Prudential Insurance Corporation of America has emerged as the likely buyer of the information-processing division of Lomas Financial.
Sources following the deal said Prudential had reviewed the troubled unit, Lomas Information Systems, and remained interested. The unit provides computer support to home-loan servicers.
The insurance giant is not the only company that has looked closely at Lomas Information, sources said, but it has exhibited the most serious interest. Bank of Boston, General Electric and Electronic Data Systems have all been shown the unit, but are not currently in the running, sources said.
Prudential officials declined to comment on the status of any negotiations. Lomas officials also declined to discuss any deal, other than to reiterate earlier statements that the company has had expressions of interest and is working towards a decision.
Battered by Losses
Lomas Financial is in a tough spot, according to analysts and industry sources. Battered by several quarters of losses and writedowns to its servicing portfolio, the company has been seeking a buyer for all or part of the company since at least the beginning of the year.
Despite a generally favorable reputation among mortgage companies, the data-processing unit has had a tough time luring mortgage loan servicing contracts away from its competitors, largely because of financial instability at Lomas Financial.
Because of its inability to attract sufficient outside servicing contracts, the unit has been losing money steadily - about $13 million to $14 million in cash for the year ended June 30.
Lomas Information needs 2.4 million to 3 million loans on the system to break even, according to the company. It now has slightly more than 1.2 million, half of which are servicing rights owned by Lomas itself.
Should Prudential buy Lomas Information Systems, it would still need to snare contracts from other servicing systems. Even with the 380,000 loans in Prudential's portfolio, the system would not reach the break-even point.
A sale would have to include a contract to service the mortgages belonging to Lomas Financial, sources said, to give the deal any chance of going through. Lomas chairman Jess Hay is clear on that point, "We believe in the system. Lomas Financial will stay on the system."
If sold to Prudential, Lomas Information Systems may be able to break a logjam caused by the uncertainty surrounding its parent.
A case in point is a contract under negotiation with the mortgage unit of Huntington Bancshares.
Talks between Huntington and Lomas have been going on for some time, said Robert W. Lucas, president of Huntington Mortgage Co., but,"Like a lot of others, we are very interested in seeing what happens as to the ultimate viability of Lomas."
Would a sale to a more secure parent change things? "It would sure make us feel better," he said.