When Dime Bancorp wanted to buy North American Mortgage, it turned to a traditional source-Salomon Brothers-for advice. It chose a much smaller firm, however, to evaluate the Santa Rosa, Calif., mortgage company's $12.7 billion servicing portfolio.
The firm, Bayview Financial Trading Group, Miami, is increasingly prominent among the investment banking boutiques that serve the consolidating mortgage banking industry.
"Those who like the business are very much in a growth mode. They have large budgets for purchasing servicing and understand the market and valuation technology very well," said Nancy Hector, a principal and managing director of Bayview.
Bayview has been an adviser in several large mortgage deals this year. In addition to its role in the Dime deal, the firm advised Bank United and Glendale Federal Bank in their purchases of portions of the Prudential Home Mortgage Co. jumbo loan portfolio.
Citicorp bought the $30 billion portfolio and then sold $12 billion to Glendale Federal and $7.2 billion to Bank United.
Bayview also advised Bank United earlier this year when it sold 61 mortgage origination offices to National City Mortgage.
Ms. Hector joined Bayview, then known as Reserve Financial, in 1987. She and Bayview's other principal, David Ertel, bought the company in 1993 from its founder, Hunter Wolcott. At that time, Ms. Hector knew Mr. Ertel from his work as a managing director of another Miami-based firm, Applied Mortgage Analytics.
"Our big advantage over Wall Street counterparts is depth. Any Wall Street firm remotely active in mortgage banking is not going to have more than two or three professionals that know much about this industry," Mr. Ertel said.
When Ms. Hector and Mr. Ertel bought the company, it had 17 employees. The staff has grown to about 70.
"We have eight analysts that all know mortgage servicing, people that have been in servicing shops and know how to oversee due diligence," said Mr. Ertel, who worked for Salomon Brothers before Applied Mortgage Analytics.
Bayview has "a nice network with several major players," said Geoffrey R. Glick, an executive vice president at Hamilton Carter Smith & Co., a Beverly Hills-based mortgage investment bank. Mr. Glick worked at Reserve Financial before it became Bayview Financial in 1995.
"Bayview is a very aggressive and fearsome competitor," said Thomas J. Healy, director of mortgage banking strategies for CoreStates Capital Markets, Fort Lauderdale, Fla., another firm that advises mortgage companies on mergers and acquisitions.
Ms. Hector's primary duty with Bayview is in mergers and acquisitions. Mr. Ertel focuses more on the firm's capital markets business, the brokering of portfolios and whole loans.
Bayview is resigned to Wall Street firms' involvement in the larger mortgage banking deals.
"I know John Mahoney, Brenda White, and Julia Janes," Ms. Hector said, referring to mortgage investment bankers at Goldman, Sachs & Co., UBS Securities, and Salomon Brothers. "If mortgage companies want to do deals with them, they'll get the deals."
Bayview has done some co-advisory work with these investment banks, she added.
But the rapid pace of consolidation has translated into more business on mergers and acquisition and portfolio valuation in the short term for Bayview and other investment bankers.
Consolidation means there are fewer companies with which to do business, however, so forging relationships with the larger entities in the industry is vital.
"With the number of consolidations that have occurred in the industry, providing more services to a decreasing customer base has become a strategic part of our focus," Mr. Ertel said.
The company therefore is offering services outside investment banking, including an affinity marketing division that helps mortgage companies sell other products.
The division, Bayview Affinity Marketing Corp., offers about 40 products such as savings clubs, travel discounts, and insurance products. It also has a telemarketing program and does direct mailings for lenders. Mr. Ertel said this division, formed in 1995, is a big reason for the increase in staff.
Mr. Glick said Bayview's "forte has been on the servicing evaluation and hedging side." With new accounting rules for servicing in recent years, it has become more important for mortgage companies to hedge their servicing portfolios by purchasing financial instruments that rise in value when servicing values fall.
But Mr. Glick said Bayview has its hot and cold spells on the mergers and acquisitions side, as do other companies that focus on the mortgage banking market.
"This is an opportunistic business, and determining what market approach you're going to take can be very difficult," Mr. Glick said.
Lately, there have been plenty of advisory opportunities in the subprime market. Just as in the conventional business, larger subprime lenders are gobbling up smaller players, and more and more banks are looking to enter the business. Ms. Hector said Bayview is seeking to expand in this area.
"B and C is an area we are trying to be more involved with. It is hard for lenders today to just be in the A business. B and C helps raise the entire profile," Ms. Hector said.
She was referring to the mortgage banking industry. But for Bayview, an increased presence in the subprime business is sure to raise its profile as well.
