Ocwen Loan Servicing has updated its servicing advance recovery policies to minimize cash shortfalls on current investment-grade rated, non-agency RMBS.
The changes are for future servicing acquisitions or transfers such as the firm’s pending acquisition of Litton Loan Servicing. The company is a unit of Ocwen Financial Corp.
According to the release, as a result of the updates, Ocwen will model each RMBS deal transferred. Before each remittance date, the firm will derive the amount of cash required to maintain cash flow on highly rated bonds and any mandated swap payments.
The firm will also eliminate any shortfall on highly rated bonds or swap counterparties by deferring the recovery of particular advances in the remittance cycle.
The release said that Ocwen will first defer the recovery of any principal and interest payments over-advanced by the previous servicer.
It will then defer the same recovery on completed loan modifications, and will achieve targeted remittance amounts until cash flows are enough for reimbursement. This would done through the maintenance or increase of voluntary deferrals in subsequent months.
The firm estimated that the advance recovery updates when implemented upon Litton's transfer will defer up to $25 million in servicing advance recoveries for about four to six months. The firm does not think that it will have any effect on its advance recovery timelines, liquidity positions or financial results.
“Acquisition opportunities are increasing as major financial institutions divest servicing operations. Ocwen's low operating and advance financing costs, coupled with access to capital, provide a competitive advantage to acquire available non-agency servicing,” said Ocwen President and CEO Ronald Faris.“Ocwen understands that servicing transfers can impact the timing of bond cash flows and potentially bond ratings if certain servicing practices utilized by the transferor servicer are different in practice or execution from those employed by Ocwen.”