Deal Could Put CFC on Top

If Countrywide Home Loans winds up buying Cendant Mortgage, it would once again become the top dog of mortgage servicing. Then again, the jury is still out on whether Countrywide will bite the bullet.

As Mortgage Servicing News went to press this month, the sale of the Mount Laurel, N.J.-based Cendant Mortgage Corp. was still pending.

Industry officials familiar with CMC confirmed that Countrywide is back at the negotiating table after ending talks with Cendant's parent this past spring.

Investment bankers have identified two other potential bidders for CMC - Citigroup and GE Consumer Finance.

However, some are now saying a Citigroup purchase is problematic because Citi owns investment banker Salomon Smith Barney which competes directly with Merrill Lynch, one of Cendant Mortgage Corp.'s largest "private label" clients.

Other current and past private label clients of CMC include Mellon Bank, Hudson United, Provident Bank and USAA Federal Savings Bank.

CMC is believed to be the largest private label funder and servicer in the U.S.

Some industry officials believe that the longer it takes to sell CMC the greater the likelihood that it will lose private-label clients. One source close to Nexstar of St. Louis told Mortgage Servicing News that CMC has been losing some private-label clients to Nexstar.

However, the private-label clients are on the funding side of the business. Nexstar does not really service loans though it has sold some bulk servicing in the secondary market, sources said.

Countrywide of Calabasas, Calif., is currently the nation's second-largest servicer with $726.2 billion in servicing rights on its books. CMC is ranked 10th with $144.2 billion.

If Countrywide winds up with CMC it would rank first with $870.5 billion, $130 billion ahead of Wells Fargo Home Mort-gage, Des Moines. (At the end of June, Wells was ranked first among residential services with $740 billion.)

The last time Countrywide ranked first among residential servicers was almost 10 years ago.

But will Countrywide wind up with CMC? "A purchase by Countrywide makes a lot of sense," said Mike McMahon an analyst at Sandler O'Neill. "Cendant Mortgage is a unique business that is not easily replicable."

Mr. McMahon, a long-time bull on Countrywide, added, "You cannot go out and easily replicate an outsourcing business like Cendant's."

Investment bankers and analysts concede that the biggest stumbling block to Countrywide purchasing Cendant might be price.

In a recent filing with the Securities and Exchange Commission, Cendant Corp., New York, said it was in discussions with a "potential purchaser" for CMC, estimating that it would net $750 million to $1 billion on a sale.

But Country-wide, as the mortgage industry well knows, has always grown organically, refusing to pay large sums of money for other franchises.

One investment banker noted, "Countrywide has always been so smart. They look at deals and then in the end they always conclude, 'You know, we can do this ourselves.' I'd be surprised if anything has changed there."

A Countrywide spokesman declined to comment for this story. Cendant officials have declined to talk about the sale as well.

According to just released statistics compiled by this newspaper, Countrywide has a servicing market share of 9.86%. (See second-quarter servicing rankings.)

Its goal is to one day have a servicing market share of 20%.

Back in March, Countrywide ended talks with CMC's parent, the New York-based Cendant Corp. One key sticking point then was the issue of sourcing loans from Cendant's realty units to the mortgage division and what value that might have on the deal.

Cendant Corp., the parent, owns Century 21 and other large real estate brokerage firms. The realty firms are not for sale.

At one point in the negotiations Countrywide was hoping to buy most or all of CMC, taking control of its production operation, its servicing portfolio, and its 7,000 employees.

It is still possible if a deal is not done that Cendant might spin the unit off in an initial public offering. Goldman Sachs & Co. is acting as Cendant's investment banker.

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