Several large mortgage servicing packages are said to be on the market as companies move to dress up their yearend earnings reports.
Source One Mortgage Services, PNC Mortgage, and Dime Mortgage reportedly have portfolios of servicing rights on the block, each including more than $1 billion of loans, said Gerry Risi, managing director of Mortgage Marketing Services, a Fort Lauderdale, Fla., servicing broker.
Brokers said the most likely buyers are the largest mortgage servicers, including Norwest Mortgage, Countrywide Credit Industries, and Chase Manhattan Mortgage.
Servicing, which entails administering mortgage loans for a small fee, is a scale business. The price tag for a $1 billion portfolio would be in the range of $15 million to $20 million.
The larger mortgage companies, especially those that are owned by banks, see value in servicing because it gives them a chance to cross-sell other products.
"Most of the sellers are realizing they need to beef up their balance sheets," said Chuck Klein, executive vice president of Charbonneau-Klein Inc., a servicing broker in Houston, who noted a flurry of activity at his firm in the past week.
Bayview Financial Trading Group, a Miami servicing brokerage, is said to be marketing three portfolios.
David Ertel, a principal of Bayview, confirmed that the firm is handling several $1 billion-plus transactions, but would not identify the sellers.
Observers said midsize companies especially need to evaluate whether it makes sense to remain in the servicing business.
"A premium is being paid for every type of servicing in a portfolio. You can make a very compelling argument to sell servicing in this environment," said William H. Curley Jr., president of Cohane Rafferty Securities, a Harrison, N.Y., servicing broker.
Brokers said companies are continuing to pay high premiums for servicing, although interest rates are declining, which usually decreases its value.
"Prices are still not going down - even with 40-45% of the loans in some company's pipelines being refinancings," said Geoffrey Glick, executive vice president of Hamilton, Carter, Smith & Co. "There still is not enough supply to meet demand."
Unless there is a dramatic move in interest rates, prices should remain strong into next year, Mr. Curley said.
Mr. Ertel said companies that are looking to buy came into 1997 with big acquisition budgets and that they will do so again in 1998.
"One hundred billion dollars of servicing could be sold with very little difficulty and very high prices," Mr. Ertel said.
Other brokers said lenders are expecting a refinancing wave and are looking to buy servicing to replace loans that run-off. Some companies are buying government loan portfolios because borrowers are less likely to refinance, Mr. Klein said.
Source One sold most of its servicing portfolio to Chase Manhattan Mortgage earlier this year.
Source One subservices the $17 billion portfolio it sold to Chase.
The Farmington Hills, Mich., lender has about $10 billion of servicing left.
PNC services a $40 billion portfolio, but it has not been an active acquirer of servicing lately. PNC was one of only three top-20 servicers whose portfolio shrank in the first half.
Dime Bancorp, the parent company of Dime Mortgage, acquired North American Mortgage in October, building Dime's portfolio to about $30 billion. Industry observers said Dime may not have been prepared to handle so much servicing.
