GMAC Mortgage Group Inc. has bought the mortgage operations of Capstead Inc. for $550 million in cash in a transaction that would vault it into the top five mortgage servicers.
Market sources said GMAC edged out the mortgage units of Chase Manhattan Corp. and PNC Bank Corp. for Capstead's $38 billion of mortgage loan servicing rights and a state-of-the-art system.
The deal would give the unit of General Motors Acceptance Corp. $125.9 billion of servicing. That would move it ahead of Fleet Mortgage Group, which had $118.2 billion at Sept. 30, and behind Chase, which had $183.7 billion, in a business where size increasingly matters.
BankAmerica Corp., with $241.9 billion, Norwest Mortgage ($232.7 billion), and Countrywide Credit Services ($194.6 billion) are the top three mortgage servicers.
Capstead, one of a dwindling number of independently owned mortgage banks, was unprepared for declining interest rates this year and put its loan servicing business on the block after reporting an $11.8 million loss for the third quarter.
"The sale reflects the continued uncertainty in the mortgage finance market. It just represents too great a risk for our stockholders," said Andrew Jacobs, chief financial officer of Capstead Mortgage Corp., parent of Capstead Inc.
The deal would lift the number of loans serviced by the GMAC unit by 40%, to about 1.5 million. GMAC Mortgage has a goal of servicing two million customers by 2000 and plans "to continue acquisitions and aggressive growth," said senior vice president Dennis Kirkpatrick. "We are always in the market looking."
About 200,000 loans from Dallas-based Capstead Inc.'s servicing portfolio will be transferred to GMAC Mortgage's Waterloo, Iowa, office by February, GMAC said. The remaining 200,000 loans are expected to be converted to the San Diego center in July or August.
The GMAC unit said 160,000 loans of its current total are serviced by a business unit of GMAC Mortgage, Consumer Loan Servicing Group.
The second part of the deal is with GMAC Residential Funding Corp.'s unit, Homecomings Financial Network Inc., which would acquire Capstead's technical platform, including systems and employees.
Jeff Detwiler, a managing director of RFC's securitization business, said employees would not be moved from the Dallas office because of the company's "commitment to the Dallas market" and the advantages of "having operations in various markets.
The deal follows a three-year relationship in which Capstead serviced Homecomings Financial's jumbo loans on a private-label basis. Mr. Detwiler said Capstead is an efficient servicer that would complement GMAC's securitization efforts. "The value of a bond is only as strong as the underlying assets," he said.
Capstead faces at least a dozen class actions by its investors for allegedly issuing false statements to inflate its stock price.
PaineWebber stock analyst Gary Gordon said the sale of servicing rights eliminated a source of risk for the company and would let it continue to invest in mortgage assets. Capstead shares rose $1, to $4, Friday on news of the transaction.
"Capstead has $700 million in capital, with less than $250 million spoken for now. That means they have $450 million in free cash," Mr. Gordon said. "This is a major restructuring that (gives) Capstead a lot of excess capital, and now they are looking for something else to buy. They have the same ability to invest today, just less already invested."
Cohane Rafferty Securities Inc. represented Capstead in the deal.
