Fund American drops try to sell Source One unit; will offer servicing rights.

Fund American Enterprises has shelved its effort to sell its mortgage company, Source One Mortgage Services, and will instead pursue a sale of some $10 billion of servicing rights.

The Norwich, Vt., holding company announced that it had advised its investment banker, Lehman Brothers, to end the six-month effort to sell the mortgage bank. "While we had a number of expressions of interest, the climate does not appear promising" for a sale of the entire unit, said John J. Byrne, chairman of Fund American.

"In a marketplace too volatile to agree on values," he said, "I am perfectly happy to own Source One forever."

The continued deterioration of the mortgage originations market has led to a decline in the value of mortgage networks. Other mortgage banks have scuttled sale efforts in recent months, notably North American Mortgage Corp.

Source One's size -- it services $40 billion of home loans -- makes it difficult to sell. "There are one, maybe two, places in the country that could buy Source One," said an investment banker.

Source One has elected to attempt a sale of $10 billion of servicing rights through Cohane Rafferty Securities, a Harrison, N.Y., brokerage. Market observers believe that the strategy is to sell an asset of more manageable proportions.

Another factor may be the way that Source One accounts for its servicing. According to several sources familiar with the company, Source One has its servicing on the books at a relatively high value.

But by selling a high-quality portion of its servicing, the company may be able to gain a handsome return. The servicing for sale is of recent vintage and with an average interest rate that is well below current market production, according to the company.

The package includes roughly 116,000 loans, about 70% of which are conventional, with the remainder government-insured.

Source One has headquarters in Farmington Hills, Mich. At midyear, it was ranked 13th in American Banker's survey. Originations in the first six months totaled $3.3 billion.

In other acquisition news, another California-based mortgage bank has been sold to an out-of-state portfolio lender.

Lasalle Talman Bank, a subsidiary of banking giant ABN Amro Holding, has agreed to buy the mortgage banking assets of Metropolitan Service Corp., Irvine.

The purchase of Metropolitan Services -- which has a servicing portfolio of about $2.5 billion -- by Lasalle is also part of a general move among West Coast independent wholesalers to seek better capitalized partners. The price was not disclosed.

A host of California firms, including First California and Medallion Mortgage, have recently been put on the market.

Metropolitan Services will operate as a unit of Lasalle Talman Home Mortgage Corp. Metropolitan's originations should be about $1 billion for the year, half of last year's total.

Lasalle views the purchase as a means to establish a wholesale presence in California, with an eye to branching eventually into other western states, according to a source close to the company.

Hamilton Carter Advisers represented Lasalle in the transaction.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER