Lenders are continuing to pay high premiums for servicing portfolios, despite the increase in refinance activity in the last few weeks, servicing brokers said.

"Even though buyers are using higher prepayment expectations, prices are holding steady," said Chuck Klein, vice president of Charbonneau-Klein, a Houston servicing brokerage.

The value of servicing is expected to slide in a low-rate environment, because more loans in a portfolio run off as borrowers refinance.

Some brokers who were asked to explain why prices have stayed high cited Economics 101. "There is still not a lot of supply of servicing in the market, and there is a great demand," said Gerry Risi, managing director of Mortgage Marketing Services, Fort Lauderdale, Fla.

Even a flurry of sales last month was not enough to satisfy the current appetite for servicing, Mr. Klein said. And more lenders' deciding to sell servicing would affect prices more than the decline in rates has, he added.

Companies hedge against lower-rate environments by buying financial instruments designed to rise in value when rates fall. Brokers said the drop in rates in the last few months will test many hedging techniques for the first time, because accounting rules for servicing have changed since the refinance boom of 1993.

Brokers said that if these hedges work, lenders are unlikely to report declines in the value of servicing, and larger lenders will continue to buy more servicing.

Mr. Risi said many companies' decisions on whether to buy servicing are based on long-term strategy, not intermittent moves in rates. Despite the fear of runoff, lenders are buying servicing in hopes of gaining another source of fee income and more customers to cross-sell products to.

"You're not seeing companies walking away from the market," Mr. Risi said. They know that "you take your chances when you buy servicing."

Another reason lenders keep making high bids is that they are lowering their estimates of servicing costs, Mr. Klein said. In many cases, bidders are using marginal instead of fully loaded cost estimates.

With a marginal cost estimate, the lender is assuming that investment in new employees, systems, or infrastructure will be minimal. A fully loaded cost estimate incorporates these types of start-up costs.

But marginal valuing of servicing can backfire if a company pays a high premium and then has higher-than-estimated costs. Though real costs can top $100 a loan, some lenders have used estimates as low as $40, Mr. Risi said.

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