Popular Sees Opportunity

There's been a lot of talk about consolidation in the mortgage servicing business, but one financial firm thinks now is the time to jump into servicing.

Popular Financial Holdings, the San Juan, Puerto Rico-based parent of Banco Popular, recently started a new subsidiary, Popular Mortgage Servicing, to facilitate growth in its mortgage servicing business.

Dennis Lauria, senior vice president at the firm, said plans to expand Popular's servicing operation have been in the works since at least 2000. He was hired in February of that year to help lead the business, which will support Popular's mortgage securitization activities.

"They wanted to build a first class servicing operation that would be able to service the future transactions that they knew they would do," he said.

Popular acquired nonprime lending specialist Equity One last year, and at that time loan servicing was largely handled "in the back room," Mr. Lauria said. While the servicing shop remains a unit of Equity One, it now is a stand alone operation.

Under PFH's ownership, Equity One plans to start securitizing loans quarterly, in a volume range of $250 million to $500 million. To do that, Mr. Lauria said the company needed a larger and more diverse group of investors to whom it could sell product.

And to attract those investors, PFH decided that it needed a top-notch loan servicing operation. "They knew we needed to build a servicing operation that was efficient, technologically sound and that gave us growth capacity."

The accounting and consulting firm of PricewaterhouseCooper's helped Mr. Laurie as he and his team built the new servicing operation with the latest technology. That allowed Popular to create robust, scaleable systems and employ the most advanced staffing and productivity models to support its development.

The firm's core servicing platform consists of a London Bridge and Fair Isaacs system. The company also relies on technology such as Freddie Mac's Early Indicator to manage collections. "We truly have most of the toys that are out there in order to not only be a good reporting servicer, but also a quality information management servicer," Mr. Laurie said.

The final piece of the puzzle, he said, was persuading some industry leaders to come to a $1.5 billion servicing shop that hoped to grow into a $20 billion shop by the end of 2007. Already, Popular has grown to about $10 billion in servicing, or 75,000 loans.

Mr. Lauria was able to lure key executives from Wendover, Chase and Cenlar to the new operation. Today, the company services just under 100,000 loans. "We took some key leaders that we knew were going to bring us to the next level and the level beyond that," he said.

The Popular unit also was able to obtain high servicer ratings from Standard & Poor's, Moody's Investors Service and Fitch Ratings. The rating process helped the company learn "what the big boys" of the industry were doing that Equity One was not, he said. Those ratings will also help the company purchase mortgage servicing rights that are on the market.

Popular focuses on subprime and alt-A lending, and Mr. Laurie said that its delinquency and loss severity rates are considerably below industry averages, reflecting strong servicing operations.

Mr. Laurie said the build up of servicing capacity also complements PFH's acquisition of E-Loan last November. The company will service E-Loan's product beginning in August. Currently, Popular Mortgage Servicing manages loans from 42 states and is moving into a new facility in Cherry Hill, N.J. The facility is 57,000 square feet, 37,000 of which are not occupied by Popular. Mr. Laurie said the design of the data center incorporates wiring under the floor, so that it can be expanded without disrupting the current workforce.

Over time, he said Popular will take a look at entering the subservicing marketplace as well. He said that today, the industry suffers from too much discontinuity as servicing gets transferred between parties such as originators, wholesalers, and special servicers. "There are a lot of handoffs that are not very customer centric," he said. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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