On the heels of issues related to Ditech Holding Corporation’s planned sale of Reverse Mortgage Solutions (RMS), real estate investment company New Residential Investment Firm says that legal concerns affecting Ditech could impact the deal closing.
New Residential (NYSE: NRZ) disclosed Q2 2019 earnings on Tuesday, adding a note of caution concerning its plans to acquire the forward mortgage servicing business of Ditech Holding Corporation. Ditech recently named Mortgage Assets Management as a separate successful bidder for its reverse mortgage servicing business, RMS.
In its earnings release, New Residential specifies that the potential transaction with Ditech for its forward servicing business is contingent upon several closing conditions, which includes satisfying federal bankruptcy court, approvals from both government and quasi-government agencies, the resolution of several objections levied in bankruptcy court and some unspecified third-party consents.
Additionally, the legal scrutiny placed on Ditech makes the final sale of that company’s assets less than certain.
“There can be no assurance that this potential transaction will be consummated in the near term, on the timeline presented in other statements made by New Residential, or at all,” the earnings release says.
On Tuesday morning’s earnings call, New Residential CEO Michael Nierenberg seemed far more optimistic about the sale being finalized in spite of the legal and regulatory hurdles that remain.
“On Ditech, we hope the legal challenges get resolved and believe this is consistent with other large bankruptcy sales,” Nierenberg said. “We still expect that the sale will be approved at the confirmation hearing, which is scheduled for next week. We are looking forward to working with the Ditech team.”
The company plans to integrate the acquired assets as quickly as possible following a deal closing, Nierenberg said in response to a question from an analyst during the earnings call about the Ditech forward business’ profitability.
“We would not do this deal unless we integrate it now. I would tell you that we’ve been working closely with the Ditech folks with the anticipation of getting confirmed,” he said. “If we get blessed next week, we’re hoping for an August 31 close [so we can] get on to business as usual.”
Due to approved RMS bidder Mortgage Assets Management’s status as a limited liability company (LLC), it is privately-held and has therefore not made any public or investor-facing statements concerning its in-process purchase of the reverse mortgage servicing business.
The statements from New Residential concerning their planned purchase of Ditech’s forward business follows a continually unfolding odyssey of legal and financial issues that have afflicted Ditech, and by extension, RMS.
Most recently, Ditech’s planned sale of RMS has invited scrutiny from Bank of America over concerns that some elderly borrowers would not have their pre-existing mortgages serviced, and by the New York State Attorney General who contends that Ditech is attempting to circumvent statutory protections for homeowners by selling its mortgage businesses.
Mortgage Assets Management, LLC and New Residential were named as the successful bidders for the forward servicing business and RMS, respectively, earlier this month. Those assets were first put up for auction on June 5.
In April, it was revealed that a loophole in Ditech’s bankruptcy proceedings invited scrutiny from both consumer advocacy groups and the Department of Justice. In the midst of the financial difficulties that Ditech is embroiled in, RMS seems to be relatively insulated from the larger problems of its parent company, at least from an operational perspective.
In 2018, Ditech emerged from its first bankruptcy filing after having previously done business under the name Walter Investment Management Corporation. Walter acquired RMS in 2012 and Security One Lending in 2013, and in 2017, Walter decided to stop originating Home Equity Conversion Mortgages (HECMs). RMS then turned to servicing only and closed its retail channel.