Popular Sells U.S. Mortgage Platform to Goldman

In a brief press statement released Friday morning, Popular, Inc. (BPOP) said it had entered into an agreement to sell its U.S. mortgage subsidiary Popular Financial Holdings to various affiliates of Goldman Sachs (GS). The deal includes both loan and servicing assets of the mortgage operation, in a deal worth roughly $1.2 billion. The sale of PFH will come at a $450 million loss for Popular, but will provide it with $700 million in immediate liquidity, the company said. “We are continuing to narrow the scope of our mainland U.S. operations that are most exposed to the credit and mortgage markets, by leveraging on our core strengths in Puerto Rico, where we are the undisputed market leader,” said Popular CEO Richard Carrion. Goldman, like JP Morgan Chase & Co. (JPM), is one of the few Street firms to emerge relatively unscathed by the mortgage crisis. The firm has managed to become one of the strongest on the Street by making a series of now-prescient moves in the mortgage market that have since allowed the firm to skirt the worst of the crisis. Chief Financial Officer David Viniar told reporters on a Q2 earnings conference call that net exposure to residential mortgages total just $15 billion on the company’s balance sheet, down from $19 billion one quarter earlier. $12.2 bilion of the firm’s exposure lies in prime mortgages, with $1.8 billion in subprime and the rest in Alt-A. By comparison, Lehman Brothers Holdings Inc. (LEH) held $60.8 billion in mortgages and related asset-backed securities on its balance sheet at the end of June; $24.9 billion of that total lies in residential mortgages. Viniar signaled that Goldman would be looking to compete with more than 400 hedge funds and institutional investors now piling into the distressed mortgage space. Saying in June that the firm was “prepared” to begin buying, he also said that the company didn’t yet see strong buying opportunities. Clearly, a buying opportunity emerged in the form of Popular’s mortgage platform, which in some ways means that Goldman just picked up a bunch of distressed mortgages for its own portfolio. Goldman already owns Litton Loan Servicing LP, a well-known subprime mortgage servicing specialist; Litton was purchased out of the rubble of former scratch-and-dent giant Credit-Based Asset Servicing and Securitization late last year. Goldman also purchased a $12.2 billion servicing portfolio in May from bankrupt Fremont General Corp. It’s unclear how Goldman intends to integrate the Popular mortgage servicing platform with its existing Litton operations; calls to representatives at both Goldman and Popular were not returned by the time this story was published. Disclosure: The author held no positions in BPOP, GS, LEH, JPM when this story was published; indirect holdings may exist via mutual fund investments, as well. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.