According to Reuters,
Bank of America Corporation
) is contemplating the sale of mortgage servicing rights (MSRs)
worth $300 billion. This step will be taken by BofA in order to
scale down its non-core operations and further strengthen the
Among the companies that are in talks to buy MSRs from BofA (in
full or part) include
Ocwen Financial Corp.
Walter Investment Management Corp.
Nationstar Mortgage Holdings Inc.
). The deal is expected to be announced in the next few weeks.
MSRs, in general, are becoming burdensome for the banks.
Stringent capital regulations and increasing balance sheet risk
have made these an expensive business. Hence, the banks are
trying to offload these to specialized mortgage-servicing
companies that include three of the abovementioned firms.
In the last couple of years, major banks like
Goldman Sachs Group Inc
) have sold their respective mortgage servicing subsidiaries to
Ocwen. Last year, Ocwen, in partnership with Walter Investment,
also won the bid to acquire Residential Capital's (ResCap) MSRs
for $3 billion.
Getting back to the original story, BofA's mortgage servicing
expenses has shot up tremendously. In the third quarter, it stood
at $3.4 million as the company had to hire employees to work with
those customers who are late in loan repayments. As of September
30, 2012, the company serviced loans worth $1.1 trillion, down
from $1.4 trillion as of December 31, 2011.
Moreover, in June 2012, BofA announced a deal to sell $10.4
billion worth of MSRs to Nationstar Mortgage Holdings' wholly
owned subsidiary - Nationstar Mortgage LLC. The MSRs comprise of
loans in government-sponsored enterprise (GSE) pools.
Escalating servicing costs and strict regulations is expected to
force BofA and many other banks to do away with once lucrative
MSRs operations. Currently, BofA retains a Zacks #3 Rank, which
translates into a short-term Hold rating.
We believe that BofA's plan to vend off MSRs will be slightly
positive for the company. Hence, there a marginal chance for
upward estimate revisions. This in turn, could also lead to an
improvement in its Zacks Rank.
BANK OF AMER CP (BAC): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
NATIONSTAR MTGE (NSM): Free Stock Analysis
OCWEN FINL CORP (OCN): Free Stock Analysis
WALTER INV MGMT (WAC): Free Stock Analysis
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