Goldman Sachs May Buy Subprime Mortgage Servicer, People Say
By Jody Shenn
Oct. 2 (Bloomberg) -- Goldman Sachs Group Inc. may buy Litton Loan Servicing LP, the Houston-based servicer of U.S. subprime mortgages, said people with knowledge of the matter.
Litton's parent, Credit-Based Asset Servicing and Securitization LLC, hired Blackstone Group LP in August to help raise capital. Litton is the 12th-largest subprime servicer and collects payments on about $46 billion of loans to borrowers with poor credit, according to National Mortgage News. The company may fetch about $500 million, based on valuations given to similar portfolios.
Goldman's interest in Litton follows Wilbur L. Ross Jr.'s $435 million offer on Sept. 21 for the servicing unit of bankrupt lender American Home Mortgage Investment Corp. in Melville, New York. Goldman may be betting it can increase the value of mortgage assets by reworking loan terms to make it easier for borrowers to pay their debt, said Terry Couto, a partner at Newbold Advisors, a mortgage-consulting firm.
Buying a servicing business would allow the owners ``to go out and buy distressed loan portfolios, or work out what they already own,'' Couto said. Newbold is based in Bethesda, Maryland.
The deal may close within the next two months, according to the people, who declined to be identified because the talks are confidential.
New York-based Goldman is the world's largest securities firm. Chief Financial Officer David Viniar said two weeks ago on a conference call with investors that the company saw ``opportunities in the mortgage business,'' including distressed assets. At least 90 mortgage companies have quit making loans, closed or sold themselves this year, according to data compiled by Bloomberg.
Michael Duvally, a spokesman for Goldman, declined to comment. Lisa Brzezinski, a spokeswoman for Credit-Based Asset Serving, known as C-Bass, didn't return calls for comment.
American Banker and Inside Mortgage Finance earlier reported that Fannie Mae, the largest provider of loans for U.S. mortgages, was also interested in buying Litton. The Washington- based company ``is no longer pursuing'' an acquisition of Litton, Marilyn Kornfeld, a spokeswoman for Fannie Mae, said.
C-Bass, owned by Milwaukee-based MGIC Investment Corp. and Radian Group Inc. of Philadelphia, hired Blackstone after using up $302 million of cash this year through mid-July as default rates on subprime loans in bonds rose to a record and the value of the company's assets dropped. Blackstone is based in New York.
New York-based C-Bass said in a July 31 statement that it faced ``unprecedented'' margin calls from creditors, and mortgage insurers MGIC and Radian have said their stakes in C-Bass, valued at more than $1 billion in June, may be worthless.
Radian rose $1.15, or 4.6 percent, to $25.99 on the New York Stock Exchange. MGIC gained $1.91, or 5.8 percent, to $34.66. Radian has declined 52 percent this year and MGIC is down 45 percent.
Ross, who became a billionaire by investing in bankrupt steel companies, is the lead bidder for American Home's servicing unit, which manages about $45.3 billion in home loans. American Home is one of at least 16 home lenders in bankruptcy.
Carrington Capital Management LLC, the Greenwich, Connecticut- based hedge-fund manager, bought the servicing business of bankrupt New Century Financial Corp. in Irvine, California, this year for $184 million. The unit processed payments for $18 billion of mortgages.
Goldman bought mortgage lender Senderra Funding LLC in Fort Mill, South Carolina, for an undisclosed amount in February. The company also owns residential-mortgage servicer Avelo Mortgage LLC.
Morgan Stanley, which today said it will cut its U.S. mortgage workforce by 500, said in a statement that it plans to expand its Saxon Capital servicing operation.
New York-based Morgan Stanley bought Glen Allen, Virginia- based Saxon for $706 million in December, attributing much of the value to Saxon's ``premier servicing operation'' and contracts to collect payments on about $26 billion of loans.
To contact the reporter on this story: Jody Shenn in New York at firstname.lastname@example.org . Last Updated: October 2, 2007 18:00 EDT