Wells Fargo Home Mortgage on Tuesday announced a deal that would solidify it as the mortgage servicing leader and push it close to the top in mortgage origination.
The Wells Fargo & Co. unit has a definitive agreement to acquire GE Capital Mortgage's origination business and mortgage pipeline and to subservice the General Electric company's $78.6 billion mortgage servicing portfolio.
"We're very excited about this transaction," Mark Oman, chairman and chief executive officer of Wells Fargo Home Mortgage, said while standing outside a Habitat for Humanity property in upper Manhattan that Wells' funding and volunteers helped refurbish. "It's a win-win for both organizations, and it focuses on what we do best."
Financial terms of the deal were not released. Experts said a servicing portfolio of $78.6 billion would be worth just over $1 billion in an outright sale, but it is expected that Wells will pay much less than that because this is a subservicing agreement; that means GE will maintain ownership of the servicing assets.
The purchase would firmly establish Wells Fargo Home Mortgage as the No. 1 servicer in the country and the first company to surpass $400 billion of servicing interests, the company said in a news release.
Wells, which had $301.5 billion of servicing assets at the end of the second quarter, last week announced a deal to buy $35.7 billion of First Union's $52 billion servicing portfolio.
Wells had intended to purchase the entire portfolio from First Union, but the partial buy would be enough to vault the company from No. 3 to No. 1 in mortgage servicing, based on National Mortgage News' second-quarter rankings. It would pass Chase Manhattan Mortgage and Bank of America Mortgage.
The deal would let GE exit the operational side of the mortgage business. By retaining its interest in the servicing, however, GE would benefit if the servicing portfolio's value rises, and would bear the responsibility of hedging the portfolio.
The announcement ended months of rumors and speculation about a deal between the two companies. Officials at both companies last month confirmed that negotiations were taking place.
Calls to GE Capital, which was represented by Cohane Rafferty Securities LLC, were not returned by press time.
The addition of GE would not only strengthen Wells' servicing business, but could also push it in position to wrest away Chase Manhattan Mortgage's title as the No. 1 originator in the country. Based on last year's figures, Wells trailed Chase by just over $11 billion. In 1999, GE originated more than $13 billion of mortgages.
"This transaction provides an excellent opportunity for both companies to gain greater alignment with our respective core business goals," Pete Wissinger, president and chief operating officer of Wells Fargo Home Mortgage, said in a news release. "We will leverage our skill and scale in managing the industry's largest servicing portfolio and add strength to our production channels through this agreement, strengthening the balance of our business model."
He added, "Servicing our new customers under the Wells Fargo Home Mortgage name, we will work very hard to earn their trust by providing exceptional customer service and offering personalized solutions to their home financing needs."