Nationstar has sought bids through Auction.com from March 6 to March 13 on more than $1 billion of nonperforming loans packaged into bonds based on “anecdotal evidence,” Credit Suisse analysts led by Chandrajit Bhattacharya wrote today in a report. As a servicer, the Lewisville, Texas-based firm manages the debt for bondholders, handling work such as billing and collections.
Such sales are “rarely carried out” among residential mortgage securities, though more common for commercial-property bonds, the analysts said. While it’s hard to know whether using the technique instead of foreclosures or so-called short sales will be a positive or negative for investors until seeing the prices paid, the move at least partly reflects Nationstar’s interests, rather than those of bondholders, they said.
The auctions are “probably driven as much by the servicer’s need to reduce costs (servicing a nonperforming asset is much more costly than servicing a performing loan) and increase profitability as it is to find the best bid on these assets,” the New York-based analysts wrote.
Marshall Murphy, a spokesman for Nationstar, didn’t return an email and telephone message seeking comment on the loan sales.
Nationstar, which is majority-owned by Fortress Investment Group LLC, increased its servicing portfolio by 94% last year to $198 billion through purchases of assets including from a unit of Lehman Brothers Holdings Inc. It oversaw more than $300 billion at the end of last month after completing part of a purchase of $215 billion of contracts from Bank of America Corp., according to a statement reporting earnings.
Meanwhile, the company was sued in New York by an investor that claims the company violated its responsibilities as mortgage servicer by auctioning mortgage loans owned by securitization trusts, according to a court filing.