Mortgage banks divesting big servicing portfolios should consider the example of Prudential Home Mortgage and several other recent sellers who got more than one buyer involved in their transactions, servicing brokers and investment bankers said.
This week Prudential announced it was selling its $32 billion jumbo portfolio to Citicorp Mortgage, which in turn said it would sell portions of the portfolio to two other lenders.
And Citizens Mortgage Corp. sold parts of its $12 billion portfolio to two lenders this year, while Harbourton Mortgage is trying to complete the sale of $6.2 billion of servicing to three companies.
For sellers, finding multiple buyers is a way to drive up the price. One investment banker said the sum of the parts can be greater than the price of the whole because buyers will pay a steep tab for a part of a portfolio they covet rather than having to buy the entire portfolio and then sell what they don't want.
"Whenever you have a large portfolio, there are segments that different companies will bid on," said Hilary Renz, senior vice president of Cohane Rafferty Securities, a Harrison, N.Y., mortgage investment banking firm.
"There is a significant demand for servicing, and people are willing to bid up for what they really want," the investment banker said.
Other brokers said some lenders that aren't interested in completely exiting the servicing business are selling parts of their portfolios in order to generate cash flow.
Chuck Klein, executive vice president of Charbonneau-Klein Inc., a Houston mortgage servicing broker and investment bank, said his firm is advising several lenders that are interested in "cleaning up their portfolios."
Instead of selling all their servicing, these companies are looking to sell just the older loans and replace them. The cash generated could be invested in the origination side of the business, Mr. Klein said.
The first quarter was active in terms of sales of servicing rights, but the market has been dormant for a month or so. Mortgage investment bankers cited uncertainty over interest rates as a reason for the lull.
But as summer approaches, the market for servicing rights might heat up, brokers said. The Federal Reserve's decision Tuesday to leave the federal funds rate unchanged could serve as a deal catalyst.
Companies are more likely to hold on to servicing when interest rates rise since the value of servicing rights increases as rates go up. Borrowers are less likely to prepay their loans or refinance, and as a result, the loans remain in the portfolio longer.