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Exclusive: Ocwen leads in deal to buy Ally mortgage rights - sources

By Jessica Toonkel and Rick Rothacker

NEW YORK (Reuters) - Ocwen Financial Corp is in the lead to buy a portfolio of mortgage collection rights from Ally Bank worth around $1 billion, three people familiar with the situation said on Thursday.

The deal will help Ally, the bailed-out auto lender that is 74 percent owned by the U.S. government, raise money to pay back taxpayers. For Ocwen, the purchase will further fuel its explosive growth. The company's servicing portfolio has increased in size by more than six times since 2009, according to Compass Point Research & Trading.

Ally is auctioning off the right to collect payments on $122 billion of home loans, and the outcome is uncertain. Although Ocwen is in the lead, its bid is "neck and neck" with another one, a source said. Ally received five bids, a second source said.

A call to Ocwen was not immediately returned. An Ally spokeswoman declined to comment.

Ally Bank's sale of mortgage servicing rights is part of its parent company's effort to wind down most of its mortgage business. Losses from mortgages forced Ally to accept multiple government bailouts during and after the financial crisis.

Much of Ally's mortgage business was housed in its Residential Capital Unit, which filed for bankruptcy in May in an effort to wipe out legal liabilities from mortgage-backed securities it sold during the housing boom.

Ocwen and Walter Investment Management bought ResCap's mortgage servicing rights and operations for $3 billion in an October bankruptcy auction [ID:nL1E8MJI87]. Ocwen is taking on ResCap's servicing business, while Walter is taking its lending and capital markets operations.

The Residential Capital business was separate from Ally's Ally Bank unit, but the two were intertwined. In the sale being negotiated now, Ally Bank made $122 billion of mortgages, and had the right to service them too. But Ally Bank subcontracted the right to collect payments to ResCap.

Ally is particularly interested in selling its mortgage servicing assets, but other lenders have been doing the same. With homeowners struggling to make payments in the housing bust and foreclosures having become more common, expenses in the business have risen. And new bank capital rules for mortgage servicing rights also increase costs in the business.

Bank of America Corp this month reached an agreement to sell the rights to collect payments on $306 billion loans to Nationstar Mortgage Holdings Inc and Walter Investment Management Corp, two competitors of Ocwen. The bank is looking to sell MSRs on another $100 billion of loans.

For the Residential Capital deal, Walter completed its portion of the sale on Thursday, and Ocwen is expected to close its purchase in the next few weeks, according to the source who said a deal for Ally's MSRs could be announced soon.

Because it is buying ResCap operations, Ocwen has an added incentive to also purchase Ally's mortgage servicing rights, the sources said. Ocwen is already buying the operations to handle those loans and does not want to risk losing them to a competitor.

"For Ocwen to jump through all of the regulatory hoops to buy ResCap and not get the Ally MSRs would not make sense," said one of the sources.

OCWEN COULD GAIN FANNIE MAE LOANS

About three-fourths of the mortgage servicing rights that Ally is selling are for loans owned by government-controlled U.S. mortgage finance company Fannie Mae .

Ocwen handles some Fannie Mae loans, but it hasn't been a major player in servicing these mortgages because Fannie Mae has had concerns about its use of offshore call centers, a source familiar with the situation said. In its ResCap deal, however, Ocwen is gaining more onshore operations.

Ally Financial, formerly the in-house lender for General Motors and once known as GMAC, is trying to pay back the U.S. government as fast as possible. The lender is also selling international auto finance operations in a bid to speed up payment.

But in a report this week, the inspector general for the bailout program said the U.S. Treasury needs a more concrete plan for getting its money back. Ally is yet to repay $14.6 billion of the $17.2 billion it received from taxpayers, according to the report.

(Reporting By Jessica Toonkel in New York, Rick Rothacker in Charlotte, Editing by Soyoung Kim, John Wallace and Andrew Hay)

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