First Citizens Bank & Trust of Raleigh, N.C., plans to leave the servicing business and to auction its $2.3 billion portfolio this month.
The $9.7-billion asset bank has hired MGIC Investor Services Corp., a unit of Mortgage Guaranty Insurance Corp. of Milwaukee, to broker its portfolio.
First Citizens will continue to originate loans, said Terry J. Lindsey, group vice president of the bank's mortgage division, which is based in Hendersonville, N.C. But from now on, rather than retaining servicing rights, it will sell them along with the loans.
The bank has been using an outdated servicing system that it inherited from an acquisition in the late 1980s. To improve its service, Mr. Lindsey said, it would have had to invest in a new system.
"It's hard to justify the expense in this market," in which higher interest rates have depressed mortgage lending but increased the market value of servicing rights, he said.
First Citizens has also tired of the risk of prepayments, which can hurt servicers' earnings when rates fall, Mr. Lindsey said. And servicing values are at their highest levels since the mid-1990s.
"Our timing is good," he said.
About $700 million of the loans that First Citizens services are held in its portfolio. The other $1.6 billion are mostly Fannie Mae loans.
Michael Zimmerman, a vice president at the MGIC unit, said his firm is looking to sell the serviced-for-others portion of the portfolio for more than five times the 33-basis-point servicing fee, or upward of $26 million.
That sounds like a modest target when servicing packages are trading at as much as seven times servicing fees. However, Mr. Zimmerman said the loans that First Citizens services for others have a low average balance - about $71,000. Most of the homes are in small towns in North Carolina.
The servicing rights on the $700 million of bank-held loans would trade at a lower multiple, Mr. Zimmerman said, because of the idiosyncrasies of such loans. First Citizens also will entertain offers to subservice the mortgages it holds, Mr. Zimmerman said.
In addition, the bank is looking for a "flow" buyer for the servicing rights on its future production, Mr. Zimmerman said. First Citizens originates $600 million to $800 million a year, all through retail branches, Mr. Lindsey said.
