(Reuters) - The banking unit of Ally Financial, the bailed-out auto lender that is 74 percent-owned by the U.S. government, is selling the majority of its mortgage servicing rights portfolio to Ocwen Financial Corp (OCN.N) for $585 million, Ally said on Tuesday.
Ally Bank said the deal will help it reduce mortgage risk and refocus on its Internet banking and auto finance operations. The lender was previously known as GMAC, and was once the in-house lending arm of General Motors Co. (GM.N).
"Successfully achieving these goals will enable Ally to be in the best position to repay the taxpayer," Ally spokeswoman Gina Proia said.
For Ocwen, the purchase will further fuel its explosive growth. The company's servicing portfolio has increased in size by more than six times since 2009, according to Compass Point Research & Trading.
Under the deal, Ocwen will have the right to collect payments on $90 billion of loans, the bank said. As part of the agreement, Ally has the right to sell its remaining mortgage servicing rights portfolio, which is in excess of $30 billion, to Ocwen.
Ally said it has received interest in the remaining portfolio from other financial institutions and is considering its options. Proia declined to comment on potential bidders.
Reuters had previously reported that Ocwen was in the lead to buy Ally's MSR portfolio. Barclays (BARC.L) advised Ally on the deal.
The MSR sale is the latest effort by Ally to restructure a company that needed a series of bailouts during the financial crisis due to ballooning mortgage losses. The lender's Residential Capital mortgage unit filed for bankruptcy in May 2012, and last year Ally reached agreements to sell off its international operations.
Last week, the Federal Reserve's annual stress test of large banks found Ally was the only one of 18 that would not have stayed above a minimum capital ratio in a hypothetical severe economic downturn. Ally has disputed the Fed's analysis.
(Reporting by Jessica Toonkel in New York; Additional reporting by Rick Rothacker in Charlotte, N.C.; editing by John Wallace and David Gregorio)