Source One Mortgage Services has decided to sell $19 billion of its servicing rights to focus on subservicing.
Terry Baxter, chairman of Farmington Hills, Mich.-based Source One, said the buyer would be announced later this week and that the transaction was expected to be completed in early 1997. Terms were not disclosed.
But Source One is not exiting the servicing business. The company will retain subservicing on the loans for the next three years. Subservicers perform the servicing functions for lenders on a contractual basis but do not own the servicing rights. As a result, Source One will no longer have to include these loans on their books for accounting purposes.
"This is more a reflection of our desire to reduce the interest rate risk in the portfolio," Mr. Baxter said.
In addition, Source One will retain some of its servicing assets. After the sale is completed, Source One will still have between $10 billion and $12 billion in servicing rights.
The company is the latest in a string of midsize mortgage banks to announce the sale of servicing rights.
Citizens Mortgage Corp. is apparently close to announcing that it has found a buyer for all $12 billion of its servicing while Weyerhaeuser Co. is looking for a buyer for its entire mortgage division, which includes about $4.4 billion in servicing rights.
Mr. Baxter said that Source One has been reviewing strategic options for the last six months. The company already subservices about $4 billion in loans for New York-based CDC Servicing Inc. and Mr. Baxter said the company sought to expand its subservicing business.
The addition of the $19 billion in subservicing rights will make Source One the nation's largest subservicer, even though it will only have two customers.
Among the other options for a revamped Source One is expanding its retail origination network. According to one industry observer, Source One is looking to hire someone to head a retail production division. The source added that the company has retained a prominent national executive search firm to find a person for the job.
Mr. Baxter confirmed that expanding its retail production capability is something Source One is considering and added that some candidates for the position had already been interviewed.
Several industry analysts said that these moves demonstrate that Source One is finally showing a commitment to become a major player in the mortgage banking arena.
Still, there are some skeptics since the company has been on and off the block for the last several years. The company's parent, Norwich, Vt.-based Fund American Enterprise Holdings, tried selling Source One in 1994 but the company received no attractive offers.
And earlier this year, Pittsburgh-based Mellon Bank Corp. had apparently agreed to purchase Source One but the deal fell through after a closer inspection of Source One's books. At that time, Fund American was not actively seeking a buyer.
Since the collapse of the Mellon deal, Mr. Baxter has replaced Robert Richards as Source One's chairman. He is also president of Fund American.