US braces for a correction

Dutch bank ABN Amro Holding NV is contemplating selling its once celebrated US mortgage division.

A spokesman for ABN Amro Mortgage – the nation’s largest wholesale lender a few years ago – declined to discuss the matter, citing a company policy not to comment on “rumours and speculation.” (Wholesale lenders originate loans through independent brokers).

If ABN Amro Mortgage is indeed up for sale it would not be alone. With residential production volumes waning and home sales down dramatically in the US, the industry is bracing itself for a correction that could result in several hundred lenders leaving the business, either through mergers and acquisitions or failure.

Last week, H&R Block, a tax preparation company, revealed it might sell California-based Option One Mortgage, the sixth largest sub-prime lender in the US.

And in another deal, New York Mortgage Trust, has hired Miami-based Milestone Advisors as an adviser and is engaged in merger talks with an undisclosed buyer.

Among residential funders, NYMT ranks 70th in the US.

ABN Amro Mortgage ranks 17th among residential originators and eighth among servicers.

At the end of June it had $219bn in servicing rights (receivables) on its books.

In 2002 it funded $90bn through the wholesale channel, ranking first in the industry. Over the past two years its wholesale volume has fallen dramatically.

It also has relied heavily on conventional product, which has lost significant market share to non-traditional loans such as alt-A, payment option adjustable rate mortgages and interest-only mortgages.

Even though ABN’s wholesale unit (which is called InterFirst) is a shadow of its former self, one adviser noted that the company has been aggressively bidding on bulk servicing portfolios (mortgage receivables) the past few months, an activity that might seem strange for a company exiting the business.

As reported, the Dutch bank is in the throes of restructuring its operations and recently unveiled mixed Q3 results. However, its North America division reported an 8% increase in profits, helped in part by higher mortgage revenues.

A few years ago rumours surfaced that ABN Amro Mortgage was for sale but nothing ever came of it.