Morgan Stanley (MS), the sixth-largest U.S. bank by assets, will sell its Saxon unit to Ocwen Financial Corp. (OCN), exiting the mortgage-servicing business it bought before the housing market collapsed.
Ocwen agreed to pay a base price of $59.3 million plus about $1.4 billion for receivables outstanding, Morgan Stanley said yesterday in a statement. The deal is expected to close in 2012’s first quarter and isn’t likely to have a material impact on earnings, New York-based Morgan Stanley said.
Investment banks are selling mortgage servicers they bought before the financial crisis as record defaults drive up costs for billing, collections and foreclosures and make the units less valuable. Ocwen last month completed the purchase of Litton Loan Servicing LP from Goldman Sachs Group Inc. (GS) for $263.7 million.
“These transactions demonstrate yet again Ocwen’s strong growth prospects as consolidation of private-label servicing continues and demand increases for specialty servicing,” Ocwen Chairman William Erbey said in a separate statement. “We remain bullish on our growth prospects into 2012.”
Morgan Stanley bought Glen Allen, Virginia-based Saxon in 2006 for $706 million as the investment bank sought a mortgage issuer and servicer to provide home loans that it packaged into securities. Morgan Stanley took a $700 million writedown in the fourth quarter of 2008 related to businesses it owned, with most of the charge coming from Saxon.
Impact on Assets
The sale will reduce Morgan Stanley’s risk-weighted assets as it attempts to meet capital standards set to start taking effect in 2013. It will also reduce the firm’s headcount by about 1,200, according to a person familiar with the unit.
Ocwen outbid Fortress Investment Group LLC (FIG)’s Nationstar Mortgage Holdings Inc., according to another person with knowledge of the talks, who declined to be identified because the process wasn’t public.
Ocwen, based in West Palm Beach, Florida, acquires $26.6 billion in unpaid principal balances of mortgage servicing rights, $10.9 billion of which Ocwen already subservices. The deal also includes another $12.9 billion of loans that Saxon services for Morgan Stanley and other firms. It gained about $38.6 billion of unpaid principal balances with its purchase of Litton, which Ocwen acquired by also agreeing to pay about $337.4 million to retire some of Litton’s debt.
Ocwen agreed in May 2010 to buy HomEq Servicing, a mortgage servicer owned by London-based Barclays Plc, for about $1.3 billion in cash conditional on the value of certain assets at completion, according to a statement from Barclays at the time. Barclays also agreed to provide Ocwen with about $1 billion in secured financing and offered assistance in raising more funds, according to the statement.
In May, Saxon agreed to pay $2.35 million to resolve a lawsuit alleging it improperly foreclosed on 17 U.S. military- service members from 2006 to 2009. The foreclosures violated the Servicemembers Civil Relief Act, which was enacted to shield deployed military personnel from financial stress, according to the U.S. Justice Department.
Morgan Stanley considered buying New Century Financial Corp. (CYFL), the subprime mortgage lender that filed for bankruptcy in April 2007, before acquiring Saxon, Chairman John Mack said in a November 2010 interview released this year by the Financial Crisis Inquiry Commission.
The bankrupt Lehman Brothers Holdings Inc. won court approval last year of an agreement to seek buyers or liquidate its Aurora Bank FSB unit, which includes a mortgage-servicing arm.