With preliminary bids past due for Prudential Insurance Co.'s mortgage unit, GE Capital Mortgage Services Inc. appears to be the most serious contender and will spend the summer investigating the unit's diverse businesses.

GE Capital, which hired Bear, Stearns & Co., New York, as investment adviser, started due diligence in late June and will continue throughout the summer, according to a source close to the negotiations.

A GE spokesman declined to comment.

A relatively small home-mortgage originator, PHH US Mortgage Corp. , confirmed its interest in part of Residential Services Corporation of America, as the Prudential unit is known. It is interested only in originations.

PHH, based in Mount Laurel, N.J., has one of the largest telephone origination operations in the country. It also has a large affinity lending business.

Robert Nagel, said his company was interested in the Prudential's origination operation on its own and not with a larger partner.

Reports had circulated that PHH was forming a partnership with AT&T, but Mr. Nagel said that would be like "a joint venture with the evil empire."

Mr. Nagel said he was not interested in Prudential's servicing portfolio, and was surprised at recent prices paid for servicing.

"These highly paid geniuses go from a feeding frenzy, paying ridiculous prices for portfolios, to now looking at servicing like it's toxic waste," he said.

Some lenders have expressed concern about Prudential's servicing portfolio because it has a concentration of jumbo loans. The prepayment rate of jumbos is difficult to determine, making potential buyers leery of Prudential's servicing, according to experts.

The Prudential unit, led by chairman Marvin Moskowitz, is the largest mortgage company ever put on the auction block. The company services about $75 billion of loans and was the No. 3 lender in 1994. The sale could fetch more than $1 billion.

Bids have been placed for the entire operation as well as for pieces of the diverse company, according to a well-placed source.

The three main units of Residential Services are Prudential Home Mortgage, Lender's Service Inc., and Residential Information Services.

Lender's Service provides appraisal services. Residential Information Services, purchased from Lomas Financial, provides technological support to mortgage servicers.

There are reports that bids have been made for each unit individually. But Prudential, like most sellers, would prefer to place the entire operation with one buyer. The bid letter said Prudential would prefer a cash transaction, but offered no discount for such a deal.

Prudential recorded a $907 million loss last year and saw its capital base erode by $1.2 billion, to $9.5 billion. Many home lending operations were hit by large losses last year.

Recent talk in the industry has been of companies that have looked at the offering but are not interested in bidding, rather than about companies interested in Prudential.

A venture capital group with experience in the mortgage business looked at the Prudential offering but decided not to bid, according to a partner there. He said his company was looking at other opportunities and Prudential did not make the final cut.

A spokesman for Prudential had no comment on the bids.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.