Joining the growing list of investment banks making deals for mortgage companies to support their securitization businesses, Barclays Bank PLC agreed to buy HomEq Servicing Corp. from Wachovia Corp. for $469 million.
Unlike some of its Wall Street rivals, however, the U.K. banking company appears to have no immediate plans to start originating loans.
"Certainly that may be on the horizon," said Michael Wade, a managing director at the London company's Barclays Capital and the head of its U.S. asset securitization business and financial institutions group. "But imminently? No."
Why not? "The way we approach things is, before we get very large in any sector, we want to button down the risk management," Mr. Wade said. Even so, he called the deal announced Thursday "evidence we're serious about the space."
A spokeswoman for Wachovia said, "HomEq is specific to subprime servicing and that is not a strategic area of focus for us." She noted that American Mortgage Network Inc., the San Diego wholesaler it bought last year to feed its securitization conduit, exited subprime lending this year.
In 2004, Wachovia launched another servicing operation focused on better credits. The Charlotte company now holds about $100 billion of mortgage and home equity servicing rights besides the roughly $43 billion Barclays would get with HomEq.
Also, Wachovia plans to buy Golden West Financial Corp., which has a big servicing shop.
HomEq, which is based in North Highlands, Calif., and has North Carolina sites, is a remnant of Money Store Inc., the subprime lender Wachovia (then called First Union Corp.) bought in 1998 for $2 billion and shuttered two years later.
Of the purchase price, $209 million is related to servicing advances which HomEq has made and for which Wachovia will indemnify Barclays. The rest of the price represents the net book value of HomEq's servicing rights and fixed assets.
As Mr. Wade put it, Barclays is a "relative newcomer" to U.S. nonagency mortgage bonds, having entered the business in 2003. A group in his division buys and securitizes subprime and alternative-A loans, underwrites securities for originators (including ACC Capital Holdings, the parent of Ameriquest Mortgage Co., for which Barclays was the top such underwriter last year), and does warehouse lending.
So far the business has bought $30 billion of loans and securitized about $25 billion, Mr. Wade said. Last year it was the lead manager for about $27.2 billion of asset-backed issues, including its own and third-party securitizations.
Barclays has been selling servicing rights on its securitizations to companies like HomEq, Countrywide Financial Corp., and Wells Fargo & Co., Mr. Wade said. Once it owns a servicer it will no longer be "beholden to these third parties."
It would also be able to service loans for customers that cannot do so, and it would have better access to default and prepayment data, he said. The pool of servicers doing third-party nonprime work will probably continue to shrink, in part because other conduits will make deals, Mr. Wade said. Having its own servicer will help Barclays avoid the impact, he said.
