit facility expiring over the next 30 days would add a margin of safety and flexibility to support the current rating, Fitch adds. If renewed, Fitch would likely affirm the current rating and assign a Stable Outlook.

SOURCE: Fitch Ratings

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