In the latest example of banks selling mortgages to non-bank lenders to comply with capital requirements, Wells Fargo sold its mortgage servicing rights on $39 billion in loans to Ocwen Financial Corp. Per Dealbook, "Wells Fargo said on Wednesday that it sold the rights to service 184,000 mortgages to the Ocwen Financial Corporation, a rapidly expanding company known for its expertise in dealing with subprime borrowers." The reasoning for these types of transactions is best summarized by Dealbook:
Large banks are looking to trim their servicing activities, particularly of subprime loans, because the costs and regulatory headaches are too high. New banking rules will require banks to set aside more capital against the loans they service, further weighing on profits. The value of the servicing rights can also fluctuate based on shifting interest rates, causing unwanted volatility for the banks’ balance sheets. That’s where Ocwen and other large nonbank mortgage servicers come in. Banks and investors in mortgage-backed securities pay Ocwen fees for servicing the loans they own. In exchange, the firms communicate with borrowers who fall behind on their mortgage payments and try to get them back on track. Servicers are also typically paid extra for getting delinquent homeowners caught up on their payments. Specialty servicers usually don’t hold the loans.
Industry experts expect that such deals will result in almost $1 trillion of mortgages being transferred to specialty servicers over the next few years. While Ocwen is the industry leader in mortgage servicing, this trend may create opportunities for other institutions and non-bank lenders.