The American Banker survey finds that the trend for acquisitions of entire mortgage banking companies continues.

That statement appeared in 1985, but it's just as true today. Servicing assets, the biggest part of any acquisition, are growing more concentrated as the largest servicers buy the business or assets of companies exiting the industry. But the concentration has some observers worried that risks have also mounted.

At the end of 1995, the top 10 servicers accounted for 43% of servicing assets. Five of the top 10 were active in acquisitions; one, Prudential Home Mortgage, was sold after the end of the year.

While both independent mortgage lenders and those owned by commercial banks were acquired, the buyers were all commercial banks. Servicing assets of bank-owned mortgage companies increased 26% in 1995 from the level a year earlier.

The acquisition drive by bank-owned companies may have driven up prices of servicing rights, both because of strong demand pressure and because banks were willing to pay more for assets that generate fees but require little capital.

The spate of acquisitions also made the $100 billion-plus club a little less exclusive. At the end of 1995, the top four servicers had portfolios over $100 billion. In 1994, only Countrywide Credit Industries, the largest servicer, was at that level.

Gareth Plank, an equities analyst at UBS Securities, San Francisco, said the concentration of servicing assets among the top companies was dramatic. He said he expects to see it continue to the point where the top companies each hold 10% of the market.

But he added that as the portfolios get even larger, he worries that the servicers may be unable to manage the risk for such volumes.

Mortgage servicing by all lenders increased only 20% in 1995 from the level in the preceding year. Independent mortgage companies showed the smallest increase, growing only 13%.

Norwest Mortgage Inc., Des Moines, was the No. 3 servicer at the end of last year, with a $107 billion portfolio - a 50% increase. Its acquisition of No. 5 Prudential Home Mortgage earlier this year vaulted it to the No. 1 position, with $147 billion of servicing.

Norwest has been on an acquisition spree since late 1994. It bought Directors Mortgage Loan Corp. for a reported $250 million, and in January 1995, bought a $15 billion servicing portfolio from Barclays Bank.

The Prudential acquisition gave Norwest two servicing sites. The unit now operates eight servicing sites, after closing one in the last year. Most servicers process servicing in one or two sites. Norwest executives defend the setup, saying that it gives them flexibility. (See story on page 10A.)

Increasingly sophisticated technology has helped the new megaservicers, like Norwest, expand their servicing holdings while keeping costs under control. Large servicing portfolios gives servicers more loans over which to spread their technology costs. (See story on page 12A.)

Another megaservicer, NationsBank Mortgage Corp., increased its servicing portfolio by 107% in 1995, the largest jump among the top 10 servicers. The Dallas-based lender hopped from the No. 15 spot to No. 6, with $10 billion of servicing bought from Source One Mortgage Services, Farmington Hills, Mich., and $25 billion of servicing bought from KeyCorp Mortgage Inc., Cleveland.

Fleet Mortgage Group was the fourth-largest servicer, with a $105 billion portfolio as of Dec. 31, 1995. In 1995, Fleet purchased Plaza Home Mortgage, Santa Ana, Calif., which came with $9 billion of servicing, and a $15 billion servicing portfolio from Household International.

In addition, Fleet Financial Group's acquisition of Shawmut National Corp. added $8 billion of mortgage servicing rights.

Despite the mammoth portfolios, servicing profits are shrinking for the highest-quality loans, known as A paper. Many servicers are turning to servicing loans of lesser quality, or B and C loans. While those loans offer higher servicing fees, they require more attention.

While bank-owned lenders increased their portfolios at a brisk pace, portfolios owned by independent mortgage companies increased only 13% in 1995.

The corporate strategy at Countrywide Credit Industries, which was the largest servicer in the 1995 survey, does not include acquisitions. Norwest's purchase this year of most of Prudential Home Mortgage will put it ahead of Countrywide in servicing.

So Countrywide sat on the sidelines while banks spent their excess capital, Mr. Plank said, and used originations to expand its servicing holdings. It does continuously buy servicing assets, and increased its portfolio 21% in 1995 from the level a year earlier.

GMAC Mortgage Co., the No. 8 servicer last year, increased its portfolio by only 23%, which included the acquisition of a $4.7 billion portfolio from privately owned STM Mortgage Co., Dallas.

GE Capital Mortgage Services, which is one of four non-commercial-bank- owned servicers in the top 10, also grew through acquisitions. Within two days during 1995, it bought $6 billion of servicing from Amsouth Bancorp. and $9 billion from Wachovia Corp.

At the time of the sale, Wachovia's president, Thomas W. Trotter, said the sale was a reaction to the consolidation of the servicing business and the resulting difficulty smaller players have competing with megaservicers.

Mr. Plank said the consolidation is no surprise, in this age of quests for efficiency. "Why should the mortgage servicing industry be any different than others and be so fragmented?" he said.

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