Bank of America Corp. has agreed to sell part of its troubled home-loan portfolio to government-controlled housing giant Fannie Mae, as the bank looks to shed assets and pare back its exposure to an array of mortgage woes.
The deal, finalized last Friday, will deliver the rights to process and collect payments on a pool of 400,000 loans with an unpaid principal balance of $73 billion, people familiar with the deal said. The purchase price is more than $500 million, one of these people said.
The move is part of the Charlotte, N.C., lender's strategy to sell off noncore holdings, rid itself of mortgage problems and preserve capital as it repositions its balance sheet to withstand future economic shocks. The company's shares are down 43% this year amid concerns about Bank of America's ultimate exposure to mortgage-related losses and lawsuits.
Several other financial institutions are trying to downsize or sell their mortgage servicing businesses amid the industry's struggles. Goldman Sachs Group Inc. recently agreed to sell home-loan processor Litton Loan Servicing LP to Ocwen Financial Corp.
No U.S. bank is more exposed to troubled real estate than Bank of America, which handles a total of 14 million mortgages for itself and others. Chief Executive Brian Moynihan split Bank of America's mortgage holdings in half earlier this year, appointing longtime adviser Terry Laughlin to oversee the 7 million loans still causing the most problems.
Mr. Laughlin pledged to take that portfolio down by half via sales, loss mitigation and foreclosures, and the Fannie Mae transaction represents the first big cut in that direction.
Mr. Moynihan acknowledged in a CNBC interview Tuesday that he completed the sale of mortgage-servicing rights last week, without identifying the buyer.
The rights being picked up by Fannie Mae were originally worth more than the purchase price, said a person familiar with the deal. The bank decided to sell the portfolio at a loss because its value is expected to deteriorate further, this person added. The loans have a 13% delinquency rate, and more than half of the loans are in troubled U.S. real-estate markets.
The rights to the 400,000 loans will be transferred to Fannie Mae over four months, starting in September with the first slug of 100,000.
