NAB Bids Final Adieu to U.S.A.(Brief Article)

National Australia Bank's four-year foray into the U.S. mortgage market has come to an end with a sale of its remaining assets to Washington Mutual.

WaMu will pay an estimated $1.3 billion for NAB subsidiary HomeSide Lending's servicing rights on $131 billion of home loans. WaMu will also acquire related hedges and investments and assume about $735 million of HomeSide's medium term notes, bringing the total price to about $2 billion.

The final price is conditional upon interest rates and the amount of loans outstanding when the deal closes later this year. But WaMu estimates it will be paying 99 basis points for a portfolio with a weighted average servicing fee of 42.4 basis points. That means WaMu will pay a multiple of just 2.3 times the servicing fee, not factoring in the assumption of debt. That's a fraction of the multiple that lenders were paying for MSR portfolios just a few years ago. At the peak of the market for MSRs, attractive portfolios were fetching as much as seven times the servicing fee.

In a recorded statement to investors, Washington Mutual CEO Kerry Killinger said that WaMu negotiated a below- market price for the servicing rights.

"The purchase price is particularly attractive due to the very favorable price for MSRs in the current interest rate environment as well as an additional discount we negotiated with National Australia Bank," he said.

He said that that WaMu, which acquired HomeSide's lending operations earlier this year and is already subservicing the loans, negotiated preferred pricing and will pay 5 basis points below the market price for the MSRs.

Cohane Rafferty, a subsidiary of Lehman Brothers that specializes in the mortgage industry, provided a fairness opinion supporting the sale by NAB. NAB was also represented by Black Rock Inc., Sullivan & Cromwell and Kirkpatrick & Lockhart.