North American Mortgage, facing a lean winter for originations, is digging in.

Against a backdrop of low levels of originations and sharp price competition, the company recently sold $1 billion of servicing rights on conventional mortgages. That brought the company's servicing portfolio to $14 billion, a 6% drop from the level a month before.

"Prices are really high right now," said Terrance G. Hodel, president of the Santa Rosa, Calif. mortgage bank. "If somebody wants to pay me a great price, I'll sell."

With servicing prices robust and originations a drain, North American's response may be typical of independent mortgage companies' views.

Certainly Mr. Hodel talks like a man who could get out of servicing entirely, "We don't have any love affair with servicing," he said in a recent interview. "Servicing is an interest-only strip with problems."

"I get a 9% pretax return from servicing. That's good, but I can get pretty close to that with a Treasury bill," he said, adding that money invested in T-bills is not subject to prepayment if interest rates drop.

This stance is a far cry from those taken by many privately held or publicly traded mortgage banks a year ago.

At that time, many medium-size mortgage lenders were keen to build servicing portfolios to at least $10 billion, in order to achieve economies of scale and also to get debt ratings that would allow for less-expensive warehouse borrowings.

Now most of the independents, such as Arbor National Holdings and Plaza Home Mortgage, are gone, purchased by one bank or another. North American, then, is somewhat unusual in that it is large but nowhere near as big as the top-tier servicers.

So does this put North American at a disadvantage? Will the company need to grow servicing?

"Its an open question what size you need to be efficient," said Mr. Hodel, "I wouldn't want to be at $10 billion, but I'm not convinced that efficiencies go on forever."

"I think they will take advantage of the record prices for servicing so long as it doesn't drag down their unit costs for the whole portfolio," said Michael Corasiniti, an analyst at Alex. Brown & Sons.

One bright point, according to Mr. Hodel, is that the competitive atmosphere seems to be improving. The flatter yield curve is driving more borrowers into fixed-rate loans, he said, and thrifts are taking a less aggressive stand on starting rates.

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