NEW YORK ( TheStreet) -- Goldman Sachs ( GS) confirmed three month old reports it is trying to sell its mortgage servicing unit--Litton Loan Servicing. Goldman's interest in shopping the unit was first reported by the Financial Times in December. Late Tuesday and early Wednesday, spokesman Michael Duvally confirmed to several news organizations, including TheStreet, that Goldman is "exploring strategic alternatives, including a sale," of the unit. Rochdale Securities analyst Richard Bove believes Goldman may have trouble getting a good price for the unit because potential buyers don't want to be liable for lawsuits or regulatory problems that may emerge, given the intense scrutiny of the mortgage servicing industry. "They're trying to get wider knowledge out that this thing is up for sale, and that's why it's all over the press," Bove says. Duvally declined to respond to this assertion. Goldman acquired Litton in December 2007 for $470 million. At the time of the deal, spokesman Duvally told Bloomberg that``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.'' A person familiar with Goldman's strategy said Goldman had hoped to buy pools of home loans Litton could service, but though it did some of those deals, the opportunity did not play out as Goldman had hoped. The opportunity to buy such pools has slowed down significantly from where it was a year ago, according to Joe Murin, Chairman of advisory firm The Collingwood Group and a former president of Ginnie Mae. Litton is the 23rd largest mortgage servicer in the U.S., according to Inside Mortgage Finance, which lists Bank of America ( BAC), as the largest, followed by Wells Fargo ( WFC) and JPMorgan Chase ( JPM). Together, those top three banks' servicing units comprise nearly 50% of the market. Citigroup ( C) is fourth with just over 6% of the servicing market. Another factor contributing to Goldman's decision may be increased government scrutiny of the mortgage servicing business. Problems with mortgage servicing have already proved very costly to Bank of America and remain among the chief worries for many followers of the stock. The other big servicers have similar issues, though not as severe.
"It used to be returns were decent and scrutiny was low. Everyone knows the current servicing system is broken. Everything's going to be more tightly scrutinized and regulated, fees will be reset. There will be a whole public policy discussion about how to make the business more transparent and consumer friendly," says Rob Zimmer, principal at Washington-based consulting firm TVDC. But Rochdale's Bove doesn't think all the scrutiny will prompt larger servicers to consider exiting what still has the potential to be a hugely-profitable business. "Goldman, which has never been a major player in the mortgage markets, put its toe in, got burned very quickly, and now wants to get out," Bove says. -- Written by Dan Freed in New York.