* Ocwen, Nationstar, Walter among bidders -sources
* Sale comes as bank offloads problem mortgages
By Jessica Toonkel and Rick Rothacker
NEW YORK, Jan 4 Bank of America Corp is
in talks to sell collection rights on $300 billion of mortgages,
two sources familiar with the situation said, in an effort to
offload problem exposure after huge losses from its Countrywide
Ocwen Financial Corp, Nationstar Mortgage Holdings
and Walter Investment Management Corp are among
the firms that are in talks to purchase a portion of the assets,
said the sources, who declined to be identified because they are
not permitted to speak to the press.
The assets that Bank of America is looking to sell -- known
as residential mortgage servicing rights -- have become
increasingly onerous for banks to hold onto. The rights allow
banks to earn fees from mortgage investors in exchange for
collecting home loan payments from borrowers. The housing bust
has made collecting mortgage payments an expensive business, as
borrowers go delinquent and into foreclosure.
New capital rules will also make mortgage servicing rights
more expensive for banks to hang onto, so at least some of the
assets are migrating toward non-bank companies like Ocwen,
Nationstar, and Walter Investment Management.
It could not be determined how much each of the three would
buy from Bank of America or what they would pay for the MSRs.
Sources said they expect a deal to be announced within the next
Bank of America spokesman Dan Frahm said the company does
not comment on what he characterized as "market rumor or
speculation." Representatives of Nationstar, Ocwen and Walter
did not immediately respond.
Nationstar is looking to take the biggest position in the
mortgage servicing rights, said one of the sources.
Bank of America's mortgage servicing costs -- $3.4 billion
in the third quarter -- have ballooned as it has added employees
to work with customers who are behind on payments. The bank said
those costs should fall to $500 million per quarter over time.
The unit now has nearly 42,000 employees in the unit, about 15
percent of the bank's total workforce.
In November, Bank of America Chief Executive Officer Brian
Moynihan said the bank plans to reduce its mortgage servicing
portfolio to about 6 million loans from 8 million. At its peak,
the firm had 12 million loans.
The No. 2 U.S. bank by assets serviced $1.1 trillion in
loans at the end of the third quarter, compared to $1.5 trillion
a year earlier.
"We continue to look at transactions," Moynihan said at an
investor conference in New York. "We have been selling servicing
in relatively sizable chunks to the market."
In June, Bank of America agreed to sell $10.4 billion in
residential mortgage servicing rights, as measured by unpaid
principal balance, to Nationstar.
Non-bank mortgage servicers such as Nationstar, Ocwen and
Walter bought up servicing rights from banks including Morgan
Stanley and Goldman Sachs Group Inc that were
burned during the U.S. housing meltdown. These non-bank firms
specialize in working with borrowers who are behind on their
payments and need extra attention from servicers.
Last year, Nationstar, majority owned by private equity firm
Fortress Investment Group, vied with Ocwen and Walter to
buy the mortgage lending and servicing business of Residential
Capital, an Ally Financial Inc subsidiary that filed for
bankruptcy in May. Ocwen and Walter prevailed in the bankruptcy
In a research report last month, FBR Capital Markets analyst
Paul Miller said there could still be $600 billion to $700
billion in assets that will eventually shift to specialty
servicers such as Nationstar, Walter and Ocwen.
"We believe that special servicers will continue to benefit
from changing regulatory and capital requirements that make it
more difficult for bank-based, traditional servicers to service
troubled mortgages," Miller wrote.
Before the housing crisis, banks viewed their mortgage
servicing businesses as a good way to balance their mortgage
lending businesses. When rates are rising, banks tend to make
fewer home loans, so revenue from lending declines. But the
right to service mortgages becomes more valuable, because fewer
borrowers refinance, so banks can collect payments on loans for
a longer period of time.
But the business brought banks pain during the financial
crisis when they had to hire thousands of employees to handle
delinquent loans. Five large banks, including Bank of America,
last year also agreed to a $25 billion settlement to resolve
allegations that they mishandled foreclosures.
Even banks that fared relatively well in the financial
crisis have said they are looking to shed mortgage servicing
rights. In May, Wells Fargo & Co top mortgage executive
said the bank was looking at creating a market for selling these
rights, while retaining the ability to collect payments.
Inside Mortgage Finance, an industry publication, reported
earlier on Friday that Bank of America may be looking to offload
$300 billion in mortgage servicing rights to unidentified