B of A Eyes More Sales of Servicing Rights: Report

Bank of America (BAC) is said to be eyeing more sales of mortgage servicing rights following its announcement Monday that it is selling $300 billion of servicing rights to two separate buyers.

With pending Basel III capital rules expected to make mortgage servicing more expensive for banks, Reuters reported Tuesday that B of A is looking to unload roughly $100 billion more of servicing rights and that it could announce a series of deals in the coming weeks.

Meanwhile, Fitch Ratings said in a separate report Tuesday that it expects other large banks, including Wells Fargo (WFC) and JPMorgan Chase (JPM) to "complete sales or pursue other strategies" to limit the size of servicing rights on their balance sheets.

Basel III capital rules are still in flux but, as currently proposed, banks would have less incentive to hold mortgage servicing rights because their contribution toward common equity would be capped at 10%. To reduce their exposure, some banks have been selling the rights to nonbanks that do not have to comply with Basel standards.

On Monday, B of A announced it would sell $215 billion of servicing rights to Nationstar Mortgage Holdings for $1.3 billion and another $93 billion of rights to Walter Investment Management for $519 million. Citing two sources familiar with Bank of America's situation, Reuters said Tuesday that the bank was weighing more such sales.

Ally Financial, one of the nation's top five servicers, is also looking to sell roughly $122 billion of servicing rights and Reuters reported that Nationstar, Walter Investment and Ocwen Financial are among the interested bidders.

In its report, Fitch said that it expects Wells to deal with the pending cap by selling mortgage servicing rights and "de-emphasizing third-party lending channels" and identified JPMorgan Chase as another "likely candidate to reduce these risks on its balance sheet."

Apart from the Basel-related cap, B of A's recent exit from wholesale lending also played into its decision to sell the servicing rights, according to Fitch.

"The retention of a large servicing platform is not critical to its strategy," Fitch said. "Rather, we expect that [B of A] will continue to originate mortgages but primarily through its branch network and wealth management units, where it can hold the assets on balance sheet and cross-sell a number of other products to these customers."