Bank of America has plans to sell servicing rights on mortgages worth nearly $400 billion in an effort to unload assets in response to increased mortgage servicing-related expenses under new capital rules, Reuters reported Jan. 8.
Many large banks have been selling significant quantities of servicing rights for several years, and the sales have represented an opportunity for companies like Nationstar Mortgage Holdings, Walter Investment Management and Ocwen Financial Corp., which specialize in mortgage servicing but do not have to follow bank capital rules.
Reuters reported that Bank of America will sell servicing rights on $215 billion of mortgages for $1.3 billion to Nationstar and servicing rights on $93 billion of mortgages to Walter for $519 million.
“By reducing the size of our portfolio, we improve customer service capacity and resolve legacy mortgage issues and reduce risk in our portfolio,” Dan Frahm, Bank of America spokesman, told Reuters.
Ally Financial also is reportedly looking to unload servicing rights on $122 billion worth of mortgages. Nationstar, Ocwen and Walter are reportedly interested in the deal. JPMorgan Chase also may be selling some or all of its $70 billion mortgage servicing portfolio purchased from MetLife in November 2012.
The Wall Street Journal’s MarketWatch also reported on the impending mortgage servicing sales, with Guy Cecala, chief executive officer of Inside Mortgage Finance, telling the news outlet that “banks are licking their wounds from the mortgage market … and creating great opportunities for nonbanks to step in and pick up the pieces. Special servicers have always been out there, but they certainly got a new lease on life as a result of the subprime meltdown.”
Paul Miller, an analyst with investment banker FBR Capital Markets, told MarketWatch that he anticipates big banks selling another $300-$500 billion in mortgage servicing rights in the future.
Mortgage servicing rights let banks earn fees from mortgage investors in exchange for the collection of loan payments. The housing crisis has made loan collection increasingly expensive as stricter capital rules have been put into place and more borrowers have become delinquent. Impending Basel III rules could make the situation even tougher.
MarketWatch reported that some analysts have questioned how firms such as Nationstar and Walter would maintain their loan pipelines once traditional banks have completed asset sales and the rush of recent refinancing activity has ended. Cecala said some servicers already have added loan-origination capabilities to help replenish their servicing portfolios. He noted that others are expected to follow suit.