GMAC Mortgage has agreed to purchase $4.7 billion of home mortgage servicing rights from a privately owned mortgage company in Dallas.
The deal with STM Mortgage Co., which is expected to close in January, would boost GMAC's servicing portfolio to $45.5 billion. It would also bring down the curtain on STM, which was launched in the late 1980s by H.R. "Bum" Bright, managing director of Bright & Co., Dallas, and a former owner of the Dallas Cowboys.
The development underscores how difficult it is for smaller mortgage companies to compete in an industry where the top four servicers have portfolios of more than $100 billion.
Mr. Bright, 75, said in a telephone interview that he did not want to make the investment necessary to become a behemoth and did not want to stay in the business as a smaller player. "I just wish I had done this a year earlier," Mr. Bright said.
He would not disclose the selling price. However, Mr. Bright said he would use the proceeds to move into another line of business - "hopefully something that will make us more money than we think we can make in the mortgage industry." The servicing portfolio had been for sale since May.
Mr. Bright said he was unwilling to make the capital investment to reach the scale needed to compete in the mortgage industry. He said a mortgage company needs $15 billion to $22 billion in servicing to operate profitably.
Mr. Bright said another reason he's leaving the business is the elimination of prepayment penalties. Loans that once would have stayed on the books for 12 years now last only one or two years, he said.
STM's servicing portfolio had been running off when GMAC agreed to buy it. At the end of 1993, STM serviced $6.5 billion of loans. One year later, the portfolio was $5.4 billion. The sale of $4.7 billion to GMAC is for STM's entire portfolio.
The acquisition is twice as large as GMAC's previous largest servicing purchase, according to a GMAC Mortgage spokesman.
GMAC, unlike STM, is prepared to make the financial commitment to the mortgage industry.
"Consolidation pressures make it more difficult for small and midsize servicers to compete," said Mike O'Brien, president of the Elkins Park, Pa.-based company, in a prepared statement. "GMAC Mortgage has a long-term commitment to the servicing business and continues to invest in the technology and process improvements necessary for large portfolio management."