Capstead Broadens Its Focus From Servicing Home Loans To the

Capstead Mortgage Corp., a major servicer of home loans, is now trying its hand as a subservicer.

Ronn K. Lytle, chairman and chief executive of Capstead, said the company started servicing single-family mortgages for a "large national mortgage originator" this July. Mr. Lytle declined to name the originator.

Subservicing is a form of outsourcing. Subservicers perform all the servicing functions on a loan without buying the servicing rights. The originator retains the rights to the servicing fees and pays the subservicer to perform the work.

Mr. Lytle said that Dallas-based Capstead, a real estate investment trust that does not originate loans, has only the one subservicing client, but it has been in discussion with others.

"We are going to pursue the possibility of doing this with other investors or other originators," he said.

He added that Capstead would not perform subservicing for any supbrime lenders because it services only conventional loans.

One industry observer, Robert N. Husted, principal of New York-based MIAC Risk Management Services, said more originators may seek out subservicing partners because there is "more and more bifurcation of the origination and servicing components of the business."

But there are already companies such as Dovenmuehle Mortgage Inc. and Wendover Funding Inc. that have made their name in the mortgage business as subservicers. Can Capstead compete with them?

Mr. Husted said Capstead was already a large servicer with excess capacity, so the only additional costs would be on marketing.

"If you don't become the next Dovenmuehle, well, you're out a few advertising dollars. If you have the capacity and you bring business in, you've just brought in almost pure revenues," he said.

Mr. Lytle said that there are some differences between servicing and subservicing. To avoid confusing the borrower, he said that Capstead uses the name of its client. He said there were some complications at first because Capstead had not engaged in subservicing before.

Still, Mr. Lytle said the arrangement is now working out well. He added that Capstead's earnings from servicing should increase by 5% in 1997 because of the subservicing agreement.

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