Fidelity National Prepping for Possible Loss of BofA

In a filing with the Securities and Exchange Commission earlier this week, Fidelity National Information Services Inc. (FIS) said that Bank of America may pull its some of its core business from the transactional real estate and default management giant after an expected merger with Countrywide Financial Corp. (CFC) is completed. The June 9 disclosure by the Jacksonville, Florida-based mortgage processing and appraisal service vendor underscores the pace at which Bank of America is looking to move ahead with its purchase of the troubled Calabasas-based lender; Countrywide performs many key transactional real estate functions in-house, including mortgage processing and appraisals. In the filing, Fidelity noted that BofA was “leaning towards phasing out the mortgage processing and appraisal services” provided by the company’s Lender Processing Services Inc. unit, which Fidelity intends to spin off later this year. The North Carolina-based bank represented 1.4 percent of Fidelity’s consolidated revenues in 2007, and 4 percent of LPS revenue; any phase out would not be immediate, and would take from 12 to 30 months after the merger is completed. The company said its senior executives are in discussion with Bank of America over potentially retaining its mortgage transaction and appraisal services, or expanding other business relationships to offset any lost revenue, and noted that the so-called Home Valuation Code of Conduct agreed to by both Fannie Mae (FNM) and Freddie Mac (FRE) earlier this year may provide impetus to retain Fidelity’s appraisal services as an arm’s-length provider. Bank Technology News noted the take of Aite Group analyst Kate Monahan on Wednesday, who said that the potential loss of BofA would likely be mitigated by the expanded lender processing agreements the firm has won in recent months. Monahan also noted that 44 percent of the firm’s transactional revenue in 2007 was derived from community bank clients. Beyond that, a source with knowledge of the discussions suggested to HW Wednesday morning that Fidelity is using the potential loss of Bank of America’s mortgage processing business as a “front door” to discussing the use of Fidelity’s array of foreclosure management solutions. The company’s burgeoning default services practice is one of the servicing industry’s largest outsourcers; the number of bad and increasingly troubled loans on Countrywide’s books are a target for offloading to Fidelity’s foreclosure management division, the source said. “Countrywide — and Bank of America — are going to have more than a handful of bad loans to manage in the next few years,” said the source. “Even using Fidelity as a stop-gap for overflow volume could help BofA absorb Countrywide, while offsetting any revenue loss from the transactional side of the business.” While Fidelity did not comment on specifics, its SEC filing did note that “Bank of America has communicated its willingness to work with LPS to potentially expand revenue opportunities in other areas that may offset any phase-out of the mortgage processing and appraisal services.” Disclosure: The author was long CFC, and held no other positions of interest, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.