Norwest Corp. has made a deal that will make it the most formidable presence in the mortgage industry.
The Minneapolis-based banking company will buy Prudential Insurance Company of America's home mortgage unit, becoming the No. 1 mortgage servicer and originator.
Norwest will pay Prudential about $700 million for most of the assets of Prudential Home Mortgage Corp. These include $40 billion in mortgage servicing rights; retail, wholesale, and correspondent lending operations; a conduit for nonconforming loans; and two mortgage servicing centers.
Once the deal is closed and approved by the Federal Reserve, Norwest will service $147 billion of loans.
Neither company would comment on the terms. A source familiar with the deal's details said the price is adjustable, depending on interest rates when the deal closes.
Norwest will not buy any of Prudential's $40 billion in servicing rights on jumbo loans - those above the loan limit set by Fannie Mae and Freddie Mac.
Mark Oman, president of Norwest Mortgage, said the purchase would give his company a quick entrance into corporate relocation lending, affinity lending, and telemarketing, all areas in which Prudential was a leader and where Norwest had a small presence.
"This gives us the opportunity to put those on fast forward with an industry leader," Mr. Oman said. He added that he also wants to expand Norwest's correspondent and wholesale lending capabilities, which the deal will allow it to do quickly.
A stock analyst said the purchase was a typical one for Norwest.
"Norwest doesn't think they have to go out and do anything, so they don't do anything that doesn't make perfect sense," said Ben Crabtree, an analyst at Dain Bosworth Inc., Minneapolis. He said mortgage lending fits in with the company's line of business, there was no real bidding contest, and the purchase should add to Norwest's earnings per share.
Prudential chairman Arthur F. Ryan cited the company's need to "better focus its resources" when he announced plans last March to sell the diverse mortgage unit, Residential Services Corporation of America. The Clayton, Mo.-based unit's originations dropped about 40% in 1994. Home lending was hit hard that year, recording losses in the tens of millions.
Many suitors came to call, including GE Capital Mortgage Corp., BancBoston Mortgage, PHH US Mortgage Corp., and First Union Corp.'s mortgage unit. Apparently, the company's mammoth size and diversity made it impractical for those companies to strike a deal.
"Prudential was twice as large as any previous deal and five times as complicated," said Andy Lerner, vice president at Inter-Atlantic Securities Corp., which advised Prudential, as did Goldman, Sachs & Co. Norwest did not use an outside adviser.
Residential Services is made up of three companies: Prudential Home Mortgage Co., Lender's Service Inc., and Residential Information Services.
Now that the deal for Pru Home is sealed, Prudential will focus on selling Lender's Service. The offering will be sent to interested parties by the end of the week, a well-placed source said.
Lender's Service offers property appraisal services. Prudential bought Residential Information, which offers technological support to mortgage servicers, from Lomas Financial Corp.
Norwest Mortgage originated $33.9 billion of mortgages in 1995. Pru Home originated $15.7 billion in 1995 and serviced $80 billion that year. The combined total of just under $50 billion would make it by far the biggest originator.
Norwest Bank Minnesota has also agreed to buy Prudential's master servicing assets and bond administration unit, Securitized Asset Services Corp. The deal will make Norwest Bank Minnesota the largest master servicer.