RTC Marketing Franklin Portfolio

Franklin Savings Association's servicing rights to $2.9 billion in mortgages are being sold by the Resolution Trust Corp.

The sales effort marks the latest phase of the dismantling of the Ottowa, Kan.-based thrift, once a highly regarded player in mortgage finance. The portfolio is one of the largest to be put on the market this year.

Franklin, which specialized in mortgage securities, purchased the servicing package in mid-1989, partly to protect the value of other holdings from rises in interest rates.

Servicing rights tend to gain value when rates rise, because prepayments by mortgage borrowers decline.

Franklin was seized in February 1989, after regulators declared it "unsafe and unsound." The thrifts' former chairman, Ernest M. Fleischer, has been fighting the action in court.

John Scowcroft, formerly vice chairman of the thrift, criticized the planned servicing sale as unnecessary.

"We don't understand why it would be a high-priority sale," he said. "We thought it was a good investment when we did it and it still makes sense."

In one of the first examples of mortgage "subservicing," Franklin farmed out the servicing work to another company, National Mortgage Co., Memphis. Such arrangements have become increasingly popular since then.

David Sambol of Countrywide Servicing Exchange, which is brokering the portfolio for the RTC, said that the winning bidder can either continue with the subservicing arrangement or pursue other plans.

If the subservicing agreement is ended, the RTC will pay National Mortgage an unspecified "termination fee," sources said.

While some mortgage companies with big servicing portfolios have been put up for sale, the Franklin package is possibly the largest stand-alone portfolio on the market, sources said.

The servicing rights relate to loans backing Government National Mortgage Association securities.

Many RTC servicing packages have sold for about 1.25% of the related loan amount, suggesting a price of $36 million for the Franklin portfolio. Bids were due July 30.

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