Rising interest rates continue to spur consolidation in the mortgage servicing business.

The home loan unit of PNC Bank Corp. is expected to announce today an exclusive "flow" agreement with Dime Bancorp's North American Mortgage Co. subsidiary. North American will sell the servicing rights on all of its conventional loan production - some $15 billion of loans - over the next 16 months.

And sources said Friday that Chase Manhattan Corp.'s mortgage subsidiary, the largest servicer, was the winning bidder for $3.5 billion of servicing auctioned by FT Mortgage, a unit of First Tennessee National Corp. Chase services over $300 billion of home loans.

The deals come as the rising rates take a toll on loan production volumes and earnings for companies that depend heavily on production. Indeed, last week both First Tennessee and First Security Corp. issued profit warnings related to their mortgage divisions. (See story at top right.)

When rates rise, borrowers are less likely to refinance, so servicers can count on collecting fees longer. But limits on how much servicers can write up the value of their portfolios force smaller servicers to sell, in order to realize the gains. That gives industry giants, which have the scale to service loans profitably and view their portfolios as a hedge against rising rates, the opportunity to bulk up.

"It's an indication of what we're doing in the marketplace to grow the business," said Saiyid T. Naqvi, president and chief executive officer of PNC Mortgage, in an interview Friday. He would not disclose terms of the deal. With $70 billion already in its portfolio, PNC Mortgage is the 12th-largest servicer.

Last year PNC Mortgage, based in Vernon Hills, Ill., signed a smaller, $4.8 billion flow deal with the Dime unit. Dime also had parallel arrangements with other companies to sell servicing rights on loans as they are originated.

In the deal to be announced today, Dime has promised the servicing rights on all its conventional loan originations to PNC until the middle of next year. Dime approached PNC about an exclusive arrangement, and PNC was more than happy to oblige, Mr. Naqvi said, because the deal guarantees more than a 20% increase in his company's portfolio.

PNC Mortgage will gain some 150,000 customers, Mr. Naqvi added, to whom it can sell second mortgages, home equity lines of credit, and other bank products.

Mr. Naqvi said flow deals are a more manageable way to build up a servicing book than bulk acquisitions. A buyer has to staff up quickly to handle a large bulk portfolio deal; in a flow deal, it can predict how much its staffing needs will grow over a long period.

Also, he said that when bulk packages are transferred, there is a risk of snafus - borrowers sending payments to the wrong company for example. These are less likely following a flow deal because "everybody on both sides [of the deal] is familiar with the processes of the other company."

On Friday a Dime spokesman would only say, "we are in the process of selling a portion of our servicing related to a portion of originations." Dime is well known in the market as a regular seller of servicing.

Servicing advisers not involved in the sale of the FT Mortgage portfolio say they believe Chase paid a high premium, perhaps as much as 6.5 to 6.8 times the 33.74 basis point servicing fee - which would come to $77 million to $81 million.

Chase declined to comment. James Witherow, chief executive of FT Mortgage, which is changing its name to First Horizon Home Loan Corp. effective today, would only confirm that his company signed a deal to sell the package.

Bayview Financial Trading Group of Miami, which was the broker for the FT Mortgage auction, also declined to comment.

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