UPDATE 1-Walter Investment to buy reverse mortgage servicer

Tue Sep 4, 2012 10:43am EDT

Sept 4 (Reuters) - Walter Investment Management Corp said it would buy reverse mortgage servicer Reverse Mortgage Solutions Inc for $120 million, sending Walter's shares up to a four-year high.

The shares were trading up 8 percent at $30.26 in early trade on the NYSE Amex on Monday.

The loan servicer said it would pay for the deal with $60 million in cash, $25 million in stock, and a $35 million seller mortgage servicing rights note.

Walter, which bought closely-held Green Tree Credit in a $1 billion deal last year, expects its latest purchase to significantly add to both earnings and cash flow.

In a reverse mortgage, a lender pays money to a homeowner, and the homeowner has no monthly payments. The loan, plus interest, is repaid when the home is sold or the homeowner dies. The mortgages are typically targeted at older people.

Reverse Mortgage Solutions currently services about $12.0 billion in unpaid principal balance of reverse mortgages and has issued about $1.1 billion of reverse mortgage backed securities in the first half of 2012, Walter Investment said.

Reverse Mortgage was formed in 2007 and is majority-owned by Jacob Asset Management.

"The sector has very attractive long-term growth prospects and is currently undergoing significant structural change... We believe RMS is uniquely positioned to capitalize on this opportunity and to continue capturing greater market share," Walter Investment CEO Mark O'Brien said in a statement.

Walter Investment said the deal would position the company to grow in the $140.0 billion reverse mortgage servicing sector.

Large players, including Bank of America Corp and Metlife Inc, the largest issuer of reverse mortgages have pulled out over the last year leaving room for other players grow their business.

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