Undaunted by plunging demand for home loans, the nation's top mortgage servicers are managing to increase their portfolios sharply.
The top 100 servicers boosted their holdings by nearly 20% last year, to $1.77 trillion, according to a survey by the American Banker and SNL Securities.
Bank-affiliated servicers - nearly half of the top 100 - posted more than a 25% gain, thanks in part to hearty appetites for acquisitions.
Chemical Banking Corp., for example, became one of the nation's 10 largest servicers after snapping up Margaretten Financial Corp. Chemical's portfolio swelled by 59%, to $53 billion.
And BankAmerica Mortgage Corp. moved to No. 6 from No. 10, helped by the acquisition of United Mortgage Corp., Minneapolis. BankAmerica ended the year servicing $65 billion of mortgages, up from $43 billion at yearend 1993.
This special section spotlights the nation's megaservicers. The following seven pages include complete rankings of the top 100 servicers, a separate ranking of the top 100 originators of mortgages, and articles examining origination trends and the prospects for thrifts.
Taken together, the rankings stand as a vivid record of one of the mortgage industry's most tumultuous years, a period marked by sharply declining loan production and ever-increasing consolidation.
By the end of last year, the largest player, Countrywide Credit Industries, was processing payments on more than $100 billion of loans. And the race continues. In just the past few months, three other servicers have joined Countrywide in the Over $100 Billion Club.
The aim of these and other megaservicers is to achieve economies of scale. The servicers are often able to grow without adding equipment or staff - thus reducing per-loan costs.
Servicing, the backbone of mortgage banking, entails funneling monthly payments from homeowners to holders of mortgage-backed securities. Servicers also administer escrow accounts for homeowners' tax and insurance payments.
The increase in servicing by the top 100 companies in 1994 isparticularly remarkable considering the large drop in originations last year. The nation's top 100 originators reported that their production fell 34%.
That reflected the end of a two-year-old refinancing boom. The end of the boom, however, had a clear silver lining for servicers: Fewer existing loans were paid off early.
Along with acquisitions, the drop in prepayments set the stage for robust portfolio growth at many companies. A dozen of the top 100 managed to grow by more than 50%.
Most analysts expect acquisitions to continue apace.
"The very largest servicer has only a 5% market share, so the business is still very ripe for consolidation," said Carole Berger, an analyst at Salomon Brothers Inc. "Any time you have an economy-of-scale business that is still so fractured, economics dictate it will consolidate."
Commercial banks, in particular, will continue to expand in servicing, she said. Banks, she explained, are drawn by the fee income available from servicing.
The megaservicers are becoming increasingly savvy about the business. They are fine-tuning prepayment estimates and are able to value servicing in such a way as consistently to win the bidding for acquisitions, said Tom Healy, director of the mortgage strategies group at Meridian Capital.
But all is not lost for the smaller players. As the cost of technology falls, smaller servicers will increasingly be able to afford telephone and computer equipment that is now available only to the big payers, Mr. Healy suggested.
For now, however, the megaservicers have clearly taken center stage.