ResCap Bidders See Opportunity Where Buffett Wants Probe
A competing bid from Ocwen, which became the nation's largest subprime mortgage servicer after acquiring Litton Loan Servicing from Goldman Sachs(GS) last year, should hardly come as a surprise. Ocwen has repeatedly been flagged as a potential bidder for ResCap's mortgage servicing portfolio, and Ocwen CFO John Britti said on the company's May 3 earnings call ResCap was "certainly that's something that's in our sights."
Still, news of a bid by Ocwen may not be entirely priced into shares of publicly-traded mortgage servicers. On Wednesday, Citigroup analysts downgraded Nationstar to "neutral" from "buy," arguing "the stock could be vulnerable to a pull back on any negative headlines around the ResCap deal such as a competing bid or delays." On the subject of potential bidders, Citigroup's analysts wrote "we have not heard of any yet." Shares of Nationstar, majority owned by Fortress Investment Group(FIG) , fell by some 5% to a low of $18.80 in midday trading Wednesday and closed lower by 3.03% at $19.20 despite a broad market rally.
In addition to Nationstar and Ocwen include Walter Investment Management(WAC) . Smaller dedicated players such as these are rapidly gaining market share as Bank of America, JPMorgan and Citigroup back out of the servicing business, according to data from trade publication Inside Mortgage Finance. Wells Fargo, on the other hand, continues to grow its mortgage servicing portfolio.
Citigroup analysts estimate more than $4 trillion worth of credit challenged mortgages sitting on bank balance sheets that could be potentially be transferred to non-bank mortgage servicers as banks sell off troubled assets to address new capital rules aimed at strengthening their balance sheets. In a relatively small deal announced on Tuesday, Nationstar and Newcastle Investment Corp. acquired servicing rights on $10.4 billion worth of mortgages from Bank of America.
"Some stronger banks may not sell any, while others will sell large amounts," Citigroup stated in an April 23 report on Nationstar.
Notwithstanding the downgrade and the threat of competing bids, Citigroup analysts "put the odds of