Residential Funding Corp., a unit of General Motors, has emerged as the leading bidder for Capstead Mortgage, according to people familiar with the situation.

Investment bankers have said Capstead's $40 billion servicing portfolio alone could fetch $400 million to $500 million. They said Residential Funding, which did not return phone calls, might be attracted to the Dallas company's high-tech servicing platform.

Residential Funding, Minneapolis, buys and securitizes loans that do not conform to the standards of the government-sponsored mortgage agencies. It subcontracts more than $19 billion of servicing to Capstead.

Falling interest rates cut into the value of Capstead's mortgage-backed securities and loan servicing portfolios this year. Capstead, based in Dallas, continued to decline to comment on whether it is for sale. Market sources said the mortgage units of PNC Bank Corp. and Chase Manhattan Corp. were also interested in Capstead and that Chase's bid had been turned down. Both banks declined to comment.

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