Consolidation in the home mortgage industry went into overdrive Friday as one major acquisition was announced and another took shape.
Mellon Bank Corp., Pittsburgh, said it had agreed to buy most of the mortgage banking assets of U.S. Bancorp, Portland, Ore., for $75 million. The deal will more than double Mellon's mortgage originations capability and bolster its loan-servicing business.
Separately, sources said that Bank United of Texas - a thrift led by mortgage securities pioneer Lewis S. Ranieri - is in serious talks to buy Midcoast Mortgage Corp., a sizeable mortgage bank in suburban New York.
The dealmaking underscores upheaval in the industry. With rising rates killing a refinancing boom, many players are looking for partners.
Mortgage lenders also are slashing their staffs dramatically. In the latest example, the home mortgage unit of Prudential Insurance Company of America said it would slash 1,000 jobs - on top of 600 cuts earlier this year. (See related article, page 9).
In Mellon's acquisition, the banking company will pick up 50 mortgage production offices and the rights to service $3.6 billion of loans. The purchase is to be made through Mellon Mortgage Co., Houston.
The deal, according to analysts, shows that Mellon is renewing its commitment to mortgage banking, often an attractive source of fee income. Mellon currently has a servicing portfolio of $21.5 billion and annual loan production of about $2.9 billion.
"They were in a group that had to get larger or back away," said Lawrence W. Cohn, a banking analyst at PaineWebber, New York.
U.S. Bancorp, for its part, has been disappointed by its mortgage unit's performance. Among other things, the business has suffered from high costs, Mr. Cohn said.
"Mellon is going to have to put some work into cleaning those operations up," he said.
Bank United, meanwhile, has made it clear that it is eager to acquire a mortgage company. It reportedly bid on several this year - including U.S. Bancorp - before entering into negotiations with Midcoast.
Bank United, based in Houston, already operates the large Common wealth-United Mortgage. Mr. Ranieri, chairman of the thrift, was a leader in developing the mortgage securities market in the 1980s, when he was a vice chairman of Salomon Brothers.
Bank United, according to one source, has reportedly offered well over $50 million for Midcoast. It is now said to be performing due diligence on the company. Officials at Bank United declined to comment, and Midcoast officials could not be reached.
Midcoast, owned by investors TA Associates, has a servicing portfolio of $4.7 billion and produced $1.9 billion of mortgages last year.
The Melville, N.Y.-based company also has drawn interest from Shawmut National Corp. and Long Island Savings Bank, according to one well-placed source. But Bank United has shown the most interest, the source said.
Midcoast would be "a good fit" for Bank United, according to another source, because there is little geographic overlap between the two.
Bank United has a servicing portfolio of $8.5 billion and a far-flung originations network that last year generated $6.9 billion of mortgages.