NEW YORK (The Deal) -- J.P. Morgan Chase (JPM) announced Thursday it would buy the right to collect debt on an estimated $45 billion worth of home loans from Ocwen Financial (OCN) a widely anticipated transaction that underscores banks' renewed interest in what is known as mortgage servicing.
Neither Chase nor Ocwen would comment on pricing, though the typical price on such a deal would be 1% of debt outstanding, or $450 million.
Chase mortgage banking CEO Kevin Watters said the deal will "improve the quality of our servicing portfolio and will help drive a stronger and less volatile mortgage business," according to a press release from the bank. Chase also hopes to sell other products to the homeowners whose loans it will commence servicing June 1.
Banks can earn roughly 10% returns collecting high quality mortgage debt, though big banks like Chase often amplify those returns to more than 20% through income-generating hedging strategies if they bet right on interest rates. That strategy has proved risky in the past, however, leading to big losses at institutions such as National City, Homeside Lending and Cendant.
For Ocwen, the sale helps it focus on servicing more troubled mortgage debt that is not backed by government agencies such as Fannie Mae or Freddie Mac. Ocwen, which has been battered by regulatory sanctions and legal disputes over the past year, also sold $9.8 billion worth of agency MSRs to Nationstar earlier this year. It said the combined sales will generate about $550 million.