Written by Biloxi
As major banks had been punished by the Office of Comptroller of Currency for their foreclosure practices and still negotiating a settlement for their foreclosure practices with the 50 state Attorneys General, much of the media has missed this interesting news that I came across. Some investment banks had already exited out of the mortgage servicing business. More on that later. This week, we learned that Goldman Sachs is close to a deal to sell their mortgage servicing unit, Litton Loan Servicing. Litton Loan is currently under investigation with the federal agencies, New York Fed, and NY Attorney General for foreclosure practices and mortgage backed securities. Here is the latest from The Street on Goldman Sachs' deal with Ocwen Financial:
A report that Ocwen Financial (OCN_) is close to announcing a deal to purchase Litton Loan Servicing from Goldman Sachs (GS_) is just another sign that these are the best of times for a company that specializes in servicing distressed mortgage portfolios.
According to a Bloomberg report citing an anonymous source, a deal between the companies could be announced "within days."
Goldman Sachs acquired Litton Loan Servicing in December 2007, "at a purchase price of $428 million, plus repayment of $916 million of outstanding Litton debt obligations," according to the company's 2007 10-K filing with the Securities and Exchange Commission. During the first quarter of this year, Goldman recorded $220 million in impairment losses while reclassifying assets as held for sale, "primarily related to Litton Loan Servicing," and saying that it planned to sell the transferred assets within 12 months.
Goldman Sachs will be another company to Ocwen to add to their portfolio of disaster. What is interesting is that Ocwen acquired Saxon Mortgage Services, a mortgage unit of Morgan Stanley and HomeEq Servicing, a mortgage servicing unit of Barclays. Morgan Stanley and UK company Barclays too, exited the mortgage servicing business last year. More from The Street:
Ocwen previously acquired Saxon Mortgage Services in March 2010, which included servicing rights on 38,000 mortgage loans with unpaid balances of $6.9 billion, and also purchased HomeEq Servicing from Barclays PLC (BCS_) in September, for servicing rights on about 134,000 residential loans with unpaid balances totaling $22.4 billion.
Morgan Stanley brought Saxon back in 2006 in the height of the subprime business for $706 million. Here is what the Global Head of the Securitized Products Group said back in a company's press release in 2006 about Morgan Stanley's deal with Saxon:
"The acquisition of Saxon is another important step in our long-term strategy of broadening the Firm's global franchise in the critical residential mortgage business, which represents the single largest segment of the global debt market," said Anthony Tufariello, Global Head of the Securitized Products Group. "Saxon builds on our existing origination and securitization capabilities by providing us with an extremely strong servicing platform. This is an important part of the residential mortgage business, and the addition of Saxon will further enhance our risk management of mortgage portfolios. This deal also provides Morgan Stanley with new origination capabilities in the non-prime market, which we can build upon to provide access to high-quality product flow across all market cycles."
Well, that was then is this is now. Morgan Stanley's former mortgage servicing unit, Saxon Mortgage, recently settled with Department of Justice for $2.35 million last month for illegally foreclosing on servicemembers. And Saxon's sale to Ocwen will put the 50 state Attorneys General's settlement in a pickle as they are negotiated with the banks on improper foreclosures.
Like Morgan Stanley, Barclays brought HomEq Servicing Corporation which was part of Wachovia Corp. Wachovia Corp. is now owned by Wells Fargo. UK bank Barclays, too, wanted to cash in from the subprime business:
Barclays said it will pay for HomEq's business with cash and will use the newly acquired company to bolster its mortgage-backed securities business in the United States, which it began to build in 2004.
So were the deals with Goldman and Morgan Stanley really worth it for Ocwen Financial? Well, at the time, Ocwen thought these two deals were worth it. Now, Ocwen finds itself in hot water for operations and foreclosure practices with the Federal Trade Commission:
The Federal Trade Commission opened an investigation into the operations and foreclosure practices of mortgage servicer Ocwen Financial.
A spokesman for the FTC confirmed to HousingWire that an investigation of Ocwen is taking place, but said the agency cannot provide additional details beyond that. Ocwen Executive Vice President Paul Koches also confirmed an investigation is underway.
Moreover, did you know that the collapsed investment company Lehman Brothers exited the mortgage servicing business? Yup, Lehman put its mortgage servicing unit up for sale. Lehman acquired Aurora Loan Services back in 2007. In that same year, Lehman had shut down its subprime mortgage lending subsidiary, BNC Mortgage LLC because of the downturn of the subprime market. No wonder Lehman dumped Aurora Loan Services because Aurora is recently under investigation for its foreclosure process.
So, will the major banks such as Wells Fargo, JP Morgan Chase, Citigroup, Ally Financial, and Bank of America exit the mortgage servicing business altogether or sell some of the mortgage servicing unit? We shall see. But, I do see two banks that currently have albatross on their backs from their inheritance of collapsed bank mergers: Bank of America and JP Morgan Chase. Bank of America inherited Countrywide and JP Morgan Chase inherited EMC Mortgage, a mortgage servicing unit to Bear Stearns. Countrywide continues to be in the center of continued investigations with the federal agencies, state Attorneys General, law firms, Department of Justice and so on for illegal foreclosure practices and mortgage back securities, while JP Morgan Chase faces investigation into EMC Mortgage's loan document by a trustee and a class action lawsuit by the state of Washington homeowners.
It doesn't matter whether the major banks try to exit out of the mortgage servicing unit. Their greed and bad practices and abuses to the homeowners in the financial and housing crisis will forever haunt them.
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