Oct. 2 - OVERVIEW
-- We revised our outlook on Ocwen Loan Servicing LLC to stable as
residential mortgage subprime, special, and subordinate-lien servicer and
affirmed our ABOVE AVERAGE rankings on the company in these categories.
-- The ranking actions and outlook revision reflect an improved turnover
rate and the company's ability to integrate several large portfolio
acquisitions without notable difficulty.
-- The affirmations reflect management's ongoing efforts to implement
operational enhancements to improve the company's servicing capabilities.
-- We lowered the loan administration subrankings to ABOVE AVERAGE from
STRONG for subprime and special servicing based on concerns we have with
tenure, turnover, and other issues.
Standard & Poor's Ratings Services today revised its outlook on Ocwen Loan
Servicing LLC (Ocwen) to stable from developing as a residential mortgage
subprime, special, and subordinate-lien servicer and affirmed its ABOVE AVERAGE
rankings in these categories.
The affirmed rankings and revised outlook reflect the improvements the company
has made with its turnover rate, its ability to integrate several acquisitions
without notable difficulties, well-designed training programs, and good
servicing metrics. The lowered loan administration subrankings reflect the
overall low tenure levels, the effects of not adhering to internal policies
for certain investor reporting remittances, historically high turnover (which
has been improving), and qualms about call scripting.
We also affirmed our ABOVE AVERAGE subranking for management and organization
for residential subprime, special, and subordinate-lien, and lowered the
STRONG subranking for residential subprime and special servicing loan
administration to ABOVE AVERAGE. We affirmed our subranking for
subordinate-lien servicing loan administration at ABOVE AVERAGE. We consider
Ocwen's financial position to be sufficient.
KEY RANKING FACTORS
-- Reduced previously high turnover rates.
-- An established history of servicing distressed assets and
incorporating large acquisitions.
-- A solid internal audit program.
-- A detailed training program for offshore staff.
-- A robust quality assurance department.
-- Very competitive servicing metrics as compared against similar peers.
-- Low staff tenure in many departments.
-- Overall inherent challenges (e.g., retention, training, etc.)
regarding the offshoring of most of the company's servicing staff.
-- The scripting of call center staff is somewhat rigid.
-- Failure to adhere to internal policies that caused interest shortfalls
to affect certain investment-grade classes in U.S. RMBS transactions.
Since our last review, Ocwen has increased the assize of its portfolio by
several large acquisitions, increased its staff significantly, implemented
technology enhancements, and implemented additional internal controls.
Standard & Poor's last report on Ocwen, published in December 2011, cited
several issues. These mainly reflected the company's high turnover rate, low
staff tenure, and questions about how it would incorporate the former Litton
Loan Servicing L.P. (Litton) operation into its existing portfolio, given that
the purchase would increase Ocwen's size by 100%. We believe the company has
satisfactorily addressed most of these items, although tenure still remains
lower than its peers.
As part of our recent review, we examined Ocwen's operations at its domestic
servicing site in West Palm Beach, Fla., and its offshore servicing locations
in Mumbai and Bangalore, India. Ocwen maintains most of its servicing staff
offshore, which warranted on-site visits to gauge the abilities of those
centers, particularly with regard to compliance with U.S. requirements and an
understanding of U.S. borrower behavior.
Generally, Standard & Poor's believes that Ocwen's Mumbai and Bangalore
servicing sites are well managed and that proper internal controls are in
place to mitigate the aforementioned risks, and these aspects support our
ABOVE AVERAGE rankings. The offshoring of servicing staff presents some unique
challenges, such as turnover, but we believe Ocwen has made solid efforts to
confront these issues, and the company continuously seeks to implement
additional improvements and governance as needed to improve operational
performance. For example, our review of call monitoring did not reveal any
instances where borrowers did not understand the offshore staff. Although, due
to the somewhat rigid scripting in place, we believe there are ways Ocwen
could improve staff responses to borrower inquiries. The company says it is
addressing improvements through a project that seeks to improve the scripting
call flow so it is better-suited for the particular situation. We also
observed that the company has a refresher training class for employees
experiencing difficulties on the job, reflecting the company's commitment to
assisting its staff in becoming more effective performers.
Company turnover has improved to approximately 10% and 15% over the last 12
months for management and staff, respectively, improved from 25% and 38%,
respectively. The call center turnover rate is now 23%, down from 36% from the
prior 12 months. These figures are now more competitive with industry peers,
most of whom do not offshore servicing responsibilities. Turnover rates are
now a component of a managers' performance plan, which we believe has helped
to reduce this figure. Tenure levels still remain low in many departments, but
this is also due to the significant hiring over the last 12 months. Metrics
submitted by the company through Standard & Poor's proprietary Servicer
Evaluation Analytical Methodology (SEAM) indicates that the company is a
competitive performer when compared against similar servicers. Call center
metrics have improved significantly: the average speed of answer (ASA) is 12
seconds and the abandonment rate is 1%, compared with the prior 39-second ASA
and 4% abandonment rate. The company has, in our view, a robust quality
assurance program that reviews both voice and non-voice functions across
different servicing departments (e.g., call monitoring of staff in the call
center, tax department, and loss mitigation staff, and the review of loan
modification decisions, etc.).
Management indicated that it is proactively implementing the requirements of
the April 2011 Office of the Controller of the Currency consent order directed
against 14 servicers, which addressed standards to be applied to several
default processes, even though Ocwen is not subject to its dictates.
Management is implementing the requirements because it feels they represent
industry best practices. We consider the servicer's technology environment to
be quite good, and management indicates that it can quickly increase system
capacity if needed. As an offsetting factor, the company's cash flow algorithm
permitted certain U.S. RMBS transactions to suffer interest shortfalls in May
2012. The company revised the cash flow algorithm and does not expect interest
shortfalls to occur for investment-grade classes in U.S. RMBS transactions
that contain both investment-grade and non-investment grade rated classes
going forward. Though the subordinate-lien portfolio is small and not a
business focus, it has increased over the past 12 months.
The outlook is stable. We believe the company has satisfactorily integrated
the former Litton accounts into its portfolio, along with certain other large
servicing acquisitions that closed in the second quarter of 2012. Although
tenure levels remain low, the turnover rate has improved. Based on our
analysis, the company has made, or is making, a sound effort to address
certain challenges associated with the offshoring of its servicing staff.
Standard & Poor's believes Ocwen will remain a competent subprime, special,
and subordinate-lien servicer in the future, and we will continue to monitor
its performance to ascertain its progress in maintaining low turnover rates,
increasing tenure, and implementing improvements to the operation.
RELATED CRITERIA AND RESEARCH
-- Servicer Evaluation: Ocwen Loan Servicing LLC, Dec. 30, 2011
-- Revised Criteria For Including RMBS, CMBS, And ABS Servicers On
Standard & Poor's Select Servicer List, April 16, 2009
-- Servicer Evaluation Ranking Criteria: U.S., Sept. 21, 2004
-- Select Servicer List
Servicer Analyst: Steven L Frie, New York (1) 212-438-2458;
Secondary Contact: Robert F Mackey, New York (1) 212-438-1268;