Wilbur Ross plunks down $1.5 billion on mortgages

Posted Feb 6th 2009 11:24AM by Tom Taulli
Filed under: Private Equity, Citigroup Inc. (C), Housing

Despite the recession and surging unemployment, there are actually some signs that the real estate market is perking up. True, this may be a statistical quirk – but it's encouraging.

But, there is one savvy investor who sees opportunity: Wilbur Ross. He's the financial backer of Home Mortgage Servicing Inc., which is now the #2 mortgage servicing company to third parties.

And, he's boosting things even more. That is, Ross has agreed to pay $1.5 billion for Citigroup's (NYSE: C) servicing rights on 185,000 home loans (these are mostly subprime and "Alt-A" loans). In all, these loans have a face value of about $37 billion.

Ross certainly understands commodity businesses. After all, he made fortunes in such areas as steel. Basically, his strategy is to consolidate distressed industries and realize efficiencies.

And yes, the mortgage servicing industry is perfect for this strategy. The key is scale, which can lead to significant operating leverage. What's more, Ross is realizing higher margins because of the use of labor in India.

Moreover, the Citi deal is definitely big and complicated. So it may be some time until Ross strikes again.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a free online business valuation tool for small businesses.

Tags: C, inthenews, Mortgages, Wilbur Ross, WilburRoss