Wells Fargo to Sell Ocwen Rights on $39 Billion of Mortgages

Wells Fargo & Co. (WFC), the biggest U.S. home lender, agreed to sell about 2 percent of its residential servicing portfolio to Ocwen Financial Corp. (OCN) as new rules drive down returns.

The sale covers about 184,000 loans with a principal balance of $39 billion, San Francisco-based Wells Fargo said today in a statement. Terms weren’t disclosed and the effect won’t be material, according to the statement.

Wells Fargo joins Citigroup Inc. and Bank of America Corp. in a retreat from the almost $10 trillion mortgage-servicing market as new regulations make it more costly to hold the assets. Firms such as Ocwen, Walter Investment Management Corp. and Nationstar Mortgage Holdings Inc. have been among the most active of the non-bank firms buying the rights.

Mortgage servicers handle billing and collections on behalf of investors who own the loans and supervise foreclosures if the borrowers don’t pay. Wells Fargo was the biggest U.S. servicer as of Sept. 30.

Shares of Atlanta-based Ocwen dropped 2.6 percent to $49.13 in New York. Wells Fargo rose 0.4 percent to $46.67.

Wells Fargo’s sale of the rights had been telegraphed by executives including Chief Financial Officer Timothy J. Sloan, who said in October that the firm would test the market as a way to maintain robust risk controls.

“There’s more demand for mortgage servicing rights today than there was six months ago, a year ago,” Sloan said Oct. 11 on the firm’s third-quarter earnings call. “From a risk management standpoint, it’s good to go ahead and test the waters every once in a while, and you should expect that we’ll probably be doing that in the next few quarters.”

Most of the loans are held by private investors and weren’t originated or owned by Wells Fargo, according to the statement. The sale will be completed as the servicing is transferred, probably this year, the bank said in the statement.

To contact the reporter on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net

To contact the editor responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net

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