Citizens of R.I. Sells $5B of Servicing Portfolio

Mortgage servicing rights are selling faster than Tickle Me Elmo dolls this holiday season.

The mortgage unit of Providence, R.I.-based Citizens Financial Group announced Wednesday that it has sold $5 billion of its servicing for $89 million to Dovenmuehle Mortgage Inc.

The announcement came on the same day that Chase Manhattan Mortgage said it would buy $19.3 billion of servicing from Source One Mortgage Services.

Schaumburg, Ill.-based Dovenmuehle will also subservice an additional $7 billion of Citizens Mortgage's portfolio. Dovenmuehle is one of the nation's largest subservicers, so the decision to buy servicing for itself is somewhat of a surprise.

Some industry observers said that Dovenmuehle may be buying the servicing for another company, to which it would sell the portfolio and provide subservicing. Dovenmuehle officials would not talk about the transaction.

In late September, Citizens announced that it was seeking a buyer for its entire portfolio, about $12 billion in servicing.

But James Dorsey, senior vice president of Citizens Financial Group, a unit of Royal Bank of Scotland, said Dovenmuehle was not willing to purchase the entire portfolio and Citizens had not felt compelled to sell it in one chunk.

"We were not interested in any kind of fire-sale situation," Mr. Dorsey said.

He added that Citizens had always been looking for a partner that would service loans it will continue to originate from its retail bank franchise in New England. Dovenmuhele will take on that job.

Dovenmuehle will also subservice the $7 billion of loans that Citizens did not sell. Of that $7 billion, Mr. Dorsey said, the bank will retain $3.2 billion. The remaining $3.8 billion may still, in fact, be sold, he said.

Citizens' adviser, Goldman, Sachs & Co., is seeking buyers, and Mr. Dorsey said a final decision regarding the sale of this portion of servicing will be made by the end of the first quarter.

Mr. Dorsey also said that the wholesale origination offices that Citizens had in the Southeast have been transferred to Old Kent Mortgage Services Inc.

He added that Citizens will continue to operate its servicing center in Columbus, Ga., to process the $3.2 billion in servicing it is not selling.

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