Wells Fargo has $41 billion worth of mortgage servicing rights for sale, according to Seeking Alpha. Several lenders have been selling mortgage servicing rights because new capital rules make them too costly to retain. Selling the rights frees up capital and provides the lender with the opportunity to offset the slowdown that it is feeling in its mortgage origination business.
The target market for the sale of the mortgage servicing rights would be specialty mortgage services, such as Nationstar and New Residential. Wells Fargo, which is the largest residential mortgage lender in the United States, is said to not have much pressure on its capital levels, but selling the rights would be beneficial in helping the lender adapt to the new rules that require the banks to fund the assets with additional equity until their holdings attain a certain level.
Bank of America and Ally Financial Inc. have sold servicing rights during their efforts to cut down mortgage operations and adapt to the new regulations that require additional equity funding. Buyers of mortgage servicing rights have included JPMorgan Chase & Co., Walter Investment Management Corp. and Ocwen Financial Group.
Mortgage servicers handle the collections and billing aspects for the investors who own the loans. When borrowers become delinquent on the loans, the mortgage servicers oversee the foreclosure process. According to Wells Fargo Chief Financial Officer Tim Sloan, the bank is selling the servicing rights as part of a risk management practice. Wells Fargo has more than $1.9 trillion in loan contracts and generated $393 million in the second quarter of this year from the mortgage business.
The rights being offered for sale by Wells Fargo are for government-backed home loans, and they are connected to borrowers that the bank considers as “non-core” because they do not have many other products through the bank, reports indicate.
Since other lenders have already started selling mortgage servicing rights and now, the largest home mortgage lender is getting in on the picture, many experts believe it is opening the gates for some of the other top mortgage lenders to follow suit. Mortgage servicers can profit from the venture and the actual mortgage owners are saving money from not servicing their own loans. It is also helpful to them in the capital raising process for the new requirements that require the additional equity to fund the holdings.