2004 Servicing Values Expected to Be Strong

Mortgage Wire

Paul Muolo

January 14, 2004

The biggest M&A deal of 2004 could turn out to be the sale of Cendant Mortgage, the nation's 10th largest servicer, that is, if the company is really for sale.

Confused? Welcome to a new year in mortgage banking, a year in which mortgage rates are expected to rise (but may not), and loan originations may plummet (but maybe it won't be so bad after all).

As for Cendant, as National Mortgage News reported in early December, the company, sources say, is quietly being shopped around but there is, as yet, no official "book" out. (Goldman Sachs & Co. is its investment banker.)

One thing is for certain though: servicing values have firmed up over the past two months, which means that if Cendant's corporate parent wants to sell the mortgage bank's $134 billion servicing portfolio, it should have plenty of bidders.

Many servicing brokers anticipate that the new year could be a good year for them, but as of this writing, no major portfolios had hit the market.

Felix Beck, chairman emeritus of Chase Home Finance, Edison, N.J., noted that servicing rights "will be gold" in the new year.

Brenda White, a principal in B.B. White & Co., Short Hills, N.J., believes that some midsized commercial banks could exit the mortgage business in 2004, but many "mega" lender/servicers - the likes of Chase, Countrywide, National City, Washington Mutual, among others - will stick it out.

"I don't see any major players exiting," she said. "They've invested too much in the business."

Ms. White, a former managing director at UBS Securities, also thinks retail franchises will retain their value and could become attractive to bank acquirers who want to cross-sell to mortgage customers.

Overall, it seems certain that conventional lenders and mortgage banks that gorged on refinancings will be the most at risk in the new year.

About two weeks ago, Instafi.com of California, a refi specialist, closed its doors, the victim, sources say, of a hedging mistake.

At its peak, the company was funding about $500 million a quarter and employed 350.

Lenders - in particular, refi specialists - if they are to survive the anticipated production slowdown of 2004, may need to merge in order to keep paying their bills.

Which firms will head for the exits remains uncertain, but strangely enough, as this issue went to press, the yield on the 10-year Treasury had begun falling again. Could there be one last gasp of life for refis?

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