At first blush, it was an out-and-out steal.

In striking an agreement this month to buy the sprawling mortgage business of Sears, Roebuck and Co., PNC Bank Corp. looked like the savviest deal-maker ever to ever hit the mortgage scene.

Stock analysts reacted to the $328 million price tag with such phrases as "highly attractive," "a great deal," and "extraordinarily cheap."

On closer inspection, however, it's hard to call the price anything more than fair.

Though the price is indeed low by conventional measures, the Sears mortgage group may defy such measures, mortgage specialists say. It is far bigger than any other mortgage concern sold to date. And though highly regarded, it does appear to carry some special risks.

Moreover, Sears and PNC are both winners from a strategic standpoint. PNC will be able to swiftly boost its fee income - a top corporate priority - and Sears will be better positioned to concentrate on its core retail business, a crucial step in a around plan

Mutually Beneficial

In the end, "both companies probably got what they wanted," said Tom Murray of Hamilton, Carter Advisers, a Colorado company that brokers mortgage business.

Sizing up the deal accurately is important because the price could carry implications for some other giant mortgage operations now on the auction block.

Standard Federal Savings Bank of Gaithersburg, Md., a big loan servicer that was seized by regulators last year, is expected to hit the market by the third quarter, and Shearson Lehman Brothers Holdings Inc. already has a mortgage unit on the market.

GM Mulls Spinoff

Meanwhile, General Motors Corp. is said to be weighing a sale of its large mortgage unit. A GM spokesman refused to comment.

The hub of the mortgage business that PNC is acquiring is Sears Mortgage Corp., an Illinois unit that processes monthly payments on some $27.2 billion of mortgages.

The deal also included Sears Savings Bank -- a $6.7 billion-asset thrift in California -- and Sears Mortgage Securities, a major packager of mortgage securities.

The price would have been good even if PNC was getting nothing except the servicing business, says bank analyst Chris Kotowski of Oppenheimer & Co.

Indeed, the total price works out to 1.18% of the servicing portfolio, well below the recent average of 1.5% for servicing deals.

As Mr. Kotowski sees it, PNC picked up the thrift and securitization unit "essentially for nothing."

Does all this foreshadow a general decline in servicing prices? Many analysts say it's too early to tell. Any number of factors that are unique to the Sears deal could explain the relatively low price, they say. The next few deals could well come through at 1.5% of the servicing portfolios or higher.

One factor that could have caused PNC and other bidders to be especially cautious with Sears is the sheer size of the servicing business.

It is nearly twice the size of the largest servicing concern ever sold. That was a Manufacturers Hanover Corp. unit that serviced $14.2 billion of loans when it was sold to Fireman's Fund Insurance Cos. in 1986.

Prepayment Risk

The size of the Sears unit magnifies what has always been the big peril in servicing: early repayment of loans by homeowners. Prepayments deprive servicers of expected income and force them to write down the value of servicing assets.

In the case of Sears, even a minor error in projecting future prepayments could lead to a quick write down of $10 million to $20 million, mortgage professionals suggest.

And the current refinancing boom has made all prospective buyers of servicers jittery about prepayments. Refinancings, and consequently prepayments, have been far more common in the past year than most mortgage analysts had anticipated.

Fairly Well Insulated

With a relatively low interest rate of 8.44% on the average loan it services, the Sears unit is better protected than others. Still, a number of the loans might be refinanced if market rates on mortgages -- now about 7.5% -- fell another 50 basis points or so.

Under an old rule of thumb, homeowners refinance when market rates are 200 basis points below the rates on existing mortgages. But in the past year, many homeowners have refinanced even when the gap was closer to 100 basis points.

Then there's the matter of Sears' sprawling network of 120 mortgage origination offices in 33 states.

Unjustifiable Expense

Many big mortgage companies have scaled back their branch offices in recent years, concentrating instead on buying new loans from smaller players. The idea is that branches are simply too costly in periods of slack loan demand.

So, when the current lending boom financially runs its course, will the Sears network prove to be a white elephant? Bidders are sure to have at least considered the question.

Another drawback in the eyes of buyers might have been the Sears mortgage complex's exposure to the embattled California housing market. Sears Savings holds largely California mortgages, and the servicing unit also is said to handle a sizable number of loans in California.

So the price PNC paid, however low, appears simply to reflect the uncertainties of the mortgage industry today.

As the saying goes, you get what you pay for, and it may be that PNC paid just the right amount for what it got.

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