Amresco Inc. said last week it would buy Mortgage Investors Corp., a national broker, for up to $175 million.
Mortgage Investors has expanded tenfold in the past two years in terms of loan originations and employees.
The St. Petersburg, Fla., company is now the largest producer of streamlined VA loan refinancings, with $1.3 billion of originations in the first six months of 1998. It now has 1,200 employees and 30 branches.
Amresco would pay up to $70 million initially for Mortgage Investors, mostly in Amresco stock, then an amount based on earnings over the next three years that is not to exceed $105 million.
Mortgage Investors drew publicity in 1995 for charging unusually high fees for veterans loans.
The VA subsequently proposed a two-point cap on such fees, but this has not been adopted.
The deal would give Amresco "a lot more balance," said Scott Reading, its president of residential mortgage banking. "They originate and sell off loans immediately, so we can pocket a cash gain on that sale."
Specialty finance companies have been looking to buy companies that sell loans quickly. Their interest came after a rash of writedowns because of the way lenders must account for securitized loan pools.
About 10% of Amresco's income stream comes from securitized pools, Mr. Reading said. But after the deal closes, this share would be in single digits.
Analysts said Mortgage Inves-tors was originally hoping to make an initial public offering to raise capital.
Amresco's bid was surprising but not out of line with the company's strategy, said analyst Kenneth Posner of Morgan Stanley Dean Witter. The purchase price is in line with what other lenders are paying for brokers and originators, he said.
"It's an unrecognized market that most people don't know exists," said Amresco's Mr. Reading. "Surprisingly, there is a tremendous amount of synergy between" typical VA borrowers and Amresco's subprime borrowers, he said.
Amresco would be able to sell home equity loans to veterans who are looking for more cash and may even begin servicing Mortgage Investors' loans, he said.
Mr. Reading called the negative publicity prompted by the fees on veterans' loans a "tempest in a teapot" and said any problem Mortgage Investors may have had has been cleared up.
For its part, the Department of Veterans Affairs issued a proposed rule in early 1996 to limit the points a lender could charge veterans. The proposal was withdrawn last December, partly because of a Mortgage Investors' protest citing a procedural error by the VA.
A revised rule was published in the Federal Register June 3 and is awaiting public comment.
