If there was ever any doubt that the mortgage market is in the midst of a restructuring, consider this: roughly $260 billion of mortgage servicing rights (MSRs) are currently up for grabs.
Then again, it also might be said that almost every single firm offering MSRs (or entire companies) has basically thrown up its hands and wants out of the processing business. And quite a few of these sellers are offering mostly “high touch” or nonprime servicing.
As for who might buy the available portfolios, speculation has led to subservicing firms, specialty servicers and some of the midtier banks that see value in an asset that can be bought on the cheap. (The traditional megabank buyers of MSRs — Bank of America, Wells Fargo and JPMorgan Chase — are nowhere to be found in the auction pit. In fact, BofA is now a seller of MSRs and likely will continue to be so for quite some time.)
In short, as almost any servicing advisor can tell you: in the current market, MSRs are deeply discounted to their true value.
Leading the list of firms testing the M&A waters is Aurora Loan Services (ALS) of Colorado, the mortgage banking arm Aurora Bank, once an asset of Lehman Brothers. About two weeks ago ALS employees were told at a “town hall” meeting that the company — which boasts roughly $60 billion of MSRs — is on the block and must be sold by May 2012. ALS officials declined to comment. Most of its contracts are tied to alt-A or subprime loans.
HSBC Bank USA continues efforts to sell its Depew, N.Y.-based mortgage affiliate ($60 billion of MSRs), but so far the bids have been too low for the bank's liking, officials told NMN. However, unlike most of the MSRs currently on the block, HSBC's are tied to Fannie Mae/Freddie Mac loans with relatively low delinquencies.
BofA recently tried to sell a $50 billion MSR package tied to mostly “high touch” Freddie Mac loans, but didn't like the bids, which came in at just under two-times the servicing fee. The portfolio is currently being offered again.
The trustee for Taylor, Bean & Whitaker (TBW), the Ocala, Fla.-based nonbank that failed two years ago, is ready to offer a $25 billion package of Freddie Mac MSRs through Milestone Merchant Partners. A “book” on the deal should be ready by the end of August.
Another large chunk of TBW product tied to Ginnie Mae-backed loans might reach the market by yearend, servicing advisors believe.
The Morgan Stanley-owned Saxon Mortgage ($18 billion of MSRs) is still on the auction block, and so far the Wall Street firm has turned its nose up at the bids.
The only large MSR-related deal headed for completion is Ocwen Financial Corp.'s purchase of Litton Loan Servicing from Goldman Sachs. Late last week, Ocwen estimated that the sale may close by Sept. 1. Litton services/subservices roughly $41 billion of loans.
Based on public statements, it's hard to determine exactly how much Ocwen is paying for the company and its MSRs, but in tandem with the closing, Ocwen said it will issue a new senior secured term loan for $575 million.