Ocwen 'encouraged' by Fed nod to mortgage servicers

By Al Yoon

NEW YORK, March 3 (Reuters) - A possible expansion of a U.S. lending plan to securities backed by mortgage servicing company assets would help advance the White House's plan for slowing foreclosures, one of the largest subprime mortgage servicers said on Tuesday.

The Federal Reserve on Tuesday said it was considering securities backed by mortgage servicing companies' "advances" to investors eligible for its Term Asset-Backed Securities Loan Facility, or TALF, a program of up to $1 trillion aimed at generating more lending and restarting securitizations.

A market for the advances, which have surged since 2006, could be a boon for servicers that have been pressured by costs of funding payments on delinquent loans. It would also boost servicers' flexibility to ramp up mortgage modifications as desired by the Obama administration, said Paul Koches, general counsel for Ocwen Financial Corp (OCN.N).

"We are encouraged by the Fed's announcement today," Koches said in an e-mail.

"Such a program would have a salutary impact on the ability of servicers ... to proactively execute loan modifications on a scale envisioned" in the Homeowner Affordability and Stability Plan announced last month, he said.

At Ocwen, funded advances doubled over 2007 to $1.13 billion, and fell in 2008 as delinquencies stabilized.

The U.S. housing rescue plan provides incentives to servicers to step up the pace of easing loan terms for distressed borrowers, and slow foreclosures that push home prices lower. Servicers reported increases in loans modified in 2008, and at 123,409 in January are on pace to exceed fourth-quarter volume, according to Hope Now, a coalition of servicers, lenders and counselors.

But their successes have been marred by signs that more than half the borrowers receiving modifications were defaulting again after six months.

A market for servicing advances could be a step toward reviving mortgage-backed securities issuance, which has been frozen since 2007 as the accelerating housing downturn sent investors fleeing from risky assets. Securitized advances could alleviate investor concerns, since the assets are typically paid off first when a loan is modified or foreclosed.

The TALF is slated to start on March 17 for auto, credit card, student and small business loans.

The Fed on Tuesday extended the loan program to include equipment and vehicle fleet leases, and said it is analyzing terms for adding commercial mortgage-backed securities. It said it may add residential MBS and collateralized debt obligations, in addition to servicing advances. For details, see [ID:nN03468772]. (Editing by Jonathan Oatis)