Will Cendant Ever Trade?

Ten months ago Cend-ant Mortgage Corp., the nation's 10th largest residential servicer, was put on the auction block by its parent - and so far a deal has yet to be consummated.

In late August, Countrywide Financial Corp., Calabasas, Calif., took a pass on the New Jersey-based Cendant and its $144 billion portfolio, marking the second time in a year that CFC looked and said no thanks.

As one investment banker put it: "I knew it wasn't going to happen. Countrywide rarely pays up for anything."

In this case the "pay up" for Cendant Mortgage would have been in the range of $750 million to $1 billion or so, Cendant, the parent company, said in a filing with the Securities and Exchange Commission.

Is Cendant worth that much money? The lender/servicer's parent believes so or it wouldn't have said as much in the SEC filing.

But with mortgage production expected to wane the next year, its production business might carry a very low premium. It's $144 billion servicing portfolio is probably worth at least $1 billion, according to some servicing advisors, but then you have to factor in how much debt CMC carries on its books.

At press time, servicing brokers and advisors could offer no news about CMC and its future. And CMC and its parent - as has always been the case - wasn't talking much either. One New York-based banker quipped: "After the servicing, what else is there to sell?"

In short, CMC is a non-bank with no traditional retail branches or deposit-taking operations. Most of its production is sourced through third-party relationships. CFC was primarily interested in CMC because of its private-label business, which entails producing, funding and servicing mortgages for other players in the financial services industry. (CMC's biggest private-label clients include or have included Merrill Lynch, Mellon Bank, Hudson United, Provident Bank, USAA Federal Savings Bank and others.)

Private-label funding and servicing is business CFC has a toehold in and would like to grow. It's likely that after passing on CMC, Countrywide will grow organically.

One key sticking point to the Cendant-CFC negotiations was the issue of sourcing loans from Cendant's realty units to the mortgage division and what value that might have on a deal. Traditionally, CFC has avoided making large acquisitions of mortgage banking franchises. CMC - as many predicted - proved to be no exception. Meanwhile, a source close to Nexstar Financial, St. Louis, told Mortgage Servicing News that CMC has been losing some private-label clients to Nexstar.As for the immediate future of CMC, the only official guidance Cendant would give was that it would "continue the process of receiving proposals and holding preliminary discussions with other parties regarding the sale of such business and, as previously stated, is also considering other strategic alternatives for the business."

One of those strategic alternatives might be an initial public offering of CMC.

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