In an effort to scale down its non-core operations and further
strengthen the balance sheet,
Bank of America Corporation
) is selling certain mortgage servicing rights (MSRs) to
Nationstar Mortgage Holdings Inc.
) wholly owned subsidiary -Nationstar Mortgage LLC. The MSRs
comprise of loans in government-sponsored enterprise (GSE)
Nationstar Mortgage would be buying approximately $10.4 billion
of MSRs, measured on the basis of unpaid principal of the loans. On
the other hand, BofA calculates MSRs as expected future revenue to
be earned, net of loan-loss reserve. As of March 31, 2012, BofA had
nearly $7.6 billion MSRs on its books. The current deal signifies
only a small portion of the company's total MSRs portfolio.
Nationstar stated that a part of the deal would be funded by the
$44 million of investment made by
Newcastle Investment Corp.
). Thus Newcastle would get a right to receive 65% of cash flow
that would be generated by MSRs every month. The deal is expected
to be completed by July.
At the time when most of the lenders are shying away from
mortgage servicing business because of various regulatory concerns
and fall in mortgage rates, Nationstar is on an acquisition spree.
Last month, Nationstar announced its plans to buy $374 billion in
mortgage servicing assets from Residential Capital LLC. Likewise,
in April, it agreed to purchase MetLife Bank's reverse mortgage
servicing portfolio, which
) was exiting that time.
The mortgage servicing business has been facing tremendous
regulatory pressure following the disclosure of the foreclosure
mess in October 2010. However, the $25 billion settlement deal
signed between 49 states' attorneys general, regulators and major
mortgage services that included BofA,
JPMorgan Chase & Co.
), Ally Financial Inc. and
Wells Fargo & Company
), would ease the pressure to an extent.
The Goldman Sachs Group Inc.
) also took similar actions and sold the non-core mortgage
servicing units. Morgan Stanley's Saxon Mortgage Services Inc and
Goldman Sachs'Litton Loan Servicing were sold to
Ocwen Financial Corp.
The losses that BofA suffered from mortgage servicing operations
over the past several quarters prompted the company to divest its
MSRs. The sale would enable the company to move a step closer
towards achieving its targeted Basel III Tier 1 common ratio of
above 7.50% by the end of this year.
BofA currently retains a Zacks # 3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we maintain
our long-term 'Neutral' recommendation on the stock.
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