Court approves Ditech’s sell-off of forward and reverse mortgage businesses
Ditech Holding is one giant step closer to
selling off its forward and reverse mortgage businesses after a federal
bankruptcy court judge approved the company’s plan to sell to New Residential Investment and Mortgage
Earlier this year, Ditech agreed to sell its forward mortgage
originations and servicing businesses to New Residential and the stock and
assets of its reverse mortgage business, Reverse Mortgage Solutions,
to Mortgage Assets Management.
And this week, the United States Bankruptcy Court for
the Southern District of New York approved the sale of both companies,
setting the stage for the sales to go through later this year.
According to Ditech, New Residential has agreed to acquire “substantially
all of the assets” of the company’s forward mortgage servicing and originations
business, Ditech Financial.
“We are glad that the Court has approved the agreement and
that we can proceed with the closing of this acquisition,” said Michael
Nierenberg, chairman, chief executive officer and president of New Residential.
“As part of this acquisition, we are adding a number of very
talented personnel to our servicing, origination and corporate functions and we
are very excited to welcome them to our family,” Nierenberg added. “From the
beginning we have been focused on achieving an outcome that is in the best
interest of the long-term strategy of our Company and our shareholders, and
believe that today’s confirmation from the Court allows us to move forward with
executing our vision.”
Under the agreement, New Residential will purchase Ditech’s
forward Fannie Mae, Ginnie Mae and non-agency mortgage
servicing rights, the servicer advance receivables related to those MSRs and
other net assets involved with the forward origination and servicing
Additionally, New Residential agreed to take over certain
Ditech office spaces and make employment offers to a “number” of Ditech
The final purchase price for Ditech Financial will be
determined at the closing of the acquisition based on the tangible book value
of the related assets, subject to certain agreed upon adjustments, New
Additionally, Mortgage Assets agreed to acquire “certain
stock and assets” associated with Ditech’s reverse mortgage business, Reverse
Mortgage Solutions, and to maintain the current operations of RMS as a
The move to sell came after years of financial trouble that
saw Ditech, the nonbank formerly known as Walter Investment Management, file
for Chapter 11 bankruptcy twice in 14 months.
It all began in 2017 when the company 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 again 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, Ditech chose the
But the move to sell wasn’t without some stumbles.
After announcing its plans to sell off its reverse and
forward businesses, Bank of America,which has a reverse mortgage servicing
agreement with Reverse Mortgage Solutions, objected to the deal, claiming that
it “threatens to abandon the thousands of elderly borrowers” whose reverse
mortgages are being serviced by RMS.
According to Bank of America’s objection, the sale does not
uphold its agreement with RMS, which stipulates that RMS provide Bank of
America with extensive lead time to establish other arrangements for the
servicing of its reverse mortgage borrowers should RMS no longer be able to
handle the business.
Once an originator of reverse mortgages, Bank of America exited the HECM business in 2011, subsequently selling off the servicing rights of its reverse loans to RMS.
in 2011, subsequently selling off the servicing rights of its reverse loans to RMS.
Eventually, a “Committee of Consumer Creditors” was formed
to “protect the rights of borrowers” who had legal claims against Ditech and
The Consumer Creditors’ Committee also disagreed with
Ditech’s and RMS’s original bankruptcy plan because it did not “sufficiently
protect borrowers’ rights.”
Ditech and RMS then worked with the committee to develop a
bankruptcy plan that would allow Ditech to sell the companies, while also
protecting borrowers’ rights.
The parties eventually agreed to a settlement that provides
for $10 million to be set aside for borrowers with allowed legal claims against
Ditech and RMS. Borrowers are also able to sue “other third parties or the new
owners” if they choose to.
With that settlement agreed to and approval from the court,
the sales can now move forward. According to New Residential, it expects the
deals to close in the fourth quarter of this year.
Until the acquisition closes, Ditech Financial and RMS will
continue to operate as part of Ditech Holding and service their existing
“With the Court’s approval and confirmation of our plan, we
are able to move forward with these value-maximizing transactions and achieve
the best path forward for our stakeholders, including homeowners,” said Thomas
Marano, chairman of the board and chief executive officer of Ditech Holding. “I
would like to thank all of our employees for their hard work and dedication to
serving our customers throughout this process.”