New Lease on Life for Lenders

So, when more borrowers were prepaying and refinancing their mortgages in 2002 and 2003, annual profits on origination peaked at about 90 basis points -- or close to $1,700 per loan, according to data compiled by the Mortgage Bankers Association and Stratmor Group. Meanwhile, the servicing side, which includes hedging and estimates of future prepayments, recorded losses.

By the first half of 2006, though, origination had fallen into the red as loan volume slid, while the servicing side was profitable -- with at least a $77 margin per loan.

Fred Cannon, an analyst at Keefe Bruyette & Woods, expects to see more consolidation in the industry. He notes that companies such as Wells Fargo(WFC Quote) with "very strong capital positions are in very good positions to solidify their market share." At the end of June, Wells Fargo was the second largest mortgage servicer by volume behind Countrywide, according to Mortgage Servicing News.

Likewise, Bank of America(BAC Quote) could capitalize on its relationship with Countrywide(CFC Quote), which sparked when the bank took a stake in the company via a convertible security in August.

Goldman already owns one other small Texas servicing firm, Avelo Mortgage. In February, it also acquired subprime lender Senderra Funding of South Carolina, according to reports.

A spokesman for Goldman declined to comment on Litton.