The boom in mortgage banking mergers has suddenly faded to a whisper.
While an unprecedented number of mortgage banks changed hands during the summer and early fall, would-be buyers have now pulled back in the face of plunging consumer demand for home loans.
The upshot: More than half a dozen major mortgage banks are languishing on the auction block. Some, such as Michigan-based Source One Mortgage Corp. and the mortgage unit of Bank of New York, have been for sale since midsummer without results.
North American Mortgage Co., a large California-based banker, recently threw in the towel on a long effort to sell itself.
And Plaza Home Mortgage, another California concern, has said that its deal to be acquired by Fleet Financial Group may be in peril.
All this stands in sharp contrast to the blistering pace of deals earlier this year, when Chase Manhattan Corp. and Chemical Banking Corp. were snapping up mortgage banks at prices considered very high. Some 24 mortgage companies were sold in just the five months through September.
To be sure, most experts think the mortgage industry will continue to consolidate over the long term, with commercial banks often doing the acquiring.
Mortgages are a natural fit with the increasingly important consumer strategies of commercial banks, and banks are considered highly efficient at loan servicing, the backbone of mortgage banking.
But the consolidation does appear to be moving into a new, more cautious era.
"Deals will only get done if sellers absolutely have to," says a top investment banker.
"The prices are being driven back to reality," said William Dallas, chairman of California's First Franklin Financial Corp.
Mortgage banks were being paid a premium on originations of as much as 1% this year, according to analyst estimates. By fall, that premium had been cut in half. And now, sources say, many bids give little or no value for production.
Consider the case of Knutson Mortgage Corp., a mid-sized, Minnesota-based lender.
In late June, the company put itself up for sale, with its officers specifically citing the high prices then being paid for mortgage banks.
"But by the time we got in the market, some of the bloom was off the rose. Those premiums did not appear," said Mike Goldner, chairman of the investor group that controls Knutson.
As a result, the group pulled Knutson off the block last week.
Knutson did get bids, sources said -- from First Bank System, Minneapolis, and National City Bank, Cleveland. But the offers simply weren't as great as Knutson had expected.
The sharp falloff in deals is not surprising, in view of conditions in the mortgage industry.
With interest rates up sharply, many mortgage companies say their loan production has fallen more than 50% from last year's record levels.
Buyers, according to an investment banker, are telling sellers: "I don't care what you did last year; I want to see what you did last month," And the buyers appear concerned that the weak lending market will extend into 1995.
Thus, the many companies on the auction block may remain there some time.
In California alone, Directors Mortgage, a major independent with $12.9 billion of servicing; First California; and Medallion Mortgage are all on the block.
Key Mortgage, a subsidiary of Keycorp, is also for sale, though that effort is in its early stages. Also looking for a buyer is Empire of America Realty Credit, a Buffalo-based mortgage lender.
Going it Alone
Knutson Mortgage Corp., at a glance
Headquarters: Bloomington, Minn.
Production: Will originate an estimated $1.8 billion in 1994 through 25 offices in nine states
Servicing: Has a portfolio of $5.8 billion. Processes payments on additional $4.4 billion for other servicers Frustration Some companies that have been unable to find buyers Servicing Industry in billions rankSource One MortgageServices Corp. $38.4 11thFarmington Hills, Mich. North AmericanMortgage Co. $19.8 24thSanta Rosa, Calif. ARCS Mortgage Inc.Calabasas, Calif. $9.2 49th(a unit of Bank ofNew York) Source: American Banker
