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42 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING The laTesT Ocwen's troubles with rating agencies, investors continue The Georgia servicing company was yanked from Morningstar's ratings alert and its risk assessment rankings were lowered. O ngoing regulatory scrutiny along with allegations of servicing violations have resulted in the removal of Ocwen Financial from Morningstar Credit Ratings' Alert and the lowering of the Atlanta- based servicer's operational risk assessment rankings. Morningstar's announcement came just one day after Ocwen CEO Ron Faris told his compa- ny's stakeholders that he expected Ocwen's earnings in Q 4 to take a hit based on mounting regulatory pressures, expenses, and a ratings downgrade by Fitch Ratings in early February. Ocwen's four operational risk assessment rankings as deter- mined by Morningstar were all lowered: Ocwen Loan Servicing's residential non-prime servicer, residential prime servicer, and residential special servicer rank- ings were all lowered from "MOR RS3" down to "MOR RS2," while Ocwen Financial Solutions Pvt. Ltd.'s residential vendor ranking was dropped from "MOR RV3" to "MOR RV2." "The forecast for all four rank- ings is negative," Morningstar said in the announcement. "Morningstar believes continu- ing regulatory scrutiny, litigation by mortgage bond investors, the increasing cost and associated liquidity pressures of servicing loans amid several regulatory settlements, and management and staff departures could have further negative consequences to OFC's residential mortgage servic- ing business. Morningstar will continue to monitor developments as they occur." The rankings were originally placed on alert in December 2014 after the announcement that Ocwen had reached a $150 million settlement with the New York Department of Financial Services to settle claims of mortgage servicing violations and issues related to corporate governance. The settlement was announced following a two-year investigation by the New York DFS, and the terms also included the departure of Ocwen chairman Bill Erbey in January. Erbey founded Ocwen in the mid-1980s. On January 23, Ocwen settled with the California Department of Business Oversight for $2.5 million to resolve claims of non-compli- ance with regards to mortgage servicing practices. As part of that settlement, Ocwen will be subject to third-party compliance review and will require regula- tory approval for acquisition of any additional loan servicing rights in California. The same day that settlement was announced, a group of major investors issued a note accusing Ocwen of failing to collect payments on $82 billion worth of home loans. Ocwen fired back, calling the claims "baseless" and accusing the inves- tors of pushing homeowners into foreclosure. According to Morningstar's announcement, Ocwen serviced a portfolio of more than 972,000 non-prime residential loans with an aggregate unpaid balance (UPB) of about $167 billion, as of June 30, 2014. Ocwen's residential mortgage special servicing portfo- lio consisted of 4,613 loans with an aggregate UPB of about $1.1 billion, and the company's prime residen- tial mortgage servicing portfolio was made up of approximately 1.1 billion loans with about $191 billion in aggregate UPB. In a note to stakeholders, Faris reviewed a handful of the regulatory hurdles Ocwen has had to deal with in the past year,

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