Sales of mortgage servicing rights are on pace to break last year's total, and observers say more big deals are brewing.

Already this year, Source One Mortgage Services has completed sale of $17 billion in servicing rights to Chase Manhattan Mortgage. But several big deals will take place in the months to come, said William Curley, president of Cohane Rafferty Securities, at the chief financial officers conference last week of the Mortgage Bankers Association of America.

His company, based in Harrison, N.Y., is an investment bank and broker specializing in mortgage banking.

Mr. Curley said midsize servicers might sell packages of $10 billion to $30 billion as they keep finding difficulty in "feeding the monster"- that is, in originating enough loans to replace runoff in the servicing portfolio. This means that servicers who also have big production engines will continue to expand their portfolios.

David Applegate, chief financial officer of GMAC Mortgage Corp., said it was no coincidence that seven of last year's top 10 originators of mortgages were also among the top 10 servicers of loans.

Mr. Applegate said large originators try to establish relationships with customers when they are closing the loan in order to be able to cross-sell other products while the loan is serviced.

Although servicing sales might increase from 1996's total, Mr. Curley said it was unlikely that companies would pay as much for servicing as some of the packages fetched late last year. He attributed the high prices to the presence of many bidders that were not usually in the market for servicing rights.

Mr. Curley said several companies set goals at the beginning of the year of how much servicing they will buy. And as the year progresses and they lose bids, they get desperate.

"Several companies were trying to do one deal a year," he said. "That's dangerous."

And this desperation led to some irrational decisions, Mr. Applegate said. Companies were lowering their estimated cost to service loans in order to justify making a higher bid, he said.

"Some companies are more apt to find ways to make their model work than defend why they didn't hit the growth target for the portfolio."

Besides continued bulk sales of servicing, another trend Mr. Curley sees developing this year is for midsize companies to enter into private-label servicing arrangements with subservicers instead of selling the servicing outright.

With private-label servicing, a company continues to own the servicing rights but doesn't actually do the payment processing; the subservicer identifies itself to customers as the servicer. This arrangement lets the servicer keep cross-selling to its customers, since they never know another company is servicing their loans.

Capstead Mortgage, Dallas, is doing private-label servicing for a subservicing customer. Larry G. Studinski said the big hurdle to being a private-label servicer is the a heavy investment in technology.

For Capstead employees to identify themselves to customers as the servicer wanted, a special phone system had to be installed.

When a caller with a Capstead-serviced mortgage calls, a colored light flashes. When it is a caller from the subserviced company, a light of a different color flashes.

In addition, the phone whispers to the employee the company name to use when answering the call.

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