Imperial Credit Industries, Santa Ana Heights, Calif., is close to making a $1.2 billion purchase of a mortgage servicing portfolio.

Imperial came in with the high bid for the portfolio, according to Joseph Tomkinson, president, and is now performing due diligence.

A purchase of servicing rights represents something of an about-face for Imperial, which sold the servicing rights for 92% of its loan originations in the first half.

Recent Downgrading

Imperial has come under fire for propping up earnings by selling servicing, most notably by Sy Jacobs, an analyst at Alex. Brown & Sons who downgraded the company to "source of funds" from "neutral" last month.

"As the prices of servicing portfolios fall, we might try to do some bottom fishing," said Mr. Tomkinson, who added that Imperial was also negotiating for a $1.7 billion servicing portfolio.

In the current deal, Imperial has bid about 70 basis points of the face value of the mortgages, roughly $8.4 million.

The portfolio consists of adjustable-rate mortgages with an average coupon of 7%, according to Mr. Tomkinson. The average servicing fee is 38 basis points, which is considered attractive.

The rate of prepayments of the portfolio has been 22% a year, according to Mr. Tomkinson.

The value of servicing portfolios has been hit hard over the past year as interest rates have fallen. As rates drop, mortgages in servicing portfolios refinance in greater numbers, causing servicers to lose fee income and in some cases to accelerate the write-off of acquisition costs.

One servicing broker estimated that a portfolio of mortgages like the one Imperial is considering might have fetched as much as 110 basis points last year.

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