According to Reuters, Bank of America Corporation (BAC) is again considering the sale of mortgage servicing rights (MSRs). This time, MSRs worth more than $100 billion are up for sale. BofA is taking is step to scale down its non-core operations and further strengthen the balance sheet.
Additionally, given the new capital regulations, servicing of loans is becoming a costly affair for the banks. BofA’s mortgage servicing expenses has shot up tremendously over the last few quarters. In the third quarter of 2012, it stood at $3.4 million as the company had to hire employees to work with those customers who are late in loan repayments.
At the same time, specialized mortgage-servicing companies, such as Walter Investment Management Corp. (WAC), Ocwen Financial Corp. (OCN) and Nationstar Mortgage Holdings Inc. (NSM), are capitalizing on such sales and building their businesses. Over the last couple of years, these companies have been purchasing MSRs from major banks including BofA, Morgan Stanley (MS) and Goldman Sachs Group Inc (GS) and enhancing their organic growth prospect.
Earlier in the week, two definitive agreements have been signed by BofA with Walter Investment and Nationstar related to the sale of MSRs on some residential mortgage loans. The company stated that MSRs worth $215 billion were sold to Nationstar for $1.3 billion, while Walter Investment is purchasing MSRs on $93 billion worth of mortgages for $519 million. Also, in June 2012, the company announced a deal to sell $10.4 billion worth of MSRs to Nationstar Mortgage Holdings’ wholly-owned subsidiary – Nationstar Mortgage LLC.
Currently, BofA retains a Zacks Rank #3, which translates into a short-term Hold rating. We believe that BofA’s plan to vend off MSRs will be positive for the company and would enable it to act towards its goal of focusing on core and profitable operations. This would enhance investors’ confidence in the stock, and hence there is a chance for upward estimate revisions. This in turn, could also lead to an improvement in its Zacks Rank.
BANK OF AMER CP (BAC): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
NATIONSTAR MTGE (NSM): Free Stock Analysis Report
OCWEN FINL CORP (OCN): Free Stock Analysis Report
WALTER INV MGMT (WAC): Free Stock Analysis Report
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