Citizens Mortgage May Be Close To Finding Buyer for Servicing

Citizens Mortgage Corp. is close to receiving an offer for its $12 billion servicing portfolio, sources close to the company said.

Gerry Risi, senior vice president of Fort Lauderdale, Fla.-based CoreStates Capital Markets, said he thinks an offer will be made by the end of the year. Another industry observer said a deal could be announced within the next few weeks.

Mr. Risi said that he couldn't list specific buyers, but that because of the portfolio's size, any of the 20 largest servicers could conceivably make a play for it.

The company, a subsidiary of Providence, R.I.-based Citizens Financial Group, hired Goldman, Sachs & Co. in late September to look for buyers of the portfolio. Citizens Financial Group is a subsidiary of Royal Bank of Scotland.

Citizens Mortgage had predicted a sale within six months. Barbara Cottam, senior vice president of public affairs for Citizens Financial, reiterated this point last week but would not say whether a transaction was imminent.

The decision to sell the servicing portfolio came as somewhat of a surprise. Even though the portfolio had been showing signs of healthy growth and profitability, officials at Citizens said the portfolio was too small to compete in a world of $100 billion megaservicers.

Citizens' servicing portfolio was the 41st largest in the industry as of midyear, having grown 33% in a year. The average growth rate for the top 100 servicers was 25%.

Mr. Risi said he believes it is more likely that someone will buy the entire Citizens Mortgage operations, not just the servicing. He said that there had been considerable market interest lately in loan production, though a sale of just the servicing portfolio could be a fallback position.

Citizens originated more than $737 million in loans as of midyear, ranking it 66th. The company has a wholesale lending operation in Atlanta and in September the company said it would close the operations.

The industry observer said it was reasonable to expect that the wholesale origination network could be part of the deal.

Ms. Cottam said, however, that it was premature to speculate about what would happen to the operations in Atlanta. She added that Citizens Financial is not exiting the mortgage production business, as the company will continue to originate mortgages through its retail bank branches in New England.

One industry expert gave a conservative estimate for the servicing portfolio at $175 million. This figure includes only the existing loans to be serviced.

Mr. Risi said Citizens also could offer a prospective buyer the servicing generated from loans it produces in New England.

"An attractive aspect of the deal would be to sell newly originated servicing," Mr. Risi said.

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