What a Difference Five Years Makes

You don't have to look at the list of the largest subservicers for long to see how much the industry has changed in recent years.

Some traditional big players in the industry, such as subservicing specialists Dovenmuehle Mortgage, Cenlar and Wendover remain near the top of the industry. But they've been joined by large lenders such as Washington Mutual, Wells Fargo and Countrywide.

In part, the large lenders that now seek to service loans for others in addition to managing their own loans are looking for new sources of fee income. In other cases, they have entered into subservicing arrangements rather than buying servicing rights outright in order to limit exposure to prepayment risk.

Five years ago, subservicing specialists had a more dominant hold on the market than they do today. Privately held Dovenmuehle, Source One Mortgage, which was eventually acquired by Citibank, and Capstead Mortgage, which has largely exited loan servicing, were the top three subservicers. Advanta, Wendover, Cenlar, Countrywide, BancOne Mortgage, Navy Federal Credit Union and Resource Bancshares rounded out the top 10 at the end of 1997.

Advanta, one of the early leaders in subservicing B&C credit quality loans, was eventually purchased by Chase. It was the top subservicer of B&C credit quality loans at the end of 1997. Most of the other top B&C subservicers from five years ago - names such as Beneficial Corp., City Mortgage Services, Amresco Residential Credit, Emergent Mortgage, Mego Mortgage and Altegra Credit - have dropped from the list, often lost to mergers and acquisitions or the problems that hit the subprime industry hard in 1998.

Of the top three B&C subservicers at the end of the third quarter, 2002, none were among the top 15 five years ago. And only one of the top five from 1997 - Option One Mortgage - remains among the top five today, ranking fourth with $7.1 billion of subservicing in the B&C credit sector. That's up from just $877 million of subprime subservicing for Option One five years ago, when only two lenders reported having more than $1 billion of volume (Advanta and Beneficial).

Today, all of the 10 largest subservicers of B&C loans manage more than $2 billion of loans for others, demonstrating the tremendous growth in subservicing, particularly for the subprime sector, that has occurred.

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