Goldman offloads mortgage servicing business

By Knut Engelmann

NEW YORK (Reuters) – Goldman Sachs Group Inc has struck a deal to offload its mortgage servicing business, ending an ill-timed foray by the Wall Street bank into a retail business hit hard by the collapse of the U.S. housing market.

Ocwen Financial Corp said on Monday it would buy Goldman’s Litton Loan Servicing unit for $263.7 million cash. Ocwen also agreed to pay off $337.4 million in Litton debt to Goldman, helped by a new $575 million loan from Barclays , which advised Ocwen on the deal.

The deal gives Ocwen a mortgage servicing portfolio totaling $41.2 billion, mostly subprime mortgages made to U.S. borrowers with less than stellar credit.

In a statement, Goldman said the sale price “does not reflect certain assets that Goldman Sachs will retain.” The bank declined to specify those assets.

Sources familiar with the Litton sale previously told Reuters the business could fetch up to $500 million.

Goldman bought Litton in 2007 for about $430 million, hoping to glean more information about the housing market to aid its mortgage-bond trading business. Shortly after the deal closed, the U.S. subprime housing market deteriorated to a far greater degree than most experts had expected.

High levels of delinquencies and foreclosures have cut into profits of many servicing businesses. In recent months, sloppy foreclosure practices have also attracted growing regulatory attention — and reams of bad publicity.

Ocwen said Goldman had agreed to remain liable for and share losses from fines or penalties that could result from a series of U.S. probes into mortgage foreclosure and servicing practices.

“We believe we have adequately reserved for any potential losses but continue to monitor the situation closely,” a Goldman spokesman said.

Goldman began considering a sale of Litton late last year. In the first quarter it took a $220 million writedown related to the business.

To smooth any potential deal, it told interested parties it was willing to finance a big chunk of the transaction.

Ocwen said on Monday it would get financing for $2.47 billion of Litton’s advances. Goldman can choose how much of these advances it will finance: either it takes on the bulk itself, or it takes the exposure that three other banks involved in the deal — Barclays, Bank of America, and Royal Bank of Scotland — are unwilling to take on themselves.

Companies like Litton, which collect mortgage payments from borrowers and foreclose on properties, make advances to mortgage owners when a loan goes sour to cover things like principal and interest payments.

Goldman shares were down half a percent in late-morning trading in a slightly weaker U.S. market, while shares of Ocwen were up 1 percent. (Reporting by Lauren Tara LaCapra and Knut Engelmann; editing by John Wallace)