ResCap filed for Chapter 11 bankruptcy protection last month, announcing it has selected Nationstar as its favored bidder--also known as the "stalking horse bidder"--for its mortgage servicing and origination divisions. ResCap services mortgages on some 2.4 million homes, making it the fifth-largest servicer in the U.S. behind Citigroup (C).
ResCap also picked Ally as the lead bidder for its legacy mortgage portfolio. Since those announcements, other potential bidders have expressed interest in one or both assets, including Warren Buffett's Berkshire Hathaway (BRK-B), Ocwen Financial (OCN) and private equity firm Lone Star Funds.
Despite the emergence of additional bidders, Nationstar must still be seen as the front-runner for the mortgage servicing portfolio, according to Monday's report from Keefe Bruyette & Woods analyst Bose George.George argues Nationstar will remain the stalking horse bidder because "everyone in the process" has approved Nationstar's role. Most important, according to George, is that Fannie Mae (FNMA)and Freddie Mac (FMCC) the giant government sponsored enterprises (GSEs) that have been sustaining the U.S. mortgage market virtually on their own since the crisis, have supported the selection of Nationstar as the stalking horse. The GSEs, after all, "are the primary owners of the underlying credit risk in the mortgage servicing portfolio," George points out. NationstarGeorge believes Nationstar "remains the most likely winner of ResCap but the ultimate price is likely to be higher." Nationstar, the 11th-largest mortgage servicer in the U.S. as of the first quarter, is a publicly-traded company more than 75% owned by private equity giant Fortress Investment Group (FIG). Nationstar shares rose nearly 15% during the week of May 14, after it was selected as the stalking horse bidder. The shares continued rising in subsequent days, peaking at $19.98 on June 8. Berkshire's interest in bidding for the assets became public June 11, in a court filing released late in the day. Nationstar shares opened nearly 6% lower on June 12, at $17.79. They have since recovered, however, and were up 1.71% to $19.61 in mid-morning trades on Monday. -- Written by Dan Freed in New York. Follow this writer on Twitter.
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