People's Bank of Bridgeport, Conn., is the latest bank to quit mortgage servicing, handing over its business to giant HomeSide Lending.

The bank joined HomeSide's roster of "preferred partners," which also includes BankBoston and Bank One Corp. These companies originate loans through their retail branches but leave billing and processing payments to HomeSide, the Jacksonville, Fla.-based subsidiary of National Australia Bank.

As part of the deal, HomeSide bought the $2.7 billion of servicing rights for loans that People's serviced for other investors. HomeSide also agreed to subservice the $2.3 billion of loans the bank holds in its own portfolio.

The price was not disclosed, but experts estimated the $2.7 billion portfolio, which consists mostly of conventional loans, to be worth $30 million to $40 million

Servicing has become a tough business for small players. "The economies of scale and technological changes we see on the horizon were not something we felt we wanted to invest in in order to compete effectively," said Dorothea Brennan, senior vice president for residential lending at People's.

Though customers will now mail their monthly payments to HomeSide, People's will retain access to the mailing list and continue to cross-sell other bank products, such as credit cards or life insurance, through statement stuffers and solicitations. The bank will also continue to accept payments at its branches.

"They get to continue to have some form of relationship on an ongoing basis but remove themselves from the hedging and operational risk of a servicing portfolio," said Tom Donatacci, managing director at Cohane Rafferty Securities, the Harrison, N.Y., boutique that advised People's on the deal.

Servicing is a risky business, because when rates fall, borrowers refinance and servicers' portfolios shrink. The arrangement to service every loan People's produces will help HomeSide cover runoff, said Hugh R. Harris, HomeSide's chief operating officer.

People's has originated nearly $2 billion of loans this year and expects to originate about $1.5 billion next year, Ms. Brennan said. HomeSide's servicing portfolio is now over $120 billion.

This is one of the first sizable servicing trades since late August, when falling interest rates spooked potential buyers. More are expected soon. "I think you'll see more deals announced in the next week to 10 days," Mr. Harris said.

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