Despite Ocwen Financial Corporation’s recent announcement that it would acquire PHH Corporation, the outlook for the servicer remains negative, according to a top ratings company.
Fitch Ratings has affirmed the long-term issuer default ratings (IDRs) of Ocwen and its subsidiary, Ocwen Loan Servicing, at B-. The company’s rating outlook remains negative, Fitch said. The rating agency also cast doubt on Ocwen’s ability to achieve the goals it laid out for its acquisition of PHH.
The rating action follows Ocwen’s Feb. 27 announcement that it has agreed to acquire all the outstanding shares of PHH for approximately $360 million in cash. Fitch said that the transaction could give “Ocwen an opportunity to improve margins through economies of scale, reduce fixed costs on a combined basis by eliminating redundant corporate overhead and public company related costs, and provide potential growth opportunities to offset current portfolio runoff.” However, the “potential strategic and financial benefits are offset, in Fitch’s opinion, by execution risk with respect to Ocwen’s ability to achieve stated integration, overhead, servicing and origination synergies.”
Fitch also warned that Ocwen’s long-term IDRs could be downgraded if it doesn’t achieve the hoped-for strategic and financial benefits of the planned merger.
Fitch also predicted that Ocwen’s continuing legal troubles with the Consumer Financial Protection Bureau and the Multi-State Mortgage Committee, which allege various servicing abuses, could hurt the company’s bottom line.
“While Fitch believes the legal proceedings may ultimately result in some form of consumer relief and/or payment of a monetary penalty, which could negatively impact the firm’s profitability and strategic direction, clarity on this issue is not expected in the near term,” the rating agency said.
Fitch said that Ocwen’s outlook could be revised to “stable” if the various regulatory and legal challenges don’t adversely impact its operational, governance or finance position. However, a revision to a “stable” outlook “would also be conditioned upon successful integration of PHH, a strengthening of the combined entity’s financial position, and establishment of a sustainable and competitive business model as a mortgage lender, without incurring outsized credit risk.”
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