Wells Fargo & Co.
) announced the sale of $12.2 billion worth of unpaid principle
balance (UPB) reverse mortgages servicing rights (MSR).
Walter Investment Management Corp
) wholly owned subsidiary - Reverse Mortgage Solutions, Inc. -
will be buying these MSRs that include a portfolio of roughly
76,000 loans originated by
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However, Wells Fargo will continue to service the remaining
reverse-mortgage loans in its portfolio. While both the companies
did not reveal the terms of the deal, it is anticipated to close
by the third quarter of 2013.
Reverse-mortgage loans are provided to homeowners by keeping real
estate equity as security. This allows borrowers, aged more than
62 years, to remain in their homes and receive either a one-time
sum payment or a stream of income. Mortgage servicers supervise
billing and collections in the interest of the investors, who own
the loans and supervise foreclosures.
As of Dec 31, 2012, Wells Fargo had contracts on $1.87 trillion
of unpaid home loans. Earlier, in 2011, the bank stopped
originating reverse mortgages. The decision to exit the reverse
mortgage business was based on the probable reduction in home
According to the S&P/Case-Shiller index of data from 20 U.S.
cities, home prices declined 5.3% from Dec 2011 till Mar 2012.
However, it rebounded 9% through January this year.
Management at Walter expects the transaction, which doubles the
size of its portfolio, to be an excellent addition to its present
reverse mortgage servicing portfolio. Further, the deal combined
with Wells Fargo's expertise will help strengthen Walter's
position as a leader in the reverse mortgage segment.
Wells Fargo is scheduled to announce its first quarter 2013
results on Apr 12. The Zacks Consensus Estimate for the quarter
is pegged at $3.60 per share. The Zacks Earnings ESP (Read:
Zacks Earnings ESP: A Better Method
) for Wells Fargo is +1.15% for the first quarter. This, along
with its Zacks Rank #3 (Hold), places the company for an expected
Among other major banks,
JPMorgan Chase & Co.
) is also likely to deliver a positive earnings surprise this
quarter as our model shows it has the right combination of
elements - an Earnings ESP of +2.92% and a Zacks Rank #2 (Buy).