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Walter Investment Management Corp. (WAC - Snapshot Report) announced an agreement to buy a mortgage unit from the banking subsidiary of Ally Financial Inc.

The mortgage unit conducts purchase of home loans originated through correspondents and brokers. The unit employs about 300 professionals, has 1,770 active clientele and intellectual property related to the business.

Walter Investment recently acquired Residential Capital, LLC’s (ResCap) originations platform. This platform has presented it with plethora of opportunities to expand its mortgage origination business.

We believe Walter Investment’s motive behind purchasing the mortgage unit from Ally financial is to utilize the latter’s well-trained and experienced team to tap the growth opportunities as presented by ResCap origination platform.

As far as Ally Financial is concerned, we know that the company is shedding its non-core assets to speed up the payment of the outstanding $14.6 billion dues it received from the Treasury’s Troubled Asset Relief Program (TARP). To repay the TARP dues, Ally Financial is now focusing on its lucrative auto finance business and is divesting non-core assets as well as reducing its exposure to mortgage business to concentrate on auto finance and online retail banking.

Over the last several months, Walter Investment has been on an acquiring spree. The company has purchased mortgage-servicing rights (MSRs) from Bank of America Corporation (BAC - Analyst Report) and Federal National Mortgage Association (FNMA). Walter Investment, in collaboration with Ocwen Financial Corp. (OCN - Analyst Report), won a $3 billion bid to buy MSRs of ResCap. Further, it acquired Security One Lending from Jacobs Asset Management, LLC and servicing platform from MetLife Bank, N.A – a wing of Nationstar Mortgage Holdings Inc.

We believe that Walter Investment is determined to emerge as a successful organization in the mortgage origination business, given its acquisition activities. As delinquency rates continue to fall, mortgage servicing is turning out to be a lucrative business unlike the situation 4 years ago, when majority of the companies were turning away from it. Hence, foraying into the business will definitely improve Walter Investment’s financial performance in the longer term.

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