Cendant Mortgage's recent deals to sell $14 billion of servicing to HomeSide Lending replaced an arrangement with the mortgage banking subsidiary of Capstead Mortgage Corp.
Capstead quit the servicing business last year, amid problems stemming from falling interest rates.
This week HomeSide announced that it had bought servicing rights on $7 billion of existing loans from Cendant in increments this year and had agreed to buy rights on another $7 billion over the next five years.
Brokers not involved in the deals estimated the total price at $183 million to $209 million.
Cendant, based in Mount Laurel, N.J., had a "flow" arrangement to sell servicing on new loans to Capstead Inc. When Capstead Mortgage sold its servicing business after taking losses on its mortgage investments, including the servicing, Cendant hired Cohane Rafferty Securities Inc. of Harrison, N.Y., to help it search for a replacement.
Cendant said it chose HomeSide because of its ability to process loan payments efficiently and to take on more servicing, as well as its experience in cobranding with other partners.
HomeSide, which is based in Jacksonville, Fla., has "preferred" partnerships with BankBoston, Bank One, and People's Bank of Bridgeport, Conn. Those banks sold their entire servicing portfolios to HomeSide and committed to sell all of their future loan production to HomeSide, servicing rights included.
Unlike HomeSide's other partners, Cendant Mortgage will continue to service most of its loans, which amount to $42 billion.
Experts said the deal underscored the need for economies of scale.
"This is another indication that the mortgage industry will continue to consolidate, as lenders look to quality mortgage servicers to handle all or part of their portfolios," said William H. Curley, president of Cohane Rafferty. Larger servicers are able "to offer a service that's best for the consumer in the long term," Mr. Curley said.
The deal includes a cobranding arrangement similar to Cendant's arrangement with Capstead. "We will be in some way branding the Cendant name through the servicing experience, even though the servicing is owned by HomeSide," said Robert E. Groody, chief financial officer at Cendant Mortgage.
For example, borrowers' monthly statements may bear Cendant's name as well as HomeSide's, he said.
Over the last three years, Cendant has sold chunks of its servicing portfolio, to allow it to focus on building its originations business, Mr. Groody said.
Because of Cendant's relationships with real estate agents and builders and its corporate-relocation business, a large portion of its originations are loans to purchase homes, rather than refinances, noted W. Blake Wilson, chief financial officer at HomeSide.
As a result, Cendant's production volume will probably be sustainable, even with interest rates rising, Mr. Wilson said.
Terms were not disclosed, but brokers say that bulk packages of conventional servicing are trading at 1.375% to 1.625% of face value. That would put the value of the $7 billion HomeSide has already purchased from Cendant between $87.5 million to $96 million.
Flow servicing sales are valued at 1.125% to 1.375% face value, which would make the other $7 billion of future servicing which Cendant committed to sell to HomeSide, worth $96 million to $113 million.
For HomeSide, adding $14 billion means increasing economies of scale. "There continue to be some efficiency pickups from scale, and we have not maxed out on our efficiency improvements there yet," said Hugh R. Harris, HomeSide's chief executive officer.
