Servicing

The delinquency rate on commercial mortgages owned by life insurance companies fell to 0.85% at the end of the first quarter of 1998, the seventh straight quarterly decline, according to data from the American Council of Life Insurance.Commercial mortgages make up approximately 92% of life companies' total mortgage investments. However, because delinquencies in the agricultural sector exploded from 0.97% at year-end 1997 to 2.04% for the first quarter, and single-family residential delinquencies increased 20 basis points to 1.99% during the same period, the overall delinquency rate for the first quarter was up 2 bp to 0.94%. This is the first increase in the overall rate since June 1996. The ACLI noted that life companies have been returning to mortgage investments after years of selling off such assets. The overall portfolio increased from $174.2 billion at the end of 1997 to $175.1 billion as of March 31, 1998. Commercial investments increased during the period from $159.6 billion to $161.0 billion.

Wells Fargo, which exited the mortgage business in April, is merging with Norwest Corp., Minneapolis, which owns the nation's largest residential lender/servicer.Because Wells has no mortgage division, Norwest Mortgage Corp. chief Mark Oman likely will have no competition for the top spot once the two commercial banks combine. In April the San Francisco-based Wells sold its $34 billion servicing portfolio and platform to GMAC Mortgage. Although some banks have been gobbling up mortgage assets during the decade, others have been exiting the business entirely. When Wells sold its servicing it joined other large banks such as BancOne, Barnett, First Bank, and National City that have exited the business over the past two years. Ed Elanjian, managing director of Cohane Rafferty Securities, Harrison, N.Y., told MortgageWire that some commercial banks don't like the high expense ratios that are involved in running a mortgage operation. He noted that some banks sell their mortgage divisions to make their expense ratios look better in preparation for a merger. At the end of March Norwest Mortgage was the nation's largest mortgage banker, with $212 billion in servicing. In the quarter NMC produced $20.9 billion in residential loans.

Prepayments for Fannie Mae and Ginnie Mae mortgage-backed securities "continued to show healthy declines" in the May reporting period, which should cause the mortgage market to "breathe a sigh of relief," according to the Bear Stearns Prepayment Commentary.However, analysts Dale Westhoff and Bruce Kramer cautioned that despite the "reassuring numbers," they believe "the level of prepayment risk remains extremely high." Speeds for Fannie Mae 30-year coupons of 7.0% and higher generally fell 5%-15% from April levels, the analysts said. "These numbers are consistent with our theory that even in a low and stable interest rate environment, prepayments will experience a natural decay as the eligible pool of refinancers diminishes over time," they said. "Indeed, we believe that only a clear break-out from this trading range will reverse the slowing trend and produce a significant refinancing surge." There were exceptions to the slowing trend in the discount sector, where most Fannie Mae and Ginnie Mae speeds increased.

Financial Security Assurance Inc. and Nomura Holding America Inc. have each purchased a 25% share of Fairbanks Capital Holding Corp., a Salt Lake City-based subprime mortgage servicer.Thomas D. Basmajian, Fairbanks Capital's chief executive officer, said the purchases (through a special-purpose business trust) will produce an important strategic alliance with FSA and Nomura. "The demand for specialized servicing skills is growing due to the expansion of the subprime market and the inevitable rise in consumer delinquencies that a larger market generates," Mr. Basmajian said. "Given our experience in purchasing distressed residential mortgage assets, we are well positioned to expand our business in asset acquisition and third-party servicing." Fairbanks Capital's Combat Servicing program provides third-party collection services on a fee basis for loans delinquent for 60 days or more. The company also offers fee-based servicing for performing assets. Cargill Financial Services Corp. retains a 25% share of Fairbanks Capital, and the remaining shares are held by management.

Societe Generale has acquired Meenan, McDevitt & Co. Inc., a firm specializing in the sale of performing and nonperforming commercial mortgages, syndicated real estate, residential mortgages, and other types of loans.The terms of the acquisition were not disclosed. Twelve top officials from Meenan, McDevitt will join the firm as managing directors, with Kevin Meenan heading loan sales and Tom McDevitt heading portfolio sales for SG Americas. "The hiring of this highly respected team facilitates our transition into a leading distribution channel for our clients," said Jerry Johnson, SG's managing director and head of corporate banking. Societe Generale Securities Corp. is a subsidiary of Societe Generale USA, the third largest foreign bank in the U.S.