The Real Deal Miami

Non-banks gaining share of mortgage-servicing rights

Private equity groups and hedge funds buying servicing rights

September 18, 2013 01:00PM

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Tim Sloan

Tim Sloan

Private equity firms and hedge funds are buying mortgage-servicing rights or MSRs as banks look to unload long-term assets in order to meet the new capital requirements of an international accord known as Basel III.

Wells Fargo’s chief financial officer Tim Sloan said last week the San Francisco-based bank will sell $41 billion in MSRs for home loans guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae in coming quarters as a risk-management practice, according to Bloomberg.

“As part of our strategy to strengthen and grow our servicing business, we continually look at opportunities to buy and sell mortgage servicing rights,” Amy Bonitatibus, a spokeswoman for JPMorgan, the U.S.’ second-largest servicer with $1.06 trillion in collection rights, told Bloomberg News in an email.

Facing new Basel III requirements, banks can improve liquidity by unloading servicing rights, eliminate some risk and even, if they win a subservicing contract, get paid to continue to do the same work, Thomas Siering, a chief executive for Minnestota-based REIT Two Harbors, said at an investors’ conference in New York Sept. 10.

Hedge fund giant Fortress closed its MSR Opportunities Fund II to new investors in July after reaching $1.1 billion, according to a statement last month. The fund is a successor to a $600 million fund that closed in August of last year, said Gordon Runte, a Fortress managing director.

Fortress is already deeply invested in the mortgage market. It owns Nationstar, a loan originator and servicer that has rights to collect on $318 billion in residential loans as of June 30, triple its portfolio at the end of 2011, spokesman John Hoffmann told the news wire. [Bloomberg]Emily Schmall

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