Ally Financial Inc. (ALLY), the only lender that missed a key benchmark in the Federal Reserve’s stress tests last week, agreed to sell agency mortgage servicing rights to Ocwen (OCN) Financial Corp. for about $585 million.
The sale covers rights to $85 billion of unpaid principal balance and $5 billion of rights based on commitments through the end of February, according to a statement today from the Detroit-based firm.
Ally benefited from more than $17 billion in U.S. bailouts during the financial crisis and plans to repay the funds with an initial public offering. The U.S. owns a 74 percent stake. Chief Executive Officer Michael Carpenter has put the IPO on hold until the fate of the bankrupt Residential Capital mortgage business is clear. The case has been delayed by disputes over whether Ally must pay for refunds to investors on faulty loans.
The Ocwen deal will insulate Ally from such claims on most of the loans covered by the sale, the bank said. Ally also has the right to sell Ocwen the remaining $30 billion servicing portfolio.
“Ally has received interest in this portfolio from other financial institutions and is currently evaluating the best option,” the company said. The bank plans to focus on its direct-banking and auto finance operations, Barbara Yastine, chief executive officer of the Ally Bank unit, said in the statement.
Mortgage servicers handle billing and collections, and oversee foreclosures when borrowers don’t pay. Agency servicing covers government-backed buyers such as Fannie Mae and Freddie Mac. The deal with Ocwen, based in West Palm Beach, Florida, is subject to approval by Fannie Mae and Freddie Mac, according to the statement.
Ally had a capital ratio of 1.5 percent in last week’s stress test, below the 5 percent threshold regarded as adequate by industry analysts. The bank disputed the Fed’s results, calling the analysis “fundamentally flawed.”
The company predicted its capital ratio would be 5.7 percent under the Fed’s scenario. Last week’s results were a prelude to the Fed’s capital-plan review of the same banks scheduled for release on March 14, which determines whether they can increase dividends and stock buybacks.
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