It didn't take long for Bank of America (NYSE:BAC) to make good on CEO Brian Moynihan's recent comments about pruning the bank's mortgage servicing rights portfolio. Another huge block has just changed hands, and two up-and-coming servicers were ready and waiting to snatch them up.
Two mortgage servicing powerhouses snag B of A's castoffs
Nationstar Mortgage (NYSE: NSM) is no stranger to Bank of America's predisposition to unloading MSRs. Just last June, the subsidiary of Fortress Investment Group (NYSE: FIG) purchased a $10 billion chunk of these lucrative rights from the big guy, as the bank went about the business of reducing its servicing portfolio by two-thirds last year.
Also on hand was Walter Investment (NYSEMKT: WAC), another heavy hitter in the MSR industry. While Nationstar took on $215 billion in rights for $1.3 billion, Walter paid $519 million to acquire $93 billion of MSRs from B of A. Though all of the mortgages purchased in Walter's deal are backed by government-sponsored entity Fannie Mae, only 47% of those in Nationstar's new portfolio are backed by the GSE.
Though Nationstar is nearly twice as big as Walter, the latter has been moving right along, scarfing up MSR-related bits from financial institutions that are looking to reduce their profiles. Metlife (NYSE:MET) has been furiously shedding its banking business in order to avoid the steely gaze of bank regulators, and it recently sold Walter its entire mortgage servicing platform , though no actual loans or MSRs were involved. Walter expects to continue the unit's operations in place, keeping on many of Metlife's staff, as well.
For Walter and Nationstar, success in the lucrative MSR market is being aided by financial institutions that see these entities as more of a drag on the balance sheet than they are worth. Fortress has noted that the next few years will likely spawn a huge sell-off of these MSRs -- topping $4 trillion -- as banks align themselves with the new capital requirements dictated by Basel III. Only JPMorgan Chase (NYSE:JPM) seems to have few concerns in this area, having recently bought a bunch Metlife's servicing rights right out from under the noses of Nationstar and rival Ocwen Financial (NYSE:OCN).
One Fool's take
This situation was definitely a win-win for all parties involved. For the servicers, bulking up their portfolios with unwanted goodies from the likes of Bank of America is a quick path to growth, particularly with the housing market rebounding. For B of A, expect more of the same type of activity in the very near future as the bank strives to catch the approving eye of the Fed when stress test scores are tallied. As they say, one company's trash is another's treasure.