HomeSide to Buy $18B of Servicing from Bank One

Continuing to surge toward the top in mortgage servicing, HomeSide Lending Inc. announced an agreement Thursday to take over the $18 billion portfolio of the former First Chicago NBD Corp. from Bank One Corp.

The Jacksonville, Fla., company's portfolio would increase 15%, to $136 billion. Adding scale is increasingly considered crucial to success in servicing, which is the business of collecting payments, mailing statements, and generally managing mortgage loans.

The deal would make HomeSide sixth-largest among mortgage servicers, industry sources said. HomeSide would surpass GMAC, which had $131.24 billion at yearend, according to Inside Mortgage Finance. BankAmerica Mortgage ranks first with servicing rights to $255.6 billion of loans.

HomeSide has rapidly built itself up since its founding in 1996 as a joint venture of BankBoston Corp., Barnett Banks Inc., and a venture capital group. By the time it was purchased by National Australia Bank last year, it had established itself as one of the country's largest servicers and originators.

The deal for the First Chicago portfolio "allows us to continue to leverage our proprietary servicing system and the investments we've made in space and people," said W. Blake Wilson, executive vice president for capital markets at HomeSide.

A source familiar with the transaction said HomeSide bought $10 billion of the servicing rights and will subservice the other $8 billion.

The former Banc One Corp. sold all its servicing to HomeSide last April, and became one of HomeSide's "preferred partners," which sell the company all their loans, including the servicing rights.

"Rather than try to build economies of scale, which was really becoming the way for servicers in the industry, our best bet was to focus on originations," said Brad Conner, president and chief operating officer of Banc One Mortgage in Indianapolis.

That same month, Banc One announced it would merge with First Chicago. As a result of the merger, the renamed Bank One inherited First Chicago's servicing business.

"We had to make the same assessment all over again," Mr. Conner said. "We knew the same dynamics were in place, but we had to assess that in the context of the new business model."

Ultimately, the company decided again that it did not want to be in the servicing business. According to servicing brokers and mortgage executives, Bank One shopped the First Chicago portfolio to a select group of potential buyers before choosing to transfer the servicing to HomeSide.

Neither Mr. Conner nor Mr. Wilson would comment on whether other companies looked at the First Chicago portfolio, or on the details of the deal.

One servicing broker estimated the market value of the purchased portfolio at six times the 25-basis-point servicing fee, or about $150 million. But a mortgage executive who looked at the deal said he doubted the portfolio would have traded at such a high premium. He said two factors would hold down the price: The servicing was heavily concentrated in the Midwest, and it includes loans that require special attention because the bank holds them in portfolio.

Officials at HomeSide and Bank One said that more than 90% of the portfolio was conventional loans.

Mr. Conner said that HomeSide's preferred-partner arrangement was an attractive way for Bank One to dispose of its servicing, because HomeSide will allow Bank One-in fact, help it-to cross-sell other bank products to those customers.

"With a single partner we can continue to communicate with our customers," he said.

Cohane Rafferty Securities of Harrison, N.Y., advised HomeSide on the deal for the First Chicago portfolio.

The 125 First Chicago employees who serviced the portfolio have been offered jobs with comparable salaries and seniority at Standard Federal Bank, a division of ABN Amro. Standard Federal's servicing center is in Troy, Mich., less than a mile away from First Chicago's.

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