Prudential Insurance Company of America is preparing to split up its huge home mortgage unit, selling the biggest pieces to Norwest Corp. and First Union Corp.
Well-placed sources said the two banking companies are in the final stages of talks, pursuing separate deals that could bring Prudential nearly $1 billion. The deals would rank among the largest ever in the mortgage industry.
If completed, the deals would end months of speculation and provide major boosts to the mortgage businesses of Norwest and First Union, already leaders in the field.
Minneapolis-based Norwest would become the nation's largest mortgage servicer, adding $42 billion of loans to its current servicing portfolio of $100 billion. Norwest, the sources said, also would take over some lucrative Prudential operations that supply mortgages to affinity groups and corporate executives who are relocating.
First Union's deal includes the rights to service $30 billion of high- balance mortgages, according to the sources. That would vault First Union into the ranks of the top 10 servicers.
First Union also would acquire a Prudential business that buys large mortgages from other lenders and converts them into securities - a new line of business for the Charlotte, N.C., banking company.
Representatives of Prudential, First Union, and Norwest all declined to comment.
Residential Services Corporation of America, a Clayton, Mo., unit that comprises Prudential's mortgage-related businesses, was put up for sale in March as part of an effort by the parent company to bolster its capital position. It became the largest mortgage company ever put on the auction block.
Sources close to the situation say the auction has taken unusually long because of the complexity and diverse nature of the company. The deals with First Union and Norwest are likely to close in February, the sources said.
Analysts say that the acquisitions make sense for both Norwest and First Union.
Brent Erensel, an analyst at UBS Securities, said that the mortgage business fits well with Norwest Corp.'s business strategy.
"They use mortgages as the anchor of the relationship with customers," Mr. Erensel said. Norwest sees cross-selling as the ultimate goal to increase the number of bank products they sell per customer. It has a reputation for considerable skills in this area.
The income from servicing is similar to an annuity stream of revenue, Mr. Erensel said, which makes servicing an attractive revenue source. An increase in servicing acquisitions will help them achieve economies of scale.
First Union, meanwhile, has been making inroads into servicing high- income customers on many levels. Buying a servicing portfolio of jumbo loans - mortgages larger than $203,150 - and a jumbo securitization business would provide another service to these customers.
"It ties in to what First Union does with mutual funds, private banking, and high-income trust income services," said Anthony R. Davis, an analyst at Dean Witter Reynolds.
The main assets in both deals are the servicing rights. First Union is likely to pay up to $375 million for its share of the rights, while Norwest will probably pay about $630 million, said one expert familiar with the assets.
As the bidding got under way earlier this year, the front-runner appeared to be GE Capital Mortgage Corp. Bank of Boston Corp. also emerged as a bidder.
Industry speculation shifted to Norwest in September, when Mark L. Korell was hired by Norwest Mortgage to run a large portion of its operations. He had been president and chief executive of GMAC Mortgage Group.
Many in the industry said the hiring signalled a move by Norwest Mortgage to expand in areas other than retail originations, where it is already the industry leader. The retail side will continue to be run by Mark Oman, chief executive of Des Moines, Iowa-based mortgage unit.
An acquisition of Prudential assets would mark the latest in a series of mortgage deals by Norwest.
Starting last year, Norwest has made acquisitions totaling more than $600 million and giving it membership in the exclusive $100 billion servicers club. They deals included the mortgage banking unit of Michigan National Bank, privately owned Directors Mortgage Loan Corp., and the servicing portfolio of from Barclays Bank.
The sale of the two other parts of Residential Services - a big property appraisal business and a data processing unit - are still being negotiated,the sources said.