Ocwen Financial Corp.OCN fell nearly 7% following the news that Standard and Poor's Ratings Services ("S&P") placed its ratings under 'CreditWatch Negative'. Expressing surprise over the action taken by the rating agency, the company CEO stated that much progress has been made to resolve regulatory issues.
Ron Faris, President and CEO of Ocwen said, "We were surprised by the S&P announcement and specifically their reasons because we believe that we have made significant progress in resolving past regulatory concerns, strengthened our financial condition, and, over the past couple of years, continually invested in the quality and capacity of our risk, compliance, and internal audit functions."
While placing Ocwen's ratings for potential downgrades, S&P cited heightened regulatory and investor scrutiny and several "high-risk findings in key areas of the servicing and default operations" as reasons. The rating agency also mentioned factors like "consent order actions" by the Californian and New York regulators as well as several investor allegations and litigations.
In Dec 2014, Ocwen had settled accusations of backdating foreclosure letters with the New York regulators; while in Jan 2015, the company announced resolution of charges regarding its failure to comply with Californian mortgage lending laws.
Ocwen's CEO further commented, "…we believe that S&P is reviewing the impact of our disclosed regulatory and legal updates in those filings. As previously reported, we are not aware of any unresolved issues with state agencies that would have a material financial impact on the Company. Similarly, we are not aware of, nor anticipating any, material fines, penalties, or settlements and we are not aware of any pending or threatened actions to suspend or revoke any state licenses."
Ocwen further stated that ratings downgrade will adversely impact its "ability to sell or fund servicing advances". Also, accessibility of debt financing facilities and the company's status as an approved servicer by Fannie Mae FNMA and Freddie Mac FMCC would be at stake. Therefore, at this juncture, when Ocwen is trying to move beyond its past issues and striving to enhance risk-management capabilities, we believe S&P's action will raise investors' concern on the stock.
On the other hand, Moody's Investors Service, the ratings arm of Moody's Corporation MCO , upgraded Ocwen's ratings for measures undertaken to ensure financial stability. The company has announced sale of nearly $90 billion in mortgage servicing rights (MSRs) by the end of this year, thereby providing ample liquidity.
Nevertheless, Moody's noted that Ocwen is still not fully out of woods. The company "faces significant challenges to re-establish a resilient business model". Moreover, in case the announced MSR sale fail to close as expected or additional regulatory issues crop up, the rating agency could downgrade Ocwen's ratings.
Currently, Ocwen carries a Zacks Rank #3 (Hold).
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