A recent bankruptcy case illustrates the risks for mortgage servicers
Fidelity Bond and Mortgage Co. of Blue Bell, Pa., filed for Chapter 11
It failed largely because of inefficiencies in its servicing platform,
The problems included high rent and expensive computer-support contracts
In May 1998, Fidelity Bond merged with Phoenix Mortgage Co., a Fort
As part of that deal, Republic First Bancorp, the holding company of
At that point, Fidelity Bond serviced over $630 million of loans.
But the biggest refinance boom in history, in which homeowners rushed to
The merger also created redundancies that added to costs, one creditor
Eventually, Fidelity Bond could not collect enough servicing fees to
In the fall of 1998 Fidelity Bond started to sell servicing rights along
The company needed cash, and bigger lenders paid it a premium for
Summit Bank of Princeton, N.J., was Fidelity Bond's biggest creditor,
The servicing portfolio was transferred to Summit over the last month.
Fidelity Bond still owes the bank about $3.3 million, said Mr. Matour, a
Republic First lost $1.6 million last year on its investment in Fidelity
But PNC Bank, the company's warehouse lender, was "pretty well
Officials from Summit, Fidelity Bond, and Republic First did not return