Boosted by its acquisition of Saxon Mortgage Services, Ocwen Financial was the only major servicer to increase its subprime portfolio in the second quarter of 2012. And after three consecutive quarters of improvement, subprime performance deteriorated in the second quarter. An estimated $505.0 billion in subprime mortgages were outstanding as of the end of the second quarter of 2012, according to Inside Nonconforming Markets, down 3.4 percent from the previous quarter as subprime mortgage originations ... [Includes one chart]

Two servicing rules proposed last week by the Consumer Financial Protection Bureau could shift more business to special servicers, according to industry analysts. While senior CFPB officials said that was not the intent of the proposals, special servicers appear to be better equipped than others to handle the complex new requirements. “The inadequate performance of many mortgage servicers has helped widen the misery for many Americans,” said CFPB Director Richard Cordray. He noted that the regulator ...

Standard & Poor’s last week updated its criteria for ratings on non-agency mortgage-backed securities with collateral originated before 2009. The standards update criteria for credit, cash flows and rating stability and apply immediately. The rating service said the changes will result in more downgrades than upgrades. This week, S&P placed 16,872 ratings from 3,364 securities with a par amount of $253.95 billion on CreditWatch. About 70.0 percent of the ratings are on watch for potential downgrades ... [Includes three briefs]

Officials at Ocwen Financial revealed this week that the servicer hired more employees than operationally necessary in an effort to win bids for servicing and subservicing. They said they are now in the process of right-sizing staffing levels through a number of different techniques. “We over-hired to make sure we could hit the cover off the ball on the deals that we knew we had in-hand,” Ron Faris, president and CEO of Ocwen, said during the servicer’s earnings presentation for the second quarter of 2012. Ocwen completed ...

Manipulation of the London Interbank Offered Rate could have resulted in lower interest rates for subprime ARM borrowers, according to Laurie Goodman, a senior managing director at Amherst Securities Group. Interest rates on close to 80.0 percent of subprime ARMs outstanding in May were linked to LIBOR, according to data from Lender Processing Services, whose data covers about two-thirds of outstanding mortgages. As of the end of May, 70.3 percent of eligible second liens have received a modification via ... [Includes six briefs]

Moody’s Investors Service is warning that the booming market for subprime auto ABS is poised to potentially overheat as growing demand could push lenders to loosen underwriting standards to boost volume, repeating what occurred during the 1990s. A recent Moody’s report cites emerging parallels between the U.S. subprime auto lending mar-ket today and the early 1990s when investor capital flocked into the sector by charging high loan rates while enjoying low funding costs. When the ‘90s lending boom went bust, net losses in subprime auto ABS jumped from under 3 percent in early 1995 to over 10 percent in 1997, according to Moody’s.

Compensation for non-agency mortgage-backed security servicers should be adjusted and the industry should adopt practices from commercial MBS servicing, according to Morningstar Credit Ratings. The firm that recently established its non-agency MBS rating capabilities said enhanced servicing could help revive the issuance of non-agency MBS. “Without these reforms it may prove very difficult to attract investors back into the fold of private-label residential mortgage securities given the weaknesses exposed in ...

Improved subprime performance and a lack of new originations have prompted major nonbank firms involved in subprime servicing to expand their portfolios with acquisitions of nonperforming agency mortgages. Ocwen Financial, Nationstar Mortgage and Walter Investment Management, among others, have all recently acquired large volumes of nonperforming agency mortgages. An estimated $525.0 billion in subprime mortgages were outstanding as of the end of the first quarter of 2012, according to an Inside Nonconforming Markets analysis ... [Includes one data chart]

Incentive payments to FHA servicers based on a compliance score will soon replace the current tier ranking-based inducements used by the Department of Housing and Urban Development to reward above par servicer performance. In an update to its servicer evaluation process, HUD said implementation of the National Servicing Center’s Servicer Performance Scorecard (SPS) is underway and the transition from Tier Ranking System (TRS) incentive payment to an SPS payment scheme will be announced in a mortgagee letter as soon as the implementation is completed. In the future, the SPS may be used as ...

Ocwen Financial has been a leader in principal-reduction loan modifications and officials at the company suggest the mods give Ocwen a competitive advantage over other servicers. The advantage could come into play as bank servicers look to complete required principal-reduction mods as part of the recent $25 billion servicing settlement. “I think we’ve done as many principal-reduction mods as the rest of the industry combined ...