The nation's top mortgage servicers aggressively exploited the refinancing boom to tighten their grip on the business.

The 25 largest servicers increased their portfolios by nearly 18% in the 12 months through June, after averaging 15% gains in the previous five years, an American Banker survey has found. (Tables begin on page 10).

Moreover, the group grew faster than the rest of the industry. The top 25 servicers -- led by Citicorp, Fleet Financial Group Inc., and General Motors Acceptance Corp. - process monthly payments on 23.2% of all home loans outstanding, up from 20.7% last year.

Holding On to Customers

The giant servicers, however, have not been problem fee. At the same that they've been actively courting new borrowers, the companies have had to fight hard to keep existing customers from refinancing with rivals.

Indeed, three of the top 25 mortgage originators suffered net declines in their servicing portfolios. The biggest losers, however, are smaller banks and thrifts with less active mortgage operations, experts say.

"The world is shaking down into predator and prey," said Hunter Wolcott, president of Reserve Financial Management, a servicing advisory firm based in Miami. "A lot of what's going on this year is the predators refinancing the portfolios of the prey."

Many of the top servicers have buttressed their reputation as predators by cranking up their mortgage originations. After producing mortgages, they sell the loans into the secondary market and earn fees by funneling payments from homeowners to holders of mortgage-backed securities.

Countrywide Credit Industries, which has been staging an unprecedented blitz in originations, managed to boost its servicing portfolio by 98%, to $34.1 billion, in the 12 months through June.

The California company, which is the nation's largest mortgage originator, vaulted to No.5 in the servicing rankings from No. 14.

The most extreme example of trouble among the big servicers came at eighth-ranked Standard Federal Savings Bank, which was seized by the Office of Thrift Supervision last week.

Though scarred for some time, the Gaithersburg, Md., thrift was apparently pushed over the edge by the current refinancing boom.

An Aggressive Purchaser

Standard Federal rose quickly in the servicing ranks in the late 1980s by aggressively purchasing servicing rights from other lenders, rather than writing loans itself.

But the value of its purchased rights suffered "a sharp decline" recently as homeowners paid off the related loans, the OTS said. Unlike servicing rights created by loan originations, purchased rights are booked as assets and must be written down when repayments rise.

Standard Federal, which services about $31 billion of mortgages, is the largest servicer to enter into the Resolution Trust Corp.'s portfolio. Industry experts say they wouldn't be surprised if four or five companies submit bids to buy the thrift.

However, the RTC may not be ready to market the institution until well into next year because of bureaucratic requirements.

Sears Unit on the Block

In another major development for the mega-servicers, Sears, Roebuck and Co. has put its thriving Sears Mortgage Corp. on the block.

The unit, ranked as the nation's 15th-largest servicer, is being auctioned as part of a plan by the parent to reduce its debt and focus more intently on retailing.

If Sears and Standard Federal are scooped up by companies already in the servicing business -- as many observers expect -- the long-running trend toward consolidation would accelerate.

The 23.2% market share held by the top 25 servicing firms has risen by more than five percentage points since 1989.

Refinancings Should Wane

For servicers with the wherewithal to expand, the outlook is good. With new mortgages carrying interest rates of about 8% -- the lowest in nearly 20 years -- chances are slim that the loans will be refinanced again anytime soon, mortgage experts said.

"The feeling is that this is great servicing to put on," said Brenda White, the head of investment banking for mortgage companies at Salomon Brothers Inc.

Refinancings also tend to represent solid credit quality, since the borrowers have track records and often are refinancings to reduce their monthly payments.

Among the big gainers in the servicing industry were Chemical Banking Corp. and General Electrical Capital Corp.

50% Rise in Loans Expected

Chemical, which merged last year with Manufacturers Hanover Corp., is proving that the whole is worth more than its part. The New York company expects to write at least $11 billion of loans this year, up more than 50% from the banks' consolidated total of 1991.

Chemical's servicing portfolio has already fattened by 37% in the 12 months through June.

The well-endowed General Electric subsidiary, a relative newcomer to servicing, increased its portfolio by a staggering 98.6% in the past 12 months, to about $30 billion. It achieved this largely by buying servicing rights from mortgage originators.

Another hot company has been BancPlus Mortgage, once a unit of the failed BancPlus Savings Association of San Antonio, Tex. A group led by the unit's management and backed by billionaire Sid Bass purchased it from the RTC last year and immediately began to expand. The portfolio stood at $13.9 billion in June, up 36% from a year earlier.

Shrinking Portfolios

On the other hand, three of the top 25 servicers suffered net declines in their portfolios in the 12 months ended June 30. They are Citicorp. Bank of Boston Corp., and Shearson Lehman Brothers Holdings.

Though Citicorp maintained its long-standing lead in the rankings, its portfolio of serviced loans fell 6.5%, to $64.6 billion. The decline reflected an effort to curb originations in the wake of a well-publicized run-up in loan delinquencies.

"I don't object to originations volume being down as long as the credit quality is good, which it is," said Thomas Jones, the banking giant's principal financial officer.

Even at current origination level, he said, Citicorp's servicing growth should resume when the refining boom subsides and early repayments return to normal levels.

Severe Writedowns

In the meantime, however, Citicorp has taken some sharp writedowns on servicing assets.

BancBoston Mortgage Companies saw its portfolio drop 6.4% as a result of early repayments and strategic sales of servicing rights.

Although that unit, too, has taken some asset writedowns, its overall activities remain "very profitable," said Peter Manning, chief financial officer of the parent company.

Shearson Lehman Mortgage Corp., which has retreated from originations in the past few years, suffered a 2.6% decline in its servicing portfolio, to $17.6 billion. The company was on the auction block for much of last year, and earlier this month its longtime chairman, Walter P. Blass, resigned abruptly.Growing FastBiggest gainers among top 25mortgage servicers, as of June 30 12-month Servicing change portfolio ($ billions)General Electric +98.7% $29.9CreditCountrywide +98.2 34.1FundingSears +48.9 24.3MortgageChemical +36.8 26.6MortgageBancPlus +36.2 13.9MortgageSource: American Banker

[TABULAR DATA OMITTED]

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.