Will Bear's Servicer Find a Fit at JPM?One of the questions raised by JPMorgan Chase & Co.’s deal to buy Bear Stearns Cos. is what would happen to EMC Mortgage Corp., the servicing business Bear created in 1990, primarily to work out troubled loans.
American Banker | Monday, March 24, 2008
By Kate Berry
Both Bear and JPMorgan Chase said last week that it is too soon to tell. Clearly, there is a market for servicing operations — the billionaire Wilbur Ross agreed last week to buy such an outfit from H&R Block Inc. and said he plans further acquisitions.
But observers said JPMorgan Chase would have good reason to hang on to EMC, which is known for its acumen for workouts, since the banking company has $2.6 billion of nonperforming mortgage and home equity loans it would have a hard time unloading in the current market.
“If you’re an owner, you can make more value through good servicing and loss prevention, which is a valuable business, particularly in this environment,” said Kevin Kanouff, the president of the fixed-income services unit of Clayton Holdings Inc., a Shelton, Conn., due diligence, surveillance, and loan servicing firm.
“Servicing is a valuable asset, and it’s where the money is to be made today. It would be surprising to have that go away.”
Tom LaMalfa, a managing director at Wholesale Access Mortgage Research and Consulting Inc. in Columbia, Md., said that right now every lender needs servicing capacity to handle the deluge of bad loans that must be worked out.
EMC is “a diamond in the rough,” Mr. LaMalfa said. Its servicing operations would be “complementary” to the mortgage operation JPMorgan Chase has been building, such as the warehouse lending business it acquired last year from Washington Mutual Inc. “There was no comparable nonprime servicing at Chase, so this really fills in all the cracks.”
According to a source familiar with both companies’ servicing operations, EMC is likely to be merged with Chase Home Finance LLC’s default management group in Irving, Tex.
Observers said that to avoid the kind of disruptions that typically occur when large portfolios are acquired, JPMorgan Chase may need to run the businesses separately for a time.
Technology is also an issue. JPMorgan Chase is upgrading its servicing platforms to Fidelity National Information Services Inc.’s mortgage servicing package, which automates functions like default management. The updated system is expected to cut costs and let JPMorgan Chase handle larger volumes.
EMC has been using the same Fidelity servicing package for years, but any integration would have to wait until JPMorgan Chase’s conversion is complete, the source said.
Last year Bear acquired Encore Credit Corp. of Irvine, Calif., and had previously consolidated EMC’s operations primarily into two adjacent two-story buildings in Lewisville, Tex. JPMorgan Chase’s servicing operations are headquartered in Columbus, Ohio, and include six servicing centers nationwide and three foreign locations, according to Fitch Inc.
John Vella, the president and chief operating officer of EMC, joined the Bear unit in 2006. He previously held those titles at Aames Investment Corp., now part of Accredited Home Lenders Holding Co. Before that he had been the chief sales and administrative officer at Option One Mortgage Corp.
Jim Miller, JPMorgan Chase’s managing director of default services, joined the company in 2005. Before that he had been a managing director at CitiFinancial Mortgage Co.