Fitch Ratings said late Friday that the financial picture at Ocwen Financial Corp. (OCN) had brightened considerably in recently weeks, as the large independent servicing platform has faced questions over its liquidity in recent months that had put the subprime servicer and technology provider onto negative rating watch. The rating agency said it will maintain its negative rating watch on the company, but cited “several positive developments” that it said would likely lead to a resolution of the negative watch within the next few months. Much of the concern surrounding Ocwen had been in regards to the servicer’s ability to maintain sufficient access to liquidity to fund servicing advances. Ocwen extended its investment line financed by auction rate securities through June 30, 2009 and repaid approximately half of the balance, Fitch noted; the servicer also renewed, increased, or added advance facilities while reducing advance funding requirements by $216.3 million in 2008. Renewing a credit facility that is set to expire in 30 days successfully would likely be the last positive step needed for Fitch to remove the negative watch and assign a ‘stable’ rating to the company’s credit, Fitch said in a statement. On March 20, the Federal Reserve also announced an expansion of its Term Asset-Backed Securities Loan Facility (TALF) to include asset-backed securities backed by mortgage servicing advances — the latest attempt by government officials to free up capital among strapped servicing operations being asked to shoulder much of the financial burden of bulk loan modifications and foreclosure moratoria. Read full story. “Funding challenges aside, Fitch expects operating performance to improve in light of additional third-party servicing opportunities from the public sector,” the rating agency said. Ocwen posted a net loss of $3.7 million, or 6 cents per share, in the fourth quarter 2008. One of the largest opportunities in third-party servicing is tied to mortgage finance giant Freddie Mac (FRE), which said in early February it had selected Ocwen for a pilot program to manage at-risk non-performing mortgages. Under the new pilot, a selected portfolio of higher risk mortgages that are at least 60 days delinquent will be given to a specialty servicer for what the GSE characterized as “intensive attention,” including the use of the streamlined modification program. Ocwen also announced in mid-December it would spin off its technology and business process outsourcing business line, separating it from its core subprime mortgage servicing operation. Company officials confirmed in December they were targeting Q2 2009 for the spin-off, with current shareholders receiving shares of the new publicly-traded company as part of the transaction. Write to Paul Jackson at paul.jackson@housingwire.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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