UPDATE 1-Ocwen in lead to buy Goldman's Litton-sources
* Auction of Goldman's mortgage unit advances
* Litton could fetch around $500 mln
* Ocwen off 0.9 pct; Goldman off 0.6 pct (Adds background about the deal, bylines, shares)
By Lauren Tara LaCapra and Paritosh Bansal
NEW YORK, May 20 (Reuters) - Ocwen Financial Corp (OCN.N: Quote) is in the lead in an auction to buy Goldman Sachs Group's (GS.N: Quote) mortgage servicing unit, Litton Loan Servicing, sources familiar with the situation said this week.
A deal, however, has not been reached yet, so talks could still fall apart.
Litton could fetch up to $500 million or so in the auction, sources said last month. At the time these sources said Goldman was also offering 85 percent financing for the deal, which would be used to finance roughly $2.5 billion of "advances."
Companies like Litton, which collect mortgage payments from borrowers and foreclose on properties, make advances to mortgage owners when a loan goes bad, to cover things like principal and interest payments.
Goldman and Ocwen, also a mortgage servicer, declined to comment.
Goldman took a $220 million writedown related to the Litton business during the first quarter. The bank said at the time Litton's carrying value was impaired and that it planned to sell the business within a year.
Ocwen's shares were off 0.9 percent at $11.70, while Goldman was of 0.6 percent at $138.50 during morning trading on the New York Stock Exchange. (Reporting by Lauren Tara LaCapra and Paritosh Bansal; Editing by Lisa Von Ahn and Steve Orlofsky)
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