Wells Fargo & Co. (WFC:US), the biggest U.S. home lender, is selling mortgage-servicing rights on $41 billion of loans, according to two people briefed on the process.
The rights are for government-backed home loans, according to one of the people, both of whom asked for anonymity because they weren’t authorized to speak publicly about the transaction. The contracts relate to borrowers Wells Fargo identifies as “non-core” because they have few other products from the bank, the other person said.
Chief Financial Officer Tim Sloan said earlier this week that the San Francisco-based bank will sell servicing-rights in the coming quarters as a risk-management practice. Wells Fargo, the largest U.S. residential mortgage servicer with contracts on $1.9 trillion of loans, generated $393 million in the second quarter from the business.
“Look for us to potentially do something in the next couple of quarters,” Sloan said at an investor conference in New York on Sept. 9. “It will primarily be focused, if we go ahead and execute, on mortgage-only customers so we don’t have any confusion from a relationship standpoint.”
“We are always interested in ways to execute our business strategy,” Tom Goyda, a company spokesman, said in an e-mailed statement. He declined to comment on the sale.
Mortgage servicers handle billing and collections for investors who own the loans and oversee foreclosures when borrowers don’t pay.
Bank of America Corp. (BAC:US) and Ally Financial Inc. are among lenders that have been selling servicing rights as they shrink mortgage operations and adapt to rules that require banks to fund the assets with more equity when their holdings reach a certain threshold. Buyers have included firms such as Ocwen Financial Corp. (OCN:US), JPMorgan Chase & Co. and Walter Investment Management Corp.
Wells Fargo doesn’t have “a lot of pressure” on its capital levels, Sloan said, adding that higher prices may lead the bank to “test the market.”
“So if we ever get into a period where we have to sell, we’ve already gone through the process because it’s just good from a risk-management standpoint,” Sloan said.
To contact the reporters on this story: Dakin Campbell in New York at email@example.com; Jody Shenn in New York at firstname.lastname@example.org
To contact the editors responsible for this story: David Scheer at email@example.com; Christine Harper at firstname.lastname@example.org