American Residential Mortgage Corp. has backed out of its preliminary agreement to buy Foster Mortgage Corp.

American Residential, based in La Jolla, Calif., announced on Aug. 5 that it had signed a letter of intent to purchase Fort Worth-based Foster Mortgage, a servicer of about $3.5 billion of loans.

The negotiations were terminated because of "disagreements on fundamental issues," according to Julie Roloff, senior vice president at American Residential.

Though Ms. Roloff declined to elaborate, a market source said that American Residential, which wanted to acquire a larger servicing platform in a less expensive part of the country, balked when it became concerned about the level of prepayments from Foster's portfolio.

American Residential remains interested in acquiring a large servicer, Ms. Roloff said. Foster Mortgage is said to be in negotiations with other interested partners, according to market sources.

Foster Mortgage is owned by United Companies Financial Corp., Baton Rouge, La., which purchased Foster from the Resolution Trust Corp.

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