Citigroup Selling Servicing Rights as Banks Shrink Role
By Heather Perlberg & Dakin Campbell - Oct 25, 2013
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Citigroup Inc. (C), the third-biggest U.S. bank, is selling mortgage-servicing rights on $63 billion of loans, or about 21 percent of its total contracts at midyear, according to two people briefed on the matter, who asked not to be identified because the sale is private. Wells Fargo & Co. (WFC), the largest home lender, began marketing rights on $41 billion of government-backed home loans in September.
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Banks are scaling back from the almost $10 trillion market for mortgage servicing rights, or MSRs, amid looming Basel III regulations. That’s attracting private-equity firms and hedge funds to assets that can increase in value when borrowing costs rise and giving them increased control over the rights to collect Americans’ monthly mortgage payments.
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“Three years from now, banks will be making fewer real-estate loans and servicing will be smaller,” said Chris Whalen, managing director at Carrington Investment Services LLC in Greenwich, Connecticut. “You will see the whole industry shift.”
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$1 Trillion
Servicing rights on at least $1 trillion of mortgages will trade in the next two years, Jay Bray, chief executive officer of Nationstar Mortgage Holdings Inc. (NSM), a servicer majority owned by Fortress Investment Group LLC (FIG), said last month. The private-equity firm said in July it raised a $1.1 billion fund to buy the contracts. Nationstar dropped 0.3 percent to $54.35 at 11:11 a.m. in New York trading, trimming its return this year to 75 percent.
In addition to a widening pool of buyers, rising mortgage rates this year boosted the appeal of MSRs since higher costs discourage homeowners from refinancing. This prolongs the length of the contracts.
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http://www.bloomberg.com/news/2013-10-25/citigroup-selling-servicing-rights-as-banks-shrink-role.html
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