JAN 22, 2014 11:34am ET

Wells Fargo Sells Rights on $39 Billion Mortgages to Ocwen

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Wells Fargo & Co., the biggest U.S. home lender, agreed to sell about 2% of its residential servicing portfolio, or about 184,000 loans, to Ocwen Financial Corp. as it tests the market.

The sale covers loans with a total principal balance of $39 billion, the San Francisco-based bank said today in a statement. Terms weren't disclosed and the effect won't be material, according to the statement.

Wells Fargo joins Citigroup Inc. and Bank of America Corp. in a retreat from the almost $10 trillion mortgage servicing market as new regulations make it more costly to hold the assets. Firms such as Ocwen, Walter Investment Management Corp. and Nationstar Mortgage Holdings Inc. have been among the most active of the non-bank firms buying the rights.

Mortgage servicers handle billing and collections on behalf of investors who own the loans and supervise foreclosures if the borrowers don't pay. Wells Fargo was the biggest U.S. servicer as of Sept. 30.

Shares of Atlanta-based Ocwen added 0.5% to $50.70 at 9:48 a.m. in New York. Wells Fargo rose 0.3% to $46.63.

Wells Fargo's sale of the rights had been telegraphed by executives including Chief Executive Officer John Stumpf, who said in October that the firm would test the market as a way to maintain robust risk controls.

"There's more demand for mortgage servicing rights today than there was six months ago, a year ago," Stumpf said Oct. 11 on the firm's third quarter earnings call. "From a risk management standpoint, it's good to go ahead and test the waters every once in a while, and you should expect that we'll probably be doing that in the next few quarters."

Most of the loans are held by private investors and weren't originated or owned by Wells Fargo, according to the statement. The sale will be completed as the servicing is transferred, likely this year, the bank said in the statement.

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