Wells Fargo is selling the mortgage servicing rights on $39 billion in loans to Ocwen Financial Corp.
The sale represents around 2% of Wells Fargo’s total residential servicing portfolio as of the end of fourth quarter 2013.
In a press release, Wells said that the loans underlying the residential mortgage servicing rights sold are primarily owned by private investors and were not originated or owned by Wells Fargo.
Wells first announced that it planned to do a sale in September last year. The transfer of mortgage servicing rights from banks to non-bank financials has been a growing trend over the past two years, largely driven by new capital requirements that make it much less attractive for banks to keep servicing rights on their books.
Under Basel III capital requirements, the maximum value of mortgage servicing rights that be counted toward a bank's Tier 1 capital is 10%. The big worry is that banks will have to set aside more capital for mortgage servicing rights and also could incur exorbitant penalties if servicing assets exceed the 10% cap.
Ocwen and Nationstar, two of the biggest players in the non-bank servicing space, are also the most prolific issuers of servicing advance receivables securitizations.
Ocwen issues deals thorough Home Loan Servicing Solutions (HLSS). HLSS was formed by Ocwen to acquire mortgage servicing assets consisting of mortgage servicing rights, rights to fees and other income from servicing mortgage loans, and associated servicing advances.
Both issuers have in the past stated that securitization has helped lower advance funding costs and increase their companies’ profitability.
S&P projects $5 billion of mortgage servicer advance securitizations this year, down from 2013’s $6.5 billion.