(CNBC) -- Mortgage lender Residential Capital is poised to reap billions in a bankruptcy auction of its assets next month—an unusual turn for a subprime lender in Chapter 11.
The financial downturn has not been kind to mortgage lenders who specialized in loans to high-risk borrowers. Many landed in bankruptcy and have been forced to engineer quick sales of their assets. But ResCap, a unit of auto lender Ally Financial, has had a comparatively smooth march through bankruptcy since filing in May.
Instead of being forced to hold a fire sale,ResCap has lined up high-profile bidders, including Fortress Investment Group's Nationstar Holdings and Warren Buffett's Berkshire Hathaway, for an October 23 auction that could raise the money it needs to repay creditors. The key asset on the block is ResCap's mortgage loan servicing and loan origination business.
The sale is expected to raise at least $4 billion, which will then become part of a pool of money used to pay back Ally and other investors, including those who bought mortgage-backed securities (CNBC Explains) tied to ResCap home loans that went bad.
The business is seen as attractive as the housing market has slowly started to recover, and few similar businesses are up for sale. Another plus for buyers is the opportunity to buy the business without its accompanying liabilities, thanks to bankruptcy laws that leave those liabilities behind in a trust.
"We've been fortunate in that the market is stabilizing and that the private sector views the mortgage origination and servicing business as an attractive business," ResCap Chief Executive Tom Marano said in an interview.
"A few years ago we could barely get anybody to show up," he said, referring to the company's previous efforts to sell ResCap. It had also previously considered putting it into bankruptcy.