Mortgage Originators Attract Buyers as Rates Fall

Suddenly, mortgage originations are back in favor.

Just last year, there were no buyers for origination capacity, and a few financially pressed companies simply closed or gave away their loan offices. Now, with interest rates at their lowest point since March and expected to fall further, the buyers have returned.

This week, Signet Mortgage Corp. said it had agreed to sell its 24 retail offices to Dallas-based Accubanc Mortgage Corp., one of the nation's largest loan originators.

This and other recent deals illustrate an important turning point in the mortgage business. Larger lenders are now willing to pay solid prices for origination capacity because low rates tend to stimulate loan demand. Some may also be seeking to offset high prepayments in their servicing portfolios as rates decline.

Hilary Renz, senior vice president at Cohane Rafferty, a firm specializing in mortgage banking mergers and acquisitions, said the marketplace is vastly different even from early this year.

"You were always able to get a bid on a (servicing) portfolio," he said, "but in the near past there were not many bids on production."

The revived market gives discouraged lenders an opportunity to exit what has been a difficult business for many in recent years.

At the end of September, Atlanta-based Citizens Mortgage Corp. decided to shuck some of its mortgage business despite recent rapid growth. It put its servicing portfolio on the block, announced that it would exit wholesale originations, and said it was seeking a partner for retail lending.

Now it is reported to have found a buyer - possibly for the entire company - in a remarkably short time. An agreement is expected to be announced soon.

But just last year, Arcs Mortgage Co. of Calabasas, Calif., gave up on selling its retail offices after having them on the block for more than six months. It sold its servicing along with some wholesale offices but simply shuttered its retail offices.

And North American Mortgage Co., Santa Rosa, Calif., the No. 2 independent mortgage company, tried unsuccessfully to sell itself early last year but gave up when it could not get an acceptable price. It has sold much of its servicing and has been originating loans but selling all new servicing to bolster otherwise slim profits.

Now the company is again said to be a takeover candidate because of its origination clout.

And Teri Schrettenbrunner, a spokeswoman for Richmond, Va.-based Signet, said Accubanc was paying a "premium" for the operation, a term that has not been associated with originations recently. Specific terms were not disclosed.

Brenda White, managing director of New York-based UBS Securities, a unit of Union Bank of Switzerland, said there is "a demand for retail origination capabilities that create value." UBS advised Signet in the Accubanc deal.

One industry expert said the sale was further evidence of a division in the mortgage business. Smaller players are continuing to choose whether they want to be originators or servicers because only a few major players can effectively do both, according to the expert.

Ms. Schrettenbrunner said that, after the sale, which is expected to be completed by yearend, Signet would concentrate on servicing. At midyear, Signet had a little over $7 billion in its servicing portfolio. She added that the company would continue to originate loans through telemarketing.

Accubanc, the nation's 16th-largest originator at midyear, will be acquiring 24 offices in seven states, mainly in the Southeast and Middle Atlantic regions. It produced about $3.2 billion of loans in the first half of this year, while Signet originated just more than $600 million, making it No. 78.

The Dallas lender already has some retail branches in Georgia, Alabama, Virginia, and New England but has a stronger presence in Texas, California, and other western states. Accubanc executives were visiting some of the Signet Mortgage offices and could not be reached for comment.

The decision to sell its retail mortgage business came just a month after parent Signet Banking Corp. announced a restructuring. The company had reported disappointing third-quarter earnings, and president and chief executive officer Malcolm S. McDonald said it would seek to sell more of its products through telemarketing and direct mailings and less through retail branches.

But Ms. Schrettenbrunner said the mortgage subsidiary's sale was not a part of the restructuring plan.

It is a curious time for the sale since the parent company has been the subject of takeover rumors in recent months. First Union Corp. has been mentioned most often as a likely suitor for Signet.

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