Ally Bank auctions off rights to collect mortgage payments

January 31, 2013

Ocwen Financial is in the lead to buy a portfolio of mortgage-collection rights from Ally Bank worth about $1 billion, three people familiar with the situation said Thursday.

The deal would help Ally, the bailed-out auto lender that is 74 percent owned by the U.S. government, raise money to pay back taxpayers. For Ocwen, the purchase would further fuel its explosive growth. The company’s servicing portfolio has increased in size by more than six times since 2009, according to Compass Point Research & Trading.

Ally is auctioning off the right to collect payments on $122 billion of home loans, and the outcome is uncertain. Although Ocwen is in the lead, its bid is “neck and neck” with another one, a person said. Ally received five bids, a second person said.

A call to Ocwen was not immediately returned. An Ally spokeswoman declined to comment.

Ally Bank’s sale of mortgage-servicing rights is part of an effort by its parent company, Ally Financial, to wind down most of its mortgage business. Losses from mortgages forced Ally to accept multiple government bailouts during and after the financial crisis.

Much of Ally’s mortgage business was housed in its Residential Capital Unit, which filed for bankruptcy in May in an effort to wipe out legal liabilities from mortgage-backed securities it sold during the housing boom.

Ocwen and Walter Investment Management bought ResCap’s mortgage-servicing rights and operations for $3 billion in an October bankruptcy auction. Ocwen is taking on ResCap’s servicing business, while Walter is taking its lending and capital markets operations.

The Residential Capital business was separate from Ally Financial’s Ally Bank unit, but the two were intertwined. In the sale being negotiated now, Ally Bank made $122 billion of mortgages and also had the right to service them. But Ally Bank subcontracted the right to collect payments to ResCap.

Ally is particularly interested in selling its mortgage-servicing assets, but other lenders have been doing the same. With homeowners struggling to make payments and foreclosures having become more common, expenses in the business have risen. And new bank capital rules for mortgage-servicing rights also increase costs in the business.

Bank of America this month reached an agreement to sell the rights to collect payments on $306 billion loans to Nationstar Mortgage Holdings and Walter Investment Management, two of Ocwen’s competitors. The bank is looking to sell mortgage-servicing rights on $100 billion more of loans.

For the Residential Capital deal, Walter completed its portion of the sale on Thursday, and Ocwen is expected to close its purchase in the next few weeks, according to the person who said a deal for Ally’s mortgage-servicing rights could be announced soon.

Because it is buying ResCap operations, Ocwen has an added incentive to also purchase Ally’s mortgage-servicing rights, the people said. Ocwen is already buying the operations to handle those loans and does not want to risk losing them to a competitor.

“For Ocwen to jump through all of the regulatory hoops to buy ResCap and not get the Ally MSRs would not make sense,” said one of the people.

About three-fourths of the mortgage-servicing rights that Ally is selling are for loans owned by government-controlled U.S. mortgage finance company Fannie Mae.

Ocwen handles some Fannie Mae loans. However, the company hasn’t been a major player in servicing those mortgages because Fannie Mae has had concerns about its use of offshore call centers, a person familiar with the situation said. In its ResCap deal, Ocwen is gaining more onshore operations.

Ally Financial, formerly the in-house lender for General Motors and once known as GMAC, is trying to pay back the U.S. government as fast as possible. The lender is also selling international auto-finance operations in a bid to speed payment.

But in a report this week, the inspector general for the bailout program said the U.S. Treasury needs a more concrete plan for getting its money back. Ally has yet to repay $14.6 billion of the $17.2 billion it received from taxpayers, according to the report.

— Reuters

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