Washington Mutual Inc., which has pledged to become the nation's biggest mortgage company, is near a deal that would lift it to second place among U.S. mortage originators and fourth in servicing.

If completed, the deal would see Wamu acquire the Fleet Mortgage Group's correspondent lending, wholesale lending, and loan servicing divisions in addition to $130 billion worth of mortgage servicing rights, a source close to the deal said. Fleet Mortgage, a unit of FleetBoston Financial Corp., is to retain its retail mortgage lending division, which has 20 banking branches in New England, New York, and New Jersey.

Fleet would keep $8 billion in servicing rights, mainly on mortgages that were originated through the retail branches. Washington Mutual is to subservice those loans and act as Fleet's subservicer for loans it originates.

Wamu will take on all Fleet employees at the three divisions, which are headquartered in Columbia, S.C.

One source said the two sides have agreed to a deal worth more than $660 million and that it is only awaiting signature.

Morgan Stanley Dean Witter is representing Washington Mutual, and Cohane Rafferty Securities LLC, of White Plains, N.Y., is representing Fleet in the deal, which is expected to close in June.

The acquisition would move Seattle-based Washington Mutual, currently the nation's sixth-largest servicer, to No. 4, followed by Countrywide Home Loans HomeSide Lending Inc., according to rankings by National Mortgage News. Under servicing levels at the close of 2000, the deal would give Washington Mutual more than $320 billion of servicing.

In originations, buying Fleet Mortgage's correspondent and wholesale divisions would vault Wamu from fifth place to second, with $68.125 billion of originations, according to figures for 2000 compiled by National Mortgage News.

Charlotte Chamberlain, an analyst with Jefferies & Co. Inc. in San Francisco, said the deal "absolutely solidifies" Washington Mutual's "preeminence as one of the nation's top mortgage originators in a year when this business is going to be very strong."

Most other analysts agreed.

"This is a dramatic increase in scale and scope in their business, and it keeps them in the hunt to jump into the top three in originations and servicing," said David Head, co-head of financial institutions mergers and acquisitions at Salomon Smith Barney.

Analysts also said the deal underscores the importance of size and scale in the mortgage industry.

"You have to make a big commitment if you want to be a player with good profit margins in the business," said Chad Yonker, an analyst with Fox-Pitt, Kelton.

Richard Beidl, managing director with TowerGroup, a research outfit in Needham, Mass., said that, aside from size and scale, Wamu would get more cross-selling opportunities with this purchase.

Mr. Yonker said the move could also help Washington Mutual negotiate for better pricing on mortgages it sells to Fannie Mae and Freddie Mac in the secondary market. The bigger volumes a company can promise the government-sponsored enterprises, the better pricing it will get, he said.

Washington Mutual has been following a buy-and-build strategy for several years. Between 1996 and 1998, it bought four California thrifts, among them H.F. Amanson & Co.. In October 1999 it bought the wholesale subprime lender Long Beach Mortgage, and in February it bought Alta Residential Mortgage Trust, a correspondent lender. More recently it agreed to purchase Pittsburgh's PNC Mortgage and Bank United Corp., Houston.

Analysts give two explanations for Fleet's agreeing to sell the three units. First, they say, the parent company for years has wanted higher returns than the mortgage business has been generating. "I think they're looking to deploy their capital in higher-profit-margin businesses," Mr. Yonker said. Fleet did not return calls for comment on this matter by press time.

Second, they say that Fleet, like many other mortgage servicers, has had trouble hedging its servicing rights, which becomes difficult in a climate of falling interest rates. A Fleet official declined to comment on this speculation.

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.