Goldman Sachs to Cash in Big Time With the Litton Loan Servicing Purchase

This is a very interesting purchase by Goldman Sachs. The question that many people will ask is “why the hell would anyone want to buy a company that services a tremendous amount of  adjustable rate mortgages; AKA, suprime slime?”

Because servicing subprime mortgages is a very profitable business, that’s why!

Take this quote for Bloomberg;

Subprime loans are made to people who have weak credit. With home lenders refusing to refinance borrowers who might default, “the loans stay in the portfolio longer, making them more valuable,” Richard Bove, an analyst at Punk, Ziegel Co., said in an interview last month when the Litton sale was announced.

What he is essentially saying is that borrowers are “trapped” in these loans and they will not be going anywhere anytime soon. So, we are going to capitalize on these “weak” and less credit “worthy” subprime borrowers because they can’t refinance, thus we can milk every damn dime we can to increase our bottom line before they default and eventually we foreclose on them.

It’s not over yet, boys and girls.

Then we’ll send it to our REO servicing division, where we will continue to make big money because that property is sure not going to sell anytime soon and in fact, it may be years before that over priced home sells. Thus, the money wil be rolling for years to come.

Money was made by the truck loads when these toxic loans were originated by lenders and then packaged and sold on Wall Street. There’s not a whole lot of that happening right now, so now, the money is in servicing them.

That’s an easy prediction, given today’s current real estate market, that is only getting worse by the second.

Remember Moe, tells it like it is. In middle class layman’s terms. This is just a simple capitalistic business formula and these guys sure are capitalists. Right? Their business is to make money, regardless of how it’s done, as long as it’s all withing the scope of the law and to be honest, that is being questioned by many mortgage servicing industry watchdogs like myself.

More from Bloomberg;

Credit-Based Asset Servicing and Securitization LLC, a subprime mortgage investor written off by its owners, completed the sale of its Litton Loan Servicing business and named Goldman Sachs Group Inc. as the buyer.

The sale allowed C-Bass to reach an out-of-court restructuring with its creditors, the New York-based company said in a statement today. Litton deals with homeowners on behalf of mortgage companies if the borrowers don’t pay their bills on time. While terms weren’t announced today, Radian Group Inc., part owner of C-Bass, said last month the unit would be sold for about $467.9 million to an unnamed acquirer.

Goldman, the world’s largest securities firm, may be betting it can pick up Litton at a depressed price. C-Bass’s owners wrote off their entire equity investment of more than $900 million this year, even while Litton continued to operate. Chief Financial Officer David Viniar said in September that his firm was hunting for “distressed assets.”

The reason why Goldman bought Litton Loan Servicing;

Goldman bought the company “because it’s a recognized leader in the loan-servicing sector,” said Michael DuVally, spokesman for the New York-based securities firm. “Given the stress in the residential mortgage market, a premium is being placed on quality workout-servicing capabilities, for which Litton is very well-known.”

C-Bass was among more than 100 mortgage lenders and investors forced to halt operations or find buyers in 2007 amid the worst housing slump in 16 years. Its majority owners were MGIC Investment Corp. and Radian, the nation’s No. 1 and No. 3- ranked mortgage insurers.

Blackstone Group LP advised C-Bass, which received legal counsel from Hunton and Williams.

Katie Monfre, a spokeswoman for Milwaukee-based MGIC, Tim Lynch a spokesman for Philadelphia-based Radian, and Peter Cerwin, a spokesman for New York-based C-Bass, didn’t return voicemail messages left after business hours.

I suspect will see many more acquisitions, massive consolidations and some very unlikely alliances forming in the near future.


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