Struggling subprime lender NovaStar Financial Inc. said this afternoon that it has agreed to sell its servicing rights to Morgan Stanley’s Saxon Mortgage for $175 million in cash.
“This action is expected to reduce debt and risks related to operating capital needs for servicing loans,” Lance Anderson, NovaStar’s president and chief operating officer, said in a written statement.
All proceeds from the sale of the servicing rights will go to debt reduction, with the deal expected to close November 1, 2007 assuming conditions are met.
Fort Worth, Texas-based Saxon Mortgage Services Inc. will take over collection, customer service and loss mitigation, but is not acquiring the NovaStar servicing platform or any other asset.
The Kansas City-based mortgage lender also said it expects “substantial reductions” in its workforce as a result, which is already depleted from previous layoffs that cut the company down from 2,000 to 600 employees earlier this summer.
NovaStar’s servicing workforce currently employs roughly 300 people, though it’s uncertain how many jobs will be lost as a result of the sale.
“As we continue to endure a difficult period for the mortgage industry and the secondary market for mortgage loans, our focus is on managing our portfolio of mortgage securities, along with brokering loans with a retail team that continues to serve homeowners,” said Anderson.
Shares of NovaStar Financial were up 22 cents, or 2.86% to $7.92 in after hours trading, well below their 52-week high of $131.24.
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