Norwest Corp. said Thursday that it has agreed to buy Directors Mortgage Loan Corp., the nation's largest privately held mortgage bank.
Terms were not disclosed, but observers put the price at about $225 million.
The deal, which had been widely expected, will increase Norwest's mortgage servicing portfolio by nearly 20%, to $83.6 billion. It also will give Norwest more than 100 additional retail loan offices, mainly in the West. Directors is based in Riverside, Calif.
Mortgage banking is in the midst of a tremendous consolidation as sharply lower lending volume drives mortgage banks to sell to commercial banks. This deal is the second of the year for Norwest, following the July purchase of Michigan National Corp.'s mortgage unit.
"This combination will significantly expand our servicing portfolio, our distribution network -- especially in the West -- and further strengthen our relationship with home builders," said Mark Oman, president of Norwest Mortgage, the Minneapolis-based banking company's mortgage subsidiary.
In some "key markets," Directors offices will continue to operate under than trade name, according to Norwest.
Raymond Crebs, chairman of Directors, will stay on as a senior executive with Norwest Mortgage. "Our intention is to retain the vast majority" of Directors employees, said Mr. Oman.
Dennis Shea, a stock analyst at Morgan Stanley & Co., New York, said the deal was consistent with Norwest's past behavior.
"They tend to expand when others are contracting. Norwest is clearly one of the companies that will lead consolidation of the industry."
However, Norwest is placing a large bet on retail originations in the western United states, an area that has seen slow volume and brutal price competition.
Despite the fact that many companies comparable to Directors have been losing money in recent months, Norwest is confident that it can make the deal work. Specifically, the bank is enthusiastic about the quality of the Directors' retail franchise. "You have to realize that all originations are not created equal," said Mr. Oman.
Norwest Mortgage has been profitable this year. Through the first three quarters the unit contributed earnings of $41 million, about 7% of the bank's total.
The deal will cement Norwest's position as one of the top five mortgage servicers in the country. Directors Mortgage's $13.1 billion portfolio, when combined with Norwest's $70.5 billion, will rank the bank No. 3 or No. 4.
Directors originated $4.7 billion of home loans through the first three quarters of this year. Norwest, with more than 700 loan offices, produced almost $20 million in the same period.
Directors Mortgage was founded by A. Gary Anderson in 1976. When he died two years ago, ownership passed to a family trust.
