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Wachovia Sells Mortgage Servicing Unit

London's Barclays (BCS) is paying just under $500 million for Wachovia's (WB) mortgage servicing business.

The transaction, valued at $469 million, will enable Barclays to strengthen its U.S.-based mortgage securitization business.

Mortgage servicing is a business in which a bank earns fees collecting interest payments and handling other duties on home loans.

It appears Wachovia is picking the right time to sell its mortgage servicing business, now that the Federal Reserve is expected to slow the pace of future interest rate hikes.

Mortgage servicing tends to perform best when interest rates are rising, as they have been for the past year. Higher rates extend the life of the loan portfolio. By contrast, low interest rates prompt homeowners either to refinance their mortgages or pay them off early, and that decreases the portfolios value.

In a period of declining interest rates, mortgage servicers often are forced to take big charges against earnings to account for the reduced value of their loan portfolios.

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