The Goldman Sachs Group Inc. (GS) is looking for strategic options for its mortgage-servicing subsidiary, Litton Loan Servicing, which includes a possible sale, The New York Times reported on Tuesday.
Goldman might make a decision to sell its subsidiary as the mortgage-servicing industry is under greater scrutiny for their foreclosure practices.
The unit was acquired in 2007 for $428 million from Credit-Based Asset Servicing and Securitization LLC, known as C-BASS, a subprime mortgage investment firm. Goldman also agreed to repay more than $900 million of Litton’s debt.
The acquisition was a part of the strategy to acquire troubled mortgages at attractive prices and restructure the debts. Unfortunately, the strategy failed for Goldman as more distressed loans came up for sale than expected and prices remained higher. The financial crisis hit servicing businesses, as foreclosures grew rapidly, boosting costs. Goldman is selling the unit as it failed to find opportunities of buying distressed mortgage loans.
Foreclosures at Litton came to a stop in October when criticism over documentation by the loan-servicing industry cropped up. Lenders were being condemned for their action to evict delinquent borrowers, in spite of incomplete paperwork related to foreclosures.
Litton is co-operating with investigations by the attorneys general. These inquiries may result in the imposition of fines or other regulatory action. Litton temporarily suspended evictions and foreclosure and real estate owned sales in a number of states, including those with judicial foreclosure procedures. However, it has recently resumed some of these activities.
Many large U.S. mortgage servicers including JPMorgan Chase & Co (JPM), Bank of America Corporation (BAC), Wells Fargo & Company (WFC) and Citigroup Inc. (C) received a document proposing changes in foreclosure policies from state attorneys general (AGs) and federal regulators.
The document has been designed to lay the groundwork for certain permanent changes in mortgage servicing practices and summarizes a mandatory code of conduct. The proposal has been backed by the Justice Department, the U.S. Housing and Urban Development Department, the Federal Trade Commission and Treasury Department. This, however, is not part of any settlement deal related to financial penalties, which regulators are supposedly working on.
If Goldman succeeds in selling off Litton, the company will be able to reduce costs related to foreclosures and will be subsidized from mortgage mess to an extent.
Goldman currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we have maintained a long-term “Neutral” recommendation on the stock.
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