The Ryland Group Inc. agreed yesterday to sell its mortgage-backed securities division to Norwest Bank Minnesota for $47 million as part of the Columbia-based company's strategy of focusing on its core homebuilding operations.
The sale of the institutional financial services division, which as of March 31 had a portfolio of $43 billion, is expected to close by September.
"Clearly this [division] was a strong contributor to our bottom line, but with our renewed focus on homebuilding, we believe we can put some pretty good numbers on the board," said Michael Mangan, a Ryland executive vice president and the company's chief financial officer.
Ryland had been working on a sale of the division since October, when it retained investment house Dillon, Read & Co. Inc. to market it as part of a larger push to devote resources to homebuilding, instituted by Ryland Chairman and Chief Executive R. Chad Dreier.
The company, the nation's third-largest homebuilder with sales of 9,121 residences and revenue of $1.6 billion last year, believes homebuilding represents its greatest potential for growth.
In comparison to the securities unit's pretax earnings of $10 million last year, Ryland's homebuilding operations generated an $11 million pretax profit in 1994.
Despite the division's sale, Mr. Dreier has pledged that the company will maintain a presence in the mortgage business, originating and servicing home loans. In 1994, Ryland Mortgage Co.'s loan production was $2.1 billion.
Ryland plans to use the proceeds of the sale to retire debt under a $250 million revolving credit line and invest in future homebuilding operations, Mr. Mangan said.
The sale is expected to have little effect on the mortgage-backed securities division's 140 employees, since Norwest intends to maintain the unit and all its workers in Ryland's Columbia headquarters, said Patrice Vick, a Norwest spokeswoman.
The division, a major component of Ryland's mortgage operation since its creation in 1982, administers publicly issued securities originated by Ryland and other lenders.
With a $43 billion portfolio, the division ranks as one of the 10 largest administrators in the United States.
In 1994, it generated revenue of $23.5 million and had expenses of $13.6 million, making up roughly one-quarter of Ryland's mortgage business. Those figures are expected to be dampened this year because of higher interest rates.
Norwest Bank Minnesota, a $14 billion lender and the largest affiliate of the $59 billion Norwest Corp., will fold the Ryland unit into its corporate trust department, which administers a $35 billion loan portfolio.