When it comes to the business of mortgage servicing now may not look like the best time to jump in.

Federal regulators are looking to slash servicing compensation for not only GSE loans but even FHA product. And then there’s that nasty little “robo-signing” scandal where the states hope to extract a $20 billion pound-of-flesh from the top-ranked firms.

In other words, why would any outside players enter the space? But then there’s the case of Walter Investment Management Corp., Tampa, Fla., which just last week agreed to pay $1 billion to purchase specialty servicer Green Tree Servicing of St. Paul, Minn.

If you’re confused, don’t be. The key word in the description of Green Tree is that it’s a “specialty servicer,” which means its forte is handling troubled “high touch” loans for firms that can’t handle such headaches themselves. Then again, it might be argued that there are plenty of specialty servicers out there and that the field is too crowded as it is.

But industry advisors familiar with Green Tree’s operation say Walter is banking on Freddie Mac ramping up how much it uses the company, and also hopes that Fannie Mae will use its services as well. The name of the game here is MSRs and delinquent loans.

It’s no secret that the GSEs have been none-too-happy with how their seller/servicers handle problem loans and have moved expeditiously the past two years to “force-place” MSR contracts to such outsourcing firms as IBM Lender Business Process Services, Nationstar and Ocwen, among others.

Green Tree has a contract with Freddie, but not Fannie, at least not yet. However, all that could change over the course of the year as regulators and state attorneys general continue to apply pressure to the nation’s megaservicers, which appear to be ill-equipped to handle problem servicing.

“Walter is buying a 'future’ on Green Tree,” said one servicing executive who deals with high-touch product. “Walter thinks they can grow this business even more—that’s what this purchase is all about.”

As of last week Walter Investment, a publicly traded REIT, wasn’t talking much about its strategy, at least not with the press. It should be pointed out that Walter isn’t putting up all cash for Green Tree, which is owned by Centerbridge Partners, a hedge fund. The REIT will issue 1.8 million shares of common stock to the seller, assume $20 million of existing Green Tree debt and issue $765 million of new debt.

In other words, Walter is levering up to buy Green Tree in the hope that it will benefit as the GSEs (and perhaps other mortgage giants?) use their servicing business to modify loans, bring dead-beat borrowers current, or foreclose. Is the company up to the task?

Anyone who has been in the mortgage business for at least 10 years knows that Green Tree has an interesting pedigree, to say the least. In early 1998 an insurance company called Conseco bought the mortgage company, which then was not only a servicer but one of the largest funders of mobile home loans. (The purchase price was $6 billion.)

To make a long story short, Green Tree moved into subprime, ramped up and eventually Conseco filed for bankruptcy protection. (Sound familiar?) The servicing division eventually was bought by two hedge funds: Fortress Investment Group and Cerberus Capital, which in 2007 flipped the firm to Centerbridge. Enter Walter and its borrowed money. Just how large is Green Tree? Its executives won’t talk either.

A year ago the firm stopped providing servicing figures to this newspaper, but its MSR/subservicing portfolio is estimated to be in the $30 billion range. Let’s see: $1 billion for $30 billion in servicing/subservicing contracts. Is that a good deal? Time will tell — and the answer may be provided by the GSEs.

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