Chase Hopes Servicing Income Will Boost Profits When Rates Rise

Chase Home Finance, Edison, N.J., has been building the servicing side of its business in preparation for a potential change from a downward interest rate cycle in which production fares well to an upward rate cycle in which servicing would fare well, company president and chief executive officer Stephen J. Rotella said.

CHF's year-to-date servicing portfolio size as of March was $432 billion. So far, the growth in the company has been "primarily organic," but Chase is likely to consider acquisitions of mortgage-related companies going forward if the current market peaks as anticipated and the reverse in business cycle results in either sales or exits from the business on the part of companies not prepared for the change-in-market conditions, Mr. Rotella told attendees at a press conference here last month.

When sizing up potential acquisitions, Chase will draw on its parent company's internal strengths by working with the investment banking side of its corporate parent, J.P. Morgan Chase, on acquisitions, but it will also work with "outside investment banks," said Luke S. Hayden, executive vice president responsible for consumer market risk management.

In terms of growing its loan portfolio, Chase has been "opportunistic," said Mr. Hayden. About 90% of the company's loans are sold into the secondary market, he said. He noted that this is in part because Fannie Mae and Freddie Mac have a more favorable cost of funding that Chase can not compete with.

Mr. Hayden said Chase has a "very good" relationship with both government-sponsored enterprises, but also indicated that the company's GSE relationship is "broad, which makes it complicated."

He said that the company will at times do more business with one than the other and has done more business with Fannie over the last several years, but still does "a substantial amount" of business with Freddie. Mr. Hayden added that "four or five years ago" it did more business with Freddie and said that those relationships always have the potential to change.

Mr. Hayden indicated that among the factors that Chase considers in making decisions in regards to its relationships with the GSEs are the documentation requirement parameters and whether they let Chase use its own automated underwriting and automated appraisals.

Taj Bindra, senior vice president and chief financial officer, said that which GSE Chase favors also "depends on prices."

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