Within Days, Five Movers and Shakers Sell or Liquidate Their Mortgage

One by one, the heavy hitters of finance are backing away from the mortgage market.

In little more than a week, five investors have either sold or liquidated their mortgage companies.

American Savings Bank - which was bought in 1988 from the Federal Savings and Loan Insurance Corp. by an investment partnership led by Robert M. Bass - is now being sold to Washington Mutual Bank.

DLJ Merchant Banking sold First Franklin Financial Corp. to BankAmerica Corp.'s Continental Illinois Venture Corp. last week. Lewis Ranieri's investment firm, Hyperion Partners, is selling part of its interest in Bank United of Texas to the public. And earlier this month, investors McCown DeLeeuw & Co., San Francisco, and J.H. Whitney & Co., New York, liquidated their Victoria Mortgage Corp.

Some players - including Mr. Bass and Mr. Ranieri - got in during the thrift crisis, when mortgage banking operations were available cheaply from the insolvent Federal Savings and Loan Insurance Corp.

Now they appear to be taking an opportunity to cash out after rebuilding and strengthening the failed thrifts and mortgage lending operations, said William H. Lacy, chairman and chief executive of Mortgage Guaranty Insurance Corp., Milwaukee.

These sellers are generally short-term investors who may think today's equity market is receptive to mortgage lending operations, he said. "They are probably in for bigger returns over time, and they want to cash out while returns are still attractive," Mr. Lacy said.

In other cases, the investors got tired of waiting for big returns.

Angelo Mozilo, chairman and chief executive of Countrywide Funding Corp., said investors who entered the business during the refinance boom of 1993 had unrealistic expectations.

"Many buyers who got in during the unprecedented frenzy of buying mortgage companies thought the mortgage banking world (would remain the way it was) in 1993. It's very rarely like that. In my 42 years in the business, there's only been one 1993," Mr. Mozilo said.

Mr. Mozilo cited the grappling with regulatory issues, thin margins, and tough competition as factors that make the mortgage industry a difficult one.

In Victoria Mortgage's case, industry insiders said, investors were losing money on their investment and decided to exit the business before losing more money.

And althoughit appears the American Savings deal will be lucrative for the investors, some sources said the Bass group had to significantly cut its asking price to strike a bargain. And the Bass group's willingness to do so may reflect the perception that a better time to sell is not nearby.

To be sure, there are some industry success stories.

One is financier Ronald O. Perelman, who reportedly earned a profit of more than $1 billion when he sold First Gibraltar Bank, Dallas in 1993, to BankAmerica Corp.

He had paid $315 million in a government-assisted deal for Gibraltar Savings & Loan and four other failed thrifts from the Federal Savings and Loan Insurance Corp. in a flurry of controversial deals at the end of 1988.

He also scored when he sold Troy & Nichols to Chase Manhattan Bank for $200 million. That was in March 1993, when mortgage originations were booming. Mr. Perelman in 1992 had purchased Troy & Nichols from the government for $82 million.

Recent mortgage company sales by private investors have not commanded such high prices.

Those who waited "really missed the boat," said one mortgage industry investment banker. The banker, who asked to remain anonymous, said the time to sell was about two years ago, when banks were paying premiums for loan origination platforms and franchises.

While mortgage banks might not command the hefty prices Troy & Nichols has, there is a market for mortgage banking assets.

Mr. Perelman is also behind a recent entrance into the mortgage industry that is likely to be successful.

His First Nationwide Mortgage bought a $20 billion servicing portfolio in January from bankrupt Lomas Mortgage USA for a below-market price of $150 million. If he sells the company or brings it public, he's likely to make a substantial profit on the Lomas acquisition.

There are investors other than Mr. Perelman who are likely to be successful mortgage players.

Two venture capital groups, Thomas H. Lee & Co. and Madison Dearborn Partners, together this year paid $135 million for a one-third stake in HomeSide Lending, the joint venture between BancBoston and Barnett Mortgage. The investors were able to take advantage of current attractive servicing prices and realize the benefits of economies of scale available to a $75 billion servicer.

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