Three Banks to Split $32B In Prudential Jumbo Loans

In a significant shift of mortgage servicing assets, Citicorp, Glendale Federal Bank, and Bank United Corp. will divvy up the final piece of Prudential Home Mortgage: a $32 billion jumbo loan portfolio that Norwest Corp. was overseeing until a buyer could be found.

Executives at Citicorp, Bank United, and Glenfed declined to discuss what they paid for the servicing rights. But brokers of loan servicing rights said the Prudential package probably fetched $400 million to $450 million, based on recent deals.

Representatives of all three companies indicated the deal provides quality mortgages and the economies of scale needed to profit in mortgage servicing. "This will fit well with our growing business," a Citicorp spokeswoman said.

The redistribution of servicing rights will occur through an outright purchase by Citicorp Mortgage, which will then sell $12 billion to Glenfed and $7.2 billion to Bank United.

When the transaction is complete this summer, Citicorp will service about $50 billion in mortgages; Bank United, $25 billion; and Glenfed, $38 billion.

The deal involves servicing rights, not the actual loans, which were securitized and sold on Wall Street several years ago. A servicer receives a fee-about $150 per loan annually-for collecting monthly payments from borrowers and forwarding a return to mortgage securities' investors. The loans involved, called jumbo mortgages, exceed lending limits set by Fannie Mae and Freddie Mac.

Norwest could have bought the jumbo servicing rights, but the asking price "was not competitive," a spokesman for the Des Moines lender said.

Instead, Norwest agreed to a limited subservicing agreement last May, when the company purchased most of the other assets of Prudential Home Mortgage.

Prudential structured the deal with Citicorp at the lead to give the lender first swipe at the package and to make the transaction easier to absorb, industry observers said.

Citicorp's involvement reinforces the company's recent recommitment to the mortgage business after steep losses on low-documentation loans in the early 1990s.

Indeed, over the past year the lender has hired a number of top executives-including some from Prudential Home-and rolled out wholesale lending programs for jumbo and other mortgage loans.

Executives at Bank United and Glenfed said their purchases fit with plans to expand servicing, and added that more acquisitions were likely as long as the deals were cost-effective.

"The prices are getting richer everyday," said Jon Heffron, chief operating officer at Bank United in Houston.

For Norwest, the loss of the subservicing won't mean much, industry observers said, except it will no longer have bragging rights as the only company in the country that services over $200 billion in mortgages.

Without the Prudential jumbo loans, Norwest services about $180 billion in assets, still well ahead of its closest rival, Countrywide Home Loans, with $155 billion.

Norwest expects its subservicing business to grow, according to a recent interoffice memo.

Even with the loss of the Prudential jumbo loans, "We believe that within five years, Norwest Mortgage will manage as much as $100 billion in subservicing," Norwest senior vice president Todd Bjorklund wrote. "Clearly this is a business we see value in."

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