Goldman in talks to buy C-BASS loan servicing unit

By Joseph A. Giannone

NEW YORK, Oct 3 (Reuters) - Goldman Sachs Group (GS.N: Quote, Profile, Research, Stock Buzz), which recently said it saw opportunities in the beaten-down mortgage industry, is in talks to buy the subprime servicing business of Credit-Based Asset Servicing and Securitization LLC, people familiar with the situation said.

Sources said the talks were at an early stage and a deal was not guaranteed. Goldman declined to comment.

Last month Radian Group Inc (RDN.N: Quote, Profile, Research, Stock Buzz) terminated a merger agreement with MGIC Investment Corp (MTG.N: Quote, Profile, Research, Stock Buzz), citing weakening conditions in U.S. mortgage markets. Radian and MGIC, the joint owners of C-BASS, said they would still pursue a previously announced sale of their venture, which had plunged in value.

Goldman has its eye on Litton Loan Servicing LP, a Houston-based servicing unit of C-BASS and the 12th-largest U.S. subprime servicer. Litton makes changes to mortgages that can help struggling borrowers pay their debt, a business that would do well as delinquency rates rise.

Litton could be fetch about $500 million, based on recent valuations for similar businesses.

A number of investors are picking through the wreckage of the once-booming subprime business, which melted down this year after housing markets cooled and loan defaults among the riskiest borrowers began to rise.

Creditors began to pull back, and investors stopped buying subprime loans and securities. As a result, loan volumes plummeted and asset values fell, forcing dozens of firms to sell out, abandon the business or go bankrupt.

Yet mortgage servicers, which send out bills and collect payments on loans, are considered more attractive because they are less vulnerable to credit cycles.