Subservicers Doing a Brisk Business As Big Lenders Join Outsourcing

Things are picking up in the quirky business of servicing for other servicers.

Mortgage subservicers say they are growing briskly this year. And, in a break from the past, their customers aren't just small players looking to cut costs. Some large nationwide lenders have begun farming out the servicing for loans with unusual features.

Bank of America, for example, has entrusted Wendover Funding Inc. with the task of servicing $800 million of B and C loans.

"BankAmerica felt that Wendover would be uniquely able to more effectively service the portfolio," said Steve Shipp, vice president, rather than create a new division just to service the loans.

All told, the Greensboro, N.C.-based Wendover says it has signed up more new clients so far this year than it did in 1993 and 1994 combined. The company, a leader in the field, currently services $9 billion of loans.

Wendover and other subservicers handle all servicing responsibilities for a flat fee, while their clients hold the servicing rights. Experts say that about a dozen companies operate substantial subservicing businesses.

The companies typically cater to small servicers with inefficient operations. The plight of these lenders has become increasingly urgent as highly automated megaservicers have tightened their grip on the industry.

Farming out the work also lets lenders focus on the task of boosting loan production in a weak market, said Michael A. Hyman, senior vice president at Wendover, a unit of State Street Bank and Trust Co.

Hamilton Financial Corp., another company offering subservicing, says it has seen the most interest from servicers in California that are concerned about the high costs of operations there.

Hamilton extends to those companies the advantages of a low-cost location: Scottsbluff, Neb.

Hamilton moved its own servicing operations from California eight months ago. And, thanks in part to a grant from the state of Nebraska, Hamilton was able to make a sizable investment in technology, said David Pipher, Hamilton's vice president in charge of subservicing.

Low rents and low labor costs in Scottsbluff allow Hamilton to run its business at much lower costs than at its former site, Mr. Pipher said, helping it keep costs down to remain profitable. The company services about $1.6 billion of loans.

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