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Exclusive: Bank of America to sell service rights on $100 billion of mortgages

The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011. REUTERS/Fred Prouse
The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011. REUTERS/Fred Prouse

By Jessica Toonkel

NEW YORK (Reuters) - Bank of America Corp is looking to sell collection rights on at least another $100 billion of mortgages after announcing similar deals for more than $300 billion on Monday, according to two sources familiar with the situation.

Any sale would be the latest example of a big bank deciding that collecting mortgage payments on some loans is too costly, and the cost of capitalizing the business was too high given new capital rules. Banks have been unloading these assets for years.

These sales are an opportunity for smaller companies like Nationstar Mortgage Holdings and Walter Investment Management that specialize in managing these collection rights, known as mortgage servicing rights, and do not have to follow bank capital rules.

Bank of America said on Monday that Nationstar was buying servicing rights on $215 billion of mortgages for $1.3 billion, and Walter Investment was buying servicing rights on $93 billion of mortgages for $519 million.

Ally Financial Inc's banking subsidiary is also looking to sell $122 billion of mortgage servicing rights. Ocwen Financial Corp, Nationstar and Walter are among a handful of firms looking at purchasing a portion of Ally's MSRs, according to the sources.

Representatives at Ocwen, Nationstar and Walter did not return calls. Ally spokeswoman Gina Proia declined to comment.

Denmar Dixon, executive vice chairman of Walter Investment Management, said he expected more MSR sales coming.

"I think we are in the third, fourth inning of the game here," he said, in a conference call discussing the MSR acquisition from Bank of America. "There's plenty more to do."

Bank of America is likely to announce more mortgage servicing rights sales in the next several weeks, said the sources, who declined to be identified because they are not allowed to speak to the press.

Bank of America spokesman Dan Frahm declined to comment on any specific transactions, but said the bank had been selling mortgage servicing rights for years and that approach remained part of its strategy.

"By reducing the size of our portfolio, we improve customer service capacity and resolve legacy mortgage issues and reduce risk in our portfolio," he said.

Bank of America shares fell 0.9 to $11.98 on Tuesday.

"TRADE FOR NEXT THREE YEARS"

Mortgage servicing rights allow banks to earn fees from mortgage investors in exchange for collecting home loan payments from borrowers. The housing bust has made collecting such payments an expensive business as more borrowers become delinquent and go into foreclosure.

New capital rules, known as the Basel III rules, will also make mortgage servicing rights more expensive for banks.

JPMorgan Chase may decide to sell some of its MSRs, said two sources familiar with the situation.

The New York-based bank bought a $70 billion mortgage servicing portfolio from MetLife Inc in November, but the firm could sell the rights on some of its subprime mortgage loans, the sources said. J.P. Morgan services a total of 7.4 million loans worth $1.1 trillion.

A J.P. Morgan Chase spokeswoman declined to comment.

Companies like Nationstar, Ocwen and Walter have been building up their mortgage servicing businesses by buying assets shed by larger banks such as Goldman Sachs Group Inc, Morgan Stanley and Bank of America Corp.

Lewisville, Texas-based Nationstar, formerly a unit of homebuilder Centex Corp, was acquired by private equity firm Fortress Investment Group LLC in 2006. In March 2012, it went public.

Atlanta-based Ocwen and Tampa, Florida-based Walter scored a huge victory in October when they won Residential Capital LLC's mortgage business for $3 billion in a bankruptcy auction last month.

Ocwen, founded in 1988, also agreed in October to buy Homeward Residential Holdings from private-equity firm WL Ross & Co LLC for $750 million in cash and stock.

(Additional reporting by Rick Rothacker in Charlotte, N.C.; editing by Jeffrey Benkoe, Matthew Lewis and Leslie Gevirtz)

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