The two-year-old refinancing boom has clearly been a mixed blessing for the mortgage bankers.
On one hand, soaring originations have swollen revenues of many large mortgage companies. On the other, prepayments have been a costly drain on some servicing businesses.
The latest casualty is United Companies Financial Corp., Baton Rouge, La. It recently reported a $17.5 million charge to earnings in preparation for selling Foster Mortgage Co., a Fort Worth servicing unit that has been hit hard by prepayments.
United bought Foster from the Resolution Trust Corp in late 1990 for $94 million. At the time, Foster serviced $7.4 billion of mortgages, ranking among the nation's 50 largest servicers.
United had high hopes of parlaying the deal into an even bigger position in servicing. But as refinancings picked up, the portfolio shrank - to $3,9 billion by the end of last mouth.
Prepayments Make Portfolios Vulnerable
When loans are prepaid, servicers not only lose a source of revenues but must write down the value of purchased servicing rights.
The refinancing boom has been especially unkind to companies that, like Foster, have insufficient origination capabilities to replace all the loans leaving their portfolios.
United said it plans to sell Foster to bolster overall earnings. United is active in title insurance and annuities, and it also has its own mortgage business, which it hopes to expand.
The company said it already has received some Foster bids but did not disclose either their identity or a target price. Industry sources said the portfolio might fetch about $35 million. The average rate on Foster's servicing portfolio was about 9.6%, a level that suggests vulnerability to further prepayments.
RTC Repackages Maryland Bank
Meanwhile, another hobbled servicer is on its way to the auction block.
The RTC is repackaging the huge servicing business of Standard Federal Savings Bank. Gaithersburg, Md., as a complete mortgage banking operation.
The agency hopes to put the company on the market by the start of the third quarter, said Carol Weatherly, the RTC executive in charge of servicing rights.
The Office of Thrift Supervision seized Standard Federal last October after the servicing portfolio was hit hard by prepayments. Standard Federal moved aggressively into servicing in the 1980s by acquiring rights. It was the fifth-largest servicer as of June 1992, with a portfolio of about $32 billion.
The RTC is currently seeking to sell servicing rights at prices equal to 1% to 1.25% of the loans.