Moody's warns mortgage servicers may turn to offering risky loans

Reuters

Feb 26 (Reuters) - Credit rating agency Moody's Corp warned that mortgage servicers such as Ocwen Financial Corp could be pushed into subprime lending as their core business comes under increased regulatory scrutiny.

The rapid growth of mortgage servicers since the subprime crisis has drawn the attention of state and federal regulators who are concerned about the companies' capacity to collect mortgage payments in large volumes.

Earlier this month, Ocwen said New York's banking regulator halted its purchase of servicing rights on a portfolio of mortgages from Wells Fargo & Co with a total principal balance of $39 billion.

Moody's in a research note said it was concerned over the possibility that the companies would attempt to offset a decrease in growth by shifting business models and originating subprime mortgages, which would be a net credit negative.

Servicers get paid by loan owners, typically banks or investors, to collect mortgage payments and handle delinquencies and foreclosures.

Moody's said regulatory action on Ocwen may signal a broader regulatory push to moderate the growth of large mortgage servicing companies, which include Walter Investment and National Mortgage LLC.

Ocwen, Walter Investment and National Mortgage were not immediately available for comment outside of regular business hours.

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