For many years International Business Machines Corp. has eyed the mortgage industry curiously, a technology giant trying to find an angle for making money on residential finance. After all, there must be a way for IBM to profit from the 62 million loans outstanding in the United States.
Two decades back "Big Blue" was even toying with the idea of buying a mortgage origination and servicing company, but it ultimately passed on the notion.
Now, however, with the industry on the threshold of a major restructuring and questions being raised about the stability of mortgage servicing rights (thanks to the Basel III accord's capital rules), IBM is making a run at the mortgage business as a specialty servicer and a monthly processor of loans.
Officials who have spoken to the company say it not only wants to be a player but also has a design for expanding a nascent servicing platform to $500 billion in scale.
A $1 trillion number also has been discussed by some at IBM.
Its strategy thus far has been to approach Fannie Mae directly and pitch its services as a processor of high-touch loans, among other things.
Fannie, a ward of the government, has not been happy with how some of its seller-servicers have handled delinquent loans, even yanking away servicing rights from such companies as Flagstar Bancorp and others.
These mortgage servicing rights have wound up on IBM's servicing platform, which is called IBM Lender Business Process Services.
Beaverton, Ore.-based LBPS includes the former Wilshire Credit Corp. unit that IBM bought a little more than a year ago from Bank of America Corp.
(Bank of America had inherited Wilshire when it bought Merrill Lynch & Co., which already owned two legacy subprime assets in the form of First Franklin Financial Corp. and Home Loan Services.)
When IBM bought Wilshire (supposedly at a premium), it expected that B of A would leave some of its servicing on the platform, but instead the Charlotte, N.C., banking company yanked it all away for reasons that still are not clear, said officials close to the matter.
Somewhere along the line IBM sold Fannie on the idea of using LBPS as its premier specialty servicer, convincing the government-sponsored enterprise that it would need a major hands-on approach, given the fact that 10% of the nation's $9.8 trillion in mortgage debt is in some stage of arrears.
Fannie bought into the idea, and LBPS was introduced.
Recently, IBM began renovating office space in the Raleigh, N.C., area to prepare for an anticipated boatload of MSRs it hopes to take on. (It hopes to maintain the Oregon servicing site as well.)
But with neither IBM nor LBPS willing to discuss its plans, little in the way of solid information is available to offer detail on how much in MSRs the company has amassed.
Consultants and advisers that work in the servicing sector claim that JPMorgan Chase & Co. recently shifted more than $47 billion in servicing rights to LBPS with a stated goal of moving over another $53 billion or so.
A JPM spokesman declined to comment, but a source at the banking company confirmed that a "large transfer" occurred in early fall.
One point of confusion regarding the story is whether IBM/LBPS owns the underlying servicing rights or is merely a subservicer. Investment bankers said that LBPS owns some of the MSRs it is processing (and that Fannie Mae, somehow, subsidized the transactions).
If IBM does own servicing rights, it would be at risk financially unless it bought the assets at a discount, which could well have happened.
Then again, it is always possible that IBM is playing in the mortgage game with very cheap money: Back in August it raised $1.5 billion in cash by selling three-year bonds.
The yield on the debt is a meager 1%, one of the lowest in corporate history.
