NEW YORK, Nov 5 (Reuters) - Ocwen Financial Corp. on Thursday said it would package more than $200 million of "advances" on home mortgages into debt eligible for purchase under a federal program aimed at lowering borrowing costs.

It would be the first such deal for Ocwen (OCN.N: Quote, Profile, Research), one of the largest servicers of subprime residential mortgages.

By selling the securities, Ocwen is looking to reduce the costs it faces in funding payments it makes to investors while a loan is in default. Advances have soared since 2006 as the housing crisis pushed defaults to record levels, and funding costs have risen as the credit crunch lingered.

Advances deals under the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) have been scarce, partly due to long negotiations with rating companies to obtain top ratings. Even though the advance assets are theoretically safer than top-rated mortgage securities, raters still discount their value for a more depressed housing market.

Advances are typically the first in line to be paid when a loan is made current or is sold after foreclosure.

The TALF program was launched in March to help restart lending and securitizations by offering investors low-cost, non-recourse financing to purchase asset-backed securities such as those supported by auto loans and credit card payments. The Fed later accepted mortgage advances as eligible assets, and a handful have been done by American Home Mortgage Servicing.

"We are very pleased with the advance levels and we are in the approval process with the Fed," David Gunter, chief financial officer of the West Palm Beach, Florida-based company, said on a conference call.

It is a "very tedious process" to go through the rating companies, he said.

Carrington Capital Management, a Santa Ana, California-based subprime servicer, in July said that the costs of funding advances -- with no or little help from TALF -- could curb the number of loans it is able to modify under the government benchmark program to end the foreclosure crisis.

Standard & Poor's discounted Carrington's advances so much that just 64 cents for every dollar in assets would get the AAA rating required for a TALF deal, Carrington said in July. (Reporting by Al Yoon; Editing by Theodore d'Afflisio)