Magazine article American Banker

Norwest Sells Its Mortgage Servicing Portfolio to GM's Car-Loan Subsidiary

Magazine article American Banker

Norwest Sells Its Mortgage Servicing Portfolio to GM's Car-Loan Subsidiary

Article excerpt

MINNEAPOLIS -- Norwest Mortgage, the mortgage banking subsidiary of Norwest Corp., is selling off its $11 billion mortgage servicing portfolio to the car-loan subsidiary of General Motors Corp.

Price was not disclosed, but other recent sales of mortgage servicing portfolios have ranged between 1.5% and 2% of face value. That would put the deal at somewhere between $165 million to $220 million.

The purchaser, General Motors Acceptance Corp., also bought a three-year option to take over Norwest Mortgage's 52 mortgage-loan production offices in 23 states. But right now it's interested only in servicing and collecting on loans. "That's compantible with our strength. We've done it since 1919," said a GMAC spokesman.

Does the sale leave Norwest in or out of the mortgage banking business?

"We're still in it, but competing in a different way. We'll continue to originate, package, and sell loans," said Dick Brinkman, president of the Des Moines-based Norwest Financial Inc. subsidiary who is on temporary assignment to the mortgage company.

Asked whether servicing wasn't the most profitable part of mortgage banking, Mr. Brinkman said it was. So why sell it? Norwest will now realize income earlier by selling the servicing rights on new loans to GMAC, rather than collecting it gradually over the life of the loans. "We still intend to make money as a result of servicing. Only we'll make it sooner," he said.

If GMAC decides after a close study that it likes the idea of loan production as well, it will exercise its option to take over the business, too. Such a move would leave Norwest with no mortgage banking activity. "However, we'd be free to start it up again," explained Mr. Brinkman. Sale Unrelated to Loss

He said the sale of the servicing part of the business was unrelated to the hedging loss suffered by the mortgage banking subsidiary last year. …

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