Goldman Sachs Group Inc. is expected to buy Litton Loan Servicing LP of Houston from C-Bass LLC for roughly $500 million, a source familiar with the investment bank said Wednesday.
It is unclear what would become of the rest of C-Bass, a New York joint venture of MGIC Investment Corp. and Radian Group Inc. that invests in subprime home loans and lower-rated mortgage backed-securities, after the sale.
Litton services about $58 billion of mortgages. C-Bass is in default to several lenders after failing to meet margin calls since late July.
Neither C-Bass nor Blackstone Group, its adviser on the effort to sell Litton, returned calls seeking comment.
Like other investment banks that trade mortgage-backed securities, Goldman is trying to build a vertically integrated mortgage business. It has a small Irving, Tex., residential servicing unit, Avelo Mortgage LLC, and in February it bought Senderra Funding LLC, a Fort Mill, S.C., originator.
Fannie Mae apparently has dropped out of the bidding for Litton.
“We are not pursuing an acquisition” of either Litton or C-Bass, Marilyn Kornfeld, a spokeswoman for the government-sponsored enterprise, said Tuesday afternoon. However, she would not say whether Fannie had pursued such an acquisition at any point.
American Banker reported Tuesday that industry sources had identified Fannie and Goldman as potential buyers of Litton. When the paper contacted Fannie before publishing the article, the GSE would not discuss the speculation.
Both MGIC and Radian have said that disruptions in the subprime mortgage market may have wiped out their stakes in C-Bass. Their combined investment was valued at more than $1 billion in June. Neither insurer has determined the impairment charge it would take for C-Bass.
The market disruptions also complicated the two mortgage insurers’ efforts to sell a portion of their stakes in C-Bass and helped derail their own $4.9 billion merger deal last month.
Since February a number of buyers had lined up to buy a stake in C-Bass, and both MGIC and Radian “received multiple preliminary bids above C-Bass’ book value,” according to a Radian filing in early August with the Securities and Exchange Commission.
“Due diligence was ongoing until July 29th, when the increase in margin calls … significantly jeopardized C-Bass’s liquidity position, resulting in a withdrawal of all interested buyers at that time,” the filing stated.
Radian also said in the filing that C-Bass paid $290.3 million of margin calls to lenders in the first half. But C-Bass’ liquidity problems continued to worsen, and the venture received an additional $362.7 million of margin calls in late July.
It could not pay $99.2 million of its outstanding margin calls at the end of July, according to the SEC filing.
