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$363B of MSRs May Change Hands

Merger activity is once again picking up steam as mortgage bankers weigh their options in an increasingly difficult operating environment.

According to calculations made by Mortgage Servicing News, some $363 billion in servicing rights could change hands in the next six months. The product is housed at several companies that are either for sale, or about to be sold.

The largest deal of the year could turn out to be the disposition of ABN Mortgage, Ann Arbor, Mich., the nation's eighth largest servicer with $219 billion in housing receivables on its books.

According to investment bankers and other industry executives, Dutch bank ABN Amro Holding NV is contemplating selling its once storied U.S. mortgage operation.

Meanwhile, H&R Block is weighing offers for Option One Mortgage Corp., Irvine, Calif., one of the nation's largest subprime lenders and servicers. OOMC ranks fourth among B&C servicers with $74 billion in servicing rights on its books, according to figures compiled by the Quarterly Data Report, and Mortgage Servicing News.

If H&RB cannot sell OOMC, it might consider spinning it off through the public markets. (A few years back H&RB contemplated selling the unit, but then changed it's mind.)

As for ABN Amro Mortgage, a spokesman declined to discuss the matter, citing a company policy not to comment on "rumors and speculation."

With residential production volumes waning - and home sales down dramatically - the industry is bracing itself for a correction that could result in several hundred lenders leaving the business, either through M&A or failure.

New York Mortgage Trust, a publicly traded REIT, also is for sale. The company services $1.3 billion in product.

ABN Amro Mortgage ranks 17th among residential originators. In 2002 it funded $90 billion through the wholesale channel, ranking first in the industry. Over the past two years its wholesale volume has fallen dramatically.

It also has relied heavily on conventional product, which has lost significant market share to non-traditional loans such as alt-A, payment option ARMs, and interest-only mortgages.

Even though ABN's wholesale unit (which is called InterFirst) is a shadow of its former self, one advisor noted that the company has been aggressively bidding on bulk servicing portfolios the past few months, an activity that might seem strange for a company exiting the business.

As reported, the Dutch bank is in the throes of restructuring its operations and recently unveiled mixed third quarter results. However, its North America division reported an 8% increase in profits, helped in part by higher mortgage revenues.

A few years ago rumors surfaced that ABN Amro Mortgage was for sale but nothing ever came of it.

In the subprime sector profit margins are tight now. Revenues at OOMC fell 44% for the three-month period ending July 31. (H&RB booked a $102 million hit in the quarter to cover loan buybacks at the lender.) OOMC posted revenues of $169 million for the period, and lost $4.9 million. In the same quarter a year earlier OOMC earned $130 million. (The information was contained in H&RB's fiscal first quarter earnings release which came out July 31).

In response to the buy back requests - which came from unnamed investors in the secondary market - OOMC has tightened its underwriting guidelines and pricing criteria. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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