[[Update 1: Corrects 2012 earnings per share forecast to accurately reflect FBR’s EPS forecast for 2011.]] Walter Investment Management (WAC) grew its mortgage servicing portfolio by 76% the past two quarters, bringing its total holdings to $59 billion, according to a report from Paul Miller with FBR Capital Markets. The report said the increase could be the result of Walter Investment receiving servicing rights stemming from a deal where Bank of America (BAC) sold servicing rights on 400,000 loans to Fannie Mae. “Banks need to shed mortgage-servicing rights to comply with Basel III, regulators are pushing banks to provide better servicing for distressed borrowers, and the GSEs are aggressively trying to cut down the level of delinquent loans,” Miller said. He said Walter Investment did not confirm the BofA deal was the reason for its servicing growth. At this pace, Miller said Walter Investment is on track to achieve its goal of having a servicing portfolio of $60 billion by year end. Because of the growth in the company’s servicing portfolio, FBR reiterated its outperform rating for Walter Investment, giving it a target stock price of $32 per share. Still, Miller believes it will take time for fee revenue from the new servicing portfolio to become fully realized, prompting FBR Capital to lower its earnings estimate for the company’s fiscal 2011 to $1.10 a share from $1.20 a share. Write to Kerri Panchuk.

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