Oct. 2 - OVERVIEW
-- We revised our outlook on Ocwen Loan Servicing LLC to stable as a 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 Strengths:
-- 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. Weaknesses:
-- 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. OUTLOOK 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;
email@example.com Secondary Contact: Robert F Mackey, New York (1) 212-438-1268;