CSFB Completes Acquisition of Select Portfolio Servicing

The PMI Group here has completed the sale of all of its outstanding stock of SPS Holding Corp., parent of Select Portfolio Servicing, to Credit Suisse First Boston.

Under terms of the deal, PMI received an initial cash payment of approximately $95 million for its holdings in SPS. PMI will receive additional monthly cash payments through the first quarter of 2008 from a residual interest in mortgage servicing assets with an estimated book value at closing of approximately $21 million, PMI said. PMI was the majority owner of SPS along with several other investors.

PMI acknowledged that adjustments made in the closing process reduced the book value of SPS, which resulted in a "slightly lower" initial cash payment from original estimates.

PMI and the other shareholders in SPS have agreed to indemnify CSFB for certain liabilities relating to SPS's operations in connection with the sale.

However, PMI said that total proceeds from the sale exceed PMI's current carrying value for SPS, formerly known as Fairbanks Capital, so the company does not expect to take any impairment charge related to the transaction.

Simultaneously with the sale, PMI received repayment of the outstanding balance on its related party receivable from SPS in the amount of approximately $5 million.

CSFB joins a long list of Wall Street Firms that have moved into the servicing market in an effort to exercise better control over the performance of loans that back non-agency mortgage-backed securities. PMI, meanwhile, joins a list of mortgage insurers that have soured on the loan servicing business.

Today only MGIC, Milwaukee, and Radian Guaranty, Philadelphia, retain a significant presence in the loan servicing field. MGIC and Radian are investors in C-BASS, a New York based firm that specializes in the securitization and servicing of credit impaired residential mortgage loans. C-BASS, in turn, is the parent of Litton Loan Servicing, Houston.

Several Years ago, Fairbanks Capital, the predecessor to SPS, was the largest servicer of subprime home loans in the industry. However, the company's portfolio shrank after consumer complaints fueled an investigation and litigation that led to a settlement with federal regulators. Today, Select Portfolio Services manages a $22 billion portfolio of loans, making it the 14th largest subprime servicer as of June 30.

SNAPSHOT: Select portfolio servicing

Seller: PMI

Buyer: CSFB

Portfolio Size $22 billion*

Note: *as of June 30, '05

Source: Standard & Poor's

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