Magazine article American Banker

BancBoston and Barnett Join Forces in Mortgage Firm

Magazine article American Banker

BancBoston and Barnett Join Forces in Mortgage Firm

Article excerpt

BancBoston Corp. and Barnett Banks have struck an unusual deal to pool their resources in the rapidly consolidating mortgage business.

The banking companies announced Monday that they are forming a joint venture that will house $75 billion in mortgage servicing -$33 billion from Barnett and $42 billion from BancBoston. The new company - to be formed in the second quarter of 1996, pending regulatory approval - would rank sixth among mortgage servicers.

Each banking company will own one-third of the yet-unnamed entity, with the remaining one-third split between two venture capital firms, Thomas H. Lee Co. and Madison Dearborn Partners.

Observers hailed the cooperative approach as a creative way for the two companies to quickly achieve the economies of scale needed to compete in the servicing business.

"It's revolutionary," said Edward E. Furash, a Washington-based banking consultant. "Ten years ago, no one would have thought of this happening."

By sharing the costs of maintaining back-office staff and technology, BancBoston and Barnett - respectively the 14th and 30th largest servicers of mortgages - expect to trim operating costs and boost profits while sharing management expertise.

That goal is very much a trend in the mortgage servicing field. Servicing - the business of collecting and processing monthly loan payments - has long been the backbone of mortgage operations, supplying steady income from ongoing fees.

But increased competition and advances in technology have put great pressure on margins, forcing lenders to get bigger through acquisitions, find a specialized niche, or get out of the business.

Though they are pairing up to handle the back-office functions, Barnett and BancBoston intend to control their own lending activities.

Barnett will continue to originate its own loans, while BancBoston, which laid the groundwork for the venture last December, will use the joint undertaking as its lending vehicle. …

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