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BOARDROOM VIEW

The notion of a big servicer may be getting a little bit out of hand. What used to be considered the size of a healthy portfolio, is now what many of the big players are buying in a single year's time.

With the number of large servicing portfolios on the market, getting big can be done with one mega-purchase. And if you are already a sizeable servicer, you can leapfrog several other large servicers on the charts, with one multibillion dollar purchase. Then you buttress the bulk acquisitions you have made with flow purchases along with your own production, and you are on your way.

Typically, when you ask mortgage bankers what their target dollar amount is for additions to their servicing portfolio, most executives will tell you there is no set target, it's all dependent on the "opportunities" that arise in the marketplace. Then, having said that they will tell you what the target is. So, we tried that approach with three different mortgage executives.

Coming off a year when Barclays American/Mortgage Corporation added about $10.5 billion in total additions to their servicing portfolio, you wouldn't think they would have much of an appetite left. But not so, according to Chris Bowen, senior vice president and chief financial officer at the Charlotte-based mortgage banking firm. Depending of course on whether the opportunities are out there at the right price, Bowen says they are looking at adding about $6 billion to their servicing portfolio. He adds that "by far the majority of the additions will come through existing and new purchase relationships." The added servicing will come through three different avenues on the purchase side: correspondent, bulk and flow purchases.

The purchased servicing acquired last year came mostly from flow purchases, Bowen says. Barclays benefited substantially from a servicing purchase relationship it has with Norwest Mortgage - a hefty retail originator nationwide.

Bowen says Barclays doesn't really have a target for servicing acquisitions. The British-bank owned mortgage company likes to keep its options open, so if it turns out to be a bad year and prices turn up and the value is not there for the price, then "we're not going to buy very much."

But when asked what he thinks of current servicing prices, Bowen says, that "conventional servicing is about right on the mark" in today's market. He adds, "I think government servicing is underpriced" because of various factors including the VA loan recourse issue and its capital treatment and the no-bid problem.

After being a 95 percent government servicer as recently as 1987, Barclays American has being buying conventional product slightly more aggressively to bring a better split to the composition of its portfolio. Now the servicing breakdown is 60 percent conventional and 40 percent government, Bowen said. The $17 billion servicing portfolio is predominantly fixed rate and Bowen says they have very little interest in acquiring ARM servicing. "We do very little ARMs. We never have and never will."

When it comes to delinquencies, what's acceptable to Barclays? Bowen says for conventional servicing the safe range for delinquencies is roughly two percent and under, with most of the late loans being in the 30-day overdue category. For GNMA servicing, Bowen says, an acceptable delinquency rate would be a maximum of between 5 and 5.5 percent, with most just 30 days past due.

Taking a slightly different path to servicing expansion, NCNB Mortgage Corporation, bit off about a $9.5 billion servicing acquisition last year in the course of acquiring the assets of Fundamental Mortgage Corporation, Dallas. Fundamental was a mortgage subsidiary owned by San Jacinto Savings Association. "We chewed off $9 billion last year, which was a rather major acquisition. We are not in the market looking for another big one like that," says Christopher Gilson, chairman of NCNB Mortgage. However, he quickly adds that "small deals that make sense we would look at" in the interim. Gilson predicts that "future opportunities" in terms of sizeable purchases will be addressed in 1992 and 1993. This year, NCNB Mortgage is focusing on consolidating three separate servicing centers into one central servicing site - the Kentucky servicing center acquired with the Fundamental purchase. That, says Gilson, should occupy much of their time and energy in 1991.

NCNB Mortgage now is a $16 billion servicer as a result of the Fundamental purchase combined with some other servicing assets owned by various mortgage entities of NCNB. Now the goal is to consolidate at one servicing center the portfolios of NCNB's East Coast mortgage banking subsidiary, the servicing generated by the mortgage operation of a Texas thrift that was bought in 1988 by NCNB bank and the portfolio bought from Fundamental. The goal is to have it all serviced out of the Louisville, Kentucky servicing center by the end of September, according to Gilson.

The East Coast subsidiary had been servicing a $3.5 billion portfolio out of Charlotte, North Carolina. The once "dormant mortgage company" purchased in 1988 along with the thrift had revved up its single-family lending in Texas so much that by 1991, its servicing portfolio totaled roughly $2.5 billion, Gilson said. He added that the growth came from 50 percent retail originations and 50 percent wholesale purchases. That compares with the $700 million portfolio at the time of purchase in 1988. The portfolio generated by the Texas operation was being serviced out of Lubbock, Texas. By the end of last year, both the East Coast and Texas mortgage companies were both "technically owned by the Texas bank," according to Gilson. Then on top of that came the Fundamental portfolio. And, there you have it, a national $16 billion servicing portfolio constructed via just about every means known to mortgage bankers.

But even though the management at NCNB Mortgage Corporation is not out to make any major servicing buys in 1991, it is not as though the servicing portfolio will be withering on the vine. Gilson says his mortgage operations produced about $2.6 billion in production last year. He estimates that this year the originations will come in around $3 billion. That production will be added to the servicing portfolio.

After talking with companies who have propelled their portfolios into the ranks of the big players with $10 billion one-time purchases, anything less than a billion starts sounding like peanuts.

Take the case of Associates National Mortgage Corporation, Irving, Texas. Lack of capital to buy servicing is certainly not an issue for this mortgage company. As Norton Wells, senior vice president - loan administration puts it, "Our parent company has a billion and a half net worth and the parent above that is Ford." He adds that capital restrictions are also not an issue. But the mortgage company got out of the retail origination business, with the minor exception of running a relocation mortgage outfit, and that cuts them off from the guaranteed production that can be added to the servicing portfolio yearly. Instead, they are looking to buy bulk servicing, supplemented with some flow purchases this year. Wells says they will only buy conventional servicing.

Last year, Associates bought $850 million in servicing, Wells said. "We aim to purchase at least that much in 1991," he said. But he quickly adds that "We have no minimum or maximum purchase amount. It just depends on how much quality conventional product is on the market." And sufficient product is clearly a concern in today's market. Wells notes that total production is down and unless servicers want to sell from their own servicing portfolios there could be a shortage of good quality conventional servicing coming onto the market. "That is a serious concern. There isn't a great supply of new servicing coming to market."
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:large servicing portfolios
Author:Hewitt, Janet Reilley
Publication:Mortgage Banking
Article Type:column
Date:Mar 1, 1991
Words:1288
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