Exclusive: Ocwen leads in deal to buy Ally mortgage rights - sources

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By Jessica Toonkel and Rick Rothacker | February 1, 2013 5:35 AM EST

Ocwen Financial Corp is in the lead to buy mortgage servicing rights on $122 billion of loans from Ally Bank, three people familiar with the situation said on Thursday.

The deal is expected to be valued at around $1 billion and could be announced soon, said one of the sources, who declined to be identified because details of the auction are not public.

Ally, the U.S. auto lender that is 74 percent-owned by the U.S. government, received five offers for the mortgage servicing rights and the outcome of the auction is not certain, the source said.

While Ocwen is currently the lead bidder, its offer is "neck and neck" with that of another bidder, a second source said.

An Ally spokeswoman declined to comment. A call to Ocwen was not immediately returned.

Ocwen and other non-bank mortgage servicers such as Nationstar Mortgage Holdings Inc and Walter Investment Management Corp have been growing rapidly in recent years as they buy up the right to handle mortgages from banks that are scaling back in the business because of increased capital requirements and growing expenses.

Bank of America Corp this month reached an agreement to sell the rights to collect payments on $306 billion loans to Nationstar and Walter, and the bank is looking to sell MSRs on another $100 billion of loans.

Mortgage servicers collect payments on home loans and modify loans if borrowers fall behind on payments. After the housing bust, the business has grown more difficult and expensive for servicers as homeowners struggle to make payments and face foreclosure.

In October, Ocwen teamed up with Walter Investment Management to buy Ally Financial's mortgage business, Residential Capital LLC, for $3 billion [ID:nL1E8MJI87]. In the same month Ally, the parent of Ally Bank, announced said it was selling the rights to service $122 billion of mortgages as it wound most of its remaining mortgage business.

The deal for ResCap is expected to close in the next few weeks, according to the source who said a deal for Ally's MSRs could be announced soon.

ResCap filed for bankruptcy last May in an effort to wipe out legal liabilities from mortgage-backed securities it sold during the housing boom.

In the ResCap deal, Ocwen is taking on ResCap's servicing business, while Walter is taking its lending and capital markets operations.

ResCap is already servicing Ally's mortgages through a subservicing contract. Because it is buying ResCap operations, Ocwen has an added incentive to also purchase Ally's MSRs, which were not part of the ResCap deal, the sources said. That's because Ocwen is already buying the operations to handle those loans and does not want to risk losing them to a competitor.

"For Ocwen to jump through all of the regulatory hoops to buy ResCap and not get the Ally MSRs would not make sense," said one of the sources.

About three-fourths of the mortgage servicing rights that Ally is selling are for loans owned by government-controlled U.S. mortgage finance company Fannie Mae .

The ResCap bankruptcy is part of Ally's plan to resolve its mortgage problems and pay back U.S. taxpayers for bailouts during the financial crisis. The lender is selling its international auto finance operations in a bid to speed up repayment.

(Reporting By Jessica Toonkel in New York, Rick Rothacker in Charlotte, Editing by Soyoung Kim, John Wallace and Andrew Hay)

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