Moody’s downgrade the latest obstacle for troubled Ocwen

Bill Erbey's last week atop Ocwen Financial isn't turning out to be his best.

The embattled mortgage servicer, the largest non-bank home loan servicer in the US, fell 10 percent on Wednesday after Moody's downgraded its debt amid a dispute with a California regulator that threatens to pull Ocwen's license to do business in the state.

In fact, Ocwen shares have fallen every day of this young year — a total of nine straight trading days. More than $1 billion in value, or 52 percent of its market cap, has been erased.

Shares closed Wednesday at $7, down 78 cents.

The California Department of Business Oversight claimed that Ocwen isn't cooperating with its probe into the company's compliance with state consumer laws.

Ocwen denies that and says it is working with the regulator.

The dispute, which could lead to a suspension of the mortgage servicer's license for a year, led Moody's to downgrade the company's creditworthiness to B3 from B2, which puts it deeper into junk territory.

"The negative outlook reflects the uncertain outcome of the DBO regulatory action and its effects on Ocwen's ability to operate in California," Moody's wrote in a note on Wednesday.

Moody's also downgraded two other inter-related companies chaired by Erbey because of their reliance on Ocwen.

Another credit ratings agency, Fitch, put out a separate report saying that any sale of Ocwen's mortgage servicing rights would be "prolonged."

Mortgages in California represent about 15 percent of the company's portfolio, the most of any state, Ocwen said in regulatory filings.

Ocwen makes money by collecting payments on existing home loans.

Erbey, 65, agreed to step down from Ocwen and four other related companies after settling claims made by New York regulators that it bilked homeowners by backdating letters to distressed homeowners that shortened the period of time they were eligible for refinancing and by imposing its own expensive insurance.

Ocwen's financial woes probably aren't ending any time soon — 49 states, the federal Consumer Financial Protection Bureau, and the monitor of the National Mortgage Settlement could still file charges against the company, according to a report from Deutsche Bank.

British lender Barclays piled onto the company woes on Wednesday, setting a price target of $5 because of the potential litigation.

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