Bloomberg News

Morgan Stanley Said to Agree to Sell Saxon Capital to Ocwen

November 02, 2011

Oct. 24 (Bloomberg) -- Morgan Stanley, the sixth-largest U.S. bank by assets, agreed to sell Saxon Capital Inc., a mortgage servicer the firm bought in 2006, to Ocwen Financial Corp., according to a person with knowledge of the talks.

Ocwen beat Fortress Investment Group LLC’s Nationstar Mortgage Holdings Inc. in a bidding process, according to the person, who declined to be identified because the deal isn’t public. Mark Lake, a spokesman for New York-based Morgan Stanley, declined to comment. John Van Vlack, Ocwen’s chief financial officer, didn’t return a call for comment.

Investment banks are selling mortgage businesses they bought before the financial crisis as home-price declines and rising foreclosures led to writedowns on those units. Ocwen last month completed the purchase of Litton Loan Servicing LP from Goldman Sachs Group Inc. for $263.7 million in cash.

Morgan Stanley bought Glen Allen, Virginia-based Saxon 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.

Ocwen, based in West Palm Beach, Florida, gained about $38.6 billion of unpaid principal balances with its purchase of Litton, which it acquired by also agreeing to pay about $337.4 million to retire some of Litton’s debt.

Ocwen also agreed in May 2010 to buy HomEq Servicing, a mortgage-servicing business 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 in connection with the deal and offered assistance in raising more funds, according to the statement.

Lawsuit Resolved

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., 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.

--Editors: William Ahearn, Peter Eichenbaum

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.


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