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Signs of Life in Bulk

Washington-The market for "bulk" packages of mortgage servicing rights is showing signs of life again but investment bankers who play in the space say it continues to be a buyer's market.

"What we're starting to see now is more firms (sellers) test the waters," said George Christo, executive vice president of The Prestwick Group, Alexandria, Va.

Mr. Christo's firm has a $966 million bulk package in the market while Interactive Mortgage Advisors is trying to sell a $1 billion pool of receivables. The FDIC recently sold a $1 billion package of servicing rights that belonged to Franklin Bank of Texas, a now-defunct bank it took over a year ago. (At press time the agency had not yet released the name of the buyer.)

Investment bankers speaking under the condition their names not be used, noted that prices for newly originated servicing rights are likely to be stronger than seasoned packages because the underwriting on the underlying loans is the most conservative it has been in years.

Also, brokers say they are seeing more packages offered now that yearend is approaching but noted there isn't necessarily a rush to sell because some sales might result in losses.

Investment bankers told Mortgage Servicing News that they believe the FDIC may soon start selling more packages of servicing rights, by taking receivables out of failed depositories.

The Franklin transaction was brokered for the FDIC by Interactive Mortgage Advisors, Denver. IMA managing partner Tom Piercy said he could not comment on the sale or discuss details at this time.

However, Mr. Piercy confirmed that there are signs of life in the bulk market. "I have a standing 'buy order' from a client who wants to purchase $10 billion to $20 billion in product," said Mr. Piercy.

He noted that some of that buy order has been fulfilled but he is still looking for product.

Mr. Piercy said prices being paid for Fannie Mae or Freddie Mac servicing rights originated this year are decent. "You can probably get up to four times the servicing fee," he said.

Prices being paid for Government National Mortgage Association rights are still somewhat weak, according to different advisors who play in that market.

"If I could get three times the servicing fee for a GNMA package I would be ecstatic," said an advisor for a small servicing boutique on the East Coast. (The advisor requested his name not be used.)

Smaller packages of conventional and GNMA rights - below $200 million - appear to be trading more easily than the larger ones.

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