The parade of banks leaving mortgage servicing continues as adequate economies of scale become progressively more difficult to achieve.
Wachovia Corp. is the latest to join the march. It announced earlier this week that it was putting its $9 billion servicing portfolio on the block.
The reason cited by the bank for the move are familiar to observers, echoing explanations of similar moves in recent months by AmSouth Corp. and Keycorp.
"The decision to market the portfolio was reached after a strategic analysis of the future of the servicing business, the competitive trends in the industry, and the long-term need for investments in technology," said Robert S. McCoy Jr., Wachovia's chief financial officer.
In other words, Wachovia determined that it either had to make a massive investment in technology or find itself growing increasingly behind the curve in servicing profitability.
That investment, in areas such as imaging technology and personal computer workstations, could have totaled as much as $10 million for a company of Wachovia's size, according to Thomas W. Trotter, president of Wachovia Mortgage Co. "Maybe $10 million plus."
But to make that investment pay off, Wachovia would then need to sink more millions into amassing a servicing portfolio in line with the technology. "I don't know if that would be $25 billion or $20 billion (in servicing) but it sure wasn't $9.3 billion," said Mr. Trotter.
"We needed to make our investment in the area we view as most opportune," he said.
While Wachovia and AmSouth are backing away from the future of mortgage servicing, some banks are steaming ahead with plans to build the kind of portfolios demanded by technology.
Norwest Corp. is the current prime example.
In recent weeks the Minneapolis-based bank has plunked down more than $300 million to buy loan portfolios from Directors Home Mortgage Corp. and Barclays Bank.
Though Wachovia, Keycorp, and AmSouth are all seeking to leave servicing as a line of business, all three profess their desire to continue as mortgage originators serving their trade areas.
Wachovia is planning to beef up its originations staff and make an investment in technology to cut costs, according to Mr. Trotter. The bank originated some $2 billion of home loans in 1994.