Ending months of speculation about how the company will survive amidst multiple bankruptcies, Ditech Holding is selling its forward and reverse mortgage businesses, the company announced Tuesday.
New Residential Investment has agreed to purchase the stock and assets of Ditech’s forward mortgage originations and servicing business, while Mortgage Assets Management will acquire the stock and assets of Ditech’s reverse mortgage business, Reverse Mortgage Solutions.
Both agreements in the court-supervised sales label the buyers as “stalking horse bidders,” meaning that if a better offer comes along, Ditech can bail on the deals and set up an auction to allow all bidders to compete for the sale.
The agreements are also subject to approval in Bankruptcy Court.
According to New Residential, its side of the deal includes Ditech’s forward Fannie Mae, Ginnie Mae and non-agency mortgage servicing rights, with an aggregate unpaid principal balance of $63 billion as of March 31, 2019, the servicer advance receivables related to the MSRs and other net assets essential to the forward origination and servicing businesses.
New Residential will also assume some of Ditech’s offices and said it plans to make employment offers to an undisclosed number of Ditech employees.
The final purchase price will be determined at closing based on the tangible book value of the related assets, subject to certain adjustments, New Residential said, adding that it expects to finance the acquisition of these assets with existing financing facilities and cash on hand.
The sale comes after years of turmoil at the nonbank, including two bankruptcy filings and an official boot from the New York Stock Exchange because of its low share price and market cap.
It all began in 2017 when the company, then known as Walter Investment Management, filed for bankruptcy after a long string of financial losses. The company completed a restructuring plan that eliminated $800 million in corporate debt and changed its name, emerging from bankruptcy a year later.
But that was apparently not enough to set the company on solid ground, as it filed for Chapter 11 just 14 months later. This time, it included its subsidiaries, Ditech Financial and Reverse Mortgage Solutions, in its restructuring plan.
At the time, Ditech said it was considering “strategic alternatives” that could include selling off some of the company’s assets, changing the company’s business model, or selling the company. In the end, it apparently chose the latter.
For the last year, some have speculated who would even want the assets of the struggling mortgage company.
In an article for the Institutional Risk Analyst, Christopher Whalen wondered aloud if the assets have any value left, and drew particular attention to RMS, Ditech’s reverse mortgage servicing business.
Ditech said itself that RMS was operating at a sizable loss, noting that it incurred “significant losses” in 2017 and 2018 in a filing with the Securities and Exchange Commission, and said the trend was unlikely to turn around anytime soon.
But it seems someone found RMS valuable.
Through its Washington, D.C., office, Mortgage Assets Management manages portfolios of mortgage servicing rights, applying risk management initiatives and emphasizing a positive borrower experience, according to the company.
No details have been released yet on the specifics of Mortgage Assets’ side of the deal.
For its part, Ditech is likely relieved to be moving forward, even as the company continues to battle it out with creditors in bankruptcy court.
"We believe the agreements with New Residential and Mortgage Assets position us to maximize value and create the best path forward for our stakeholders, including homeowners and customers," said Thomas Marano, chairman of the board and CEO of Ditech Holding.
“I would like to thank all of our employees for their continued hard work and dedication,” Marano added. “As a result of their efforts, we have continued serving our customers throughout our court-supervised process.”
