Senior mortgage bond holders that are being serviced by Litton Loan Servicing could be in for some cash flow disruptions because of the Ocwen deal, according to a new report from Moody’s Investor Servicer.
The acquisition of Litton by Ocwen “will change Litton’s current servicing and advancing practices, which could disrupt monthly cash distributions to Litton-serviced RMBS transactions,” writes Moody’s analyst Gerard Mazi and his partners.
Moody’s believes senior bond holders – those who receive priority payments on ‘fast cash flow’ securities – will experience delayed cash distributions on what they are rightfully owed.
“Delayed payments to these bonds would allow losses to deplete their subordination before the bonds are paid off, exposing them to higher losses when they must share principal pro-rata with other senior bonds,” writes Mazi. “Prior to subordination depletion, fast cash flow bonds typically receive all principal payments.”
A spokesman for Ocwen did not return a telephone call about the Moody’s report. Litton services roughly $41.2 billion of subprime loans – mortgages that have been packaged into MBS.
The sale of Litton by Goldman Sachs is expected to close by the early fall.