Goldman in Talks to Buy C-BASS Loan Servicing Unit


Goldman Sachs Group, which recently said it saw opportunities in the beaten-down mortgage industry, is in talks to buy the subprime servicing business of Credit-Based Asset Servicing and Securitization, people familiar with the situation said.

Sources said the talks were at an early stage and a deal was not guaranteed. Goldman declined to comment.

Last month Radian Group terminated a merger agreement with MGIC Investment, citing weakening conditions in U.S. mortgage markets. Radian and MGIC, the joint owners of C-BASS, said they would still pursue a previously announced sale of their venture, which had plunged in value.

Goldman has its eye on Litton Loan Servicing, a Houston-based servicing unit of C-BASS and the 12th-largest U.S. subprime servicer. Litton makes changes to mortgages that can help struggling borrowers pay their debt, a business that would do well as delinquency rates rise.

Litton could be fetch about $500 million, based on recent valuations for similar businesses.

Investors Pick Through Subprime Business Wreckage

A number of investors are picking through the wreckage of the once-booming subprime business, which melted down this year after housing markets cooled and loan defaults among the riskiest borrowers began to rise.

Creditors began to pull back, and investors stopped buying subprime loans and securities. As a result, loan volumes plummeted and asset values fell, forcing dozens of firms to sell out, abandon the business or go bankrupt.

Yet mortgage servicers, which send out bills and collect payments on loans, are considered more attractive because they are less vulnerable to credit cycles.

Billionaire investor Wilbur Ross last month offered to pay $435 million for the servicing business of American Home Mortgage Investment , which is in bankruptcy.

Hedge fund Carrington Capital Management bought the servicing business of bankrupt New Century Financial for $184 million.

Morgan Stanley , even while cutting 600 mortgage jobs, is expanding its Saxon Capital servicing business.

Goldman's Mortgage Asset Hunt

Goldman's hunt for mortgage assets comes long after rivals like Lehman Brothers , Merrill Lynch , Bear Stearns and Morgan Stanley snapped up lenders. These firms could underwrite their own loans and package them into various asset-backed securities.

Goldman, which already owns residential mortgage servicer Avelo Mortgage, stuck to the sidelines until February, when it bought tiny South Carolina mortgage lender Senderra Funding for undisclosed terms.

The downturn in mortgages has created a new opening.

Goldman CFO on Mortgage Investments

Goldman Chief Financial Officer David Viniar, discussing Goldman's third-quarter results, predicted that the mortgage market "was closer to the bottom" and told investors the bank saw opportunities to invest in the mortgage business.

"There are certainly going to be opportunities to buy distressed assets," Viniar said last month.

C-BASS, which buys discounted subprime mortgages and repackages them into securities, in August hired Blackstone Group , the private equity giant and merger advisory firm, to help raise capital.

C-BASS burned through cash as defaults in loans that backed bonds soared. MGIC and Radian recently warned their stakes in C-BASS, worth $1 billion as recently as June, may no longer have any value.

Milwaukee-based MGIC and Philadelphia-based Radian each own 46% of C-BASS, with the rest held by management.