Crestar to buy Ryland Funding Group Merged wholesale mortgage operation to cover 40 states

February 08, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Crestar Financial Corp.'s mortgage unit said yesterday that it has signed a definitive agreement to acquire Ryland Funding Group, the wholesale mortgage banking operation of Columbia-based Ryland Group Inc.'s mortgage subsidiary.

The deal, which is expected to close June 1, gives Crestar Mortgage Corp. a larger book of business, and offices in Reston, Va.; Denver; Oak Brook, Ill.; and Laguna Hills, Calif.

Crestar said it will pay cash for the unit, but declined to disclose how much.

"The combination of Ryland Mortgage Co.'s wholesale business with Crestar will broaden Crestar's product lines and create a truly national presence, servicing mortgage brokers in over 40 states," said Marc C. Smith, president of Crestar Mortgage.

Crestar Mortgage, which has six regional offices, plans to merge Ryland Funding's operations into its wholesale banking division. Sterling Edmunds, Crestar Mortgage executive vice president, said Crestar will consolidate Ryland Funding's Denver and Chicago offices. Mr. Edmunds said he hopes he won't have to cut any of the unit's 100 workers, who are spread among its four locations, because both companies have not been filling vacancies since negotiations began about four months ago.

Ryland Group's decision to sell the unit was expected. R. Chad Dreier, Ryland's president and chief executive, has pushed to focus the company on homebuilding and originating mortgage loans using Ryland's retail operations, spokeswoman Kathy Krach said.

"The mortgage company feels they can maximize their profit potential by focusing on the retail mortgage operation, where they have direct access to the customers, rather than doing it through brokers," she said.

In July Ryland sold its mortgage securities administration business, which employed 145 people and serviced 546 securities with a balance of $43 billion. The sale of Ryland Funding comes on the heels of a disappointing year for the homebuilder, which reported Tuesday that it lost $2.6 million in 1995 because of an accounting change and stiff competition.

Crestar Mortgage is the largest Virginia-based mortgage originator, and the nation's 40th largest as of June 30, 1995, according to American Banker.

With the acquisition, Crestar Mortgage's origination capacity will exceed $3.5 billion annually. The unit currently services $11 billion in mortgages. Ryland Funding originated about $750 million in mortgage volume last year.

Both operations originate mortgages from consumers, then package and sell the loans to such buyers as the Federal Home Loan Mortgage Corp., better known as Freddie Mac.

Mr. Edmunds said the acquisition not only stretches Crestar's reach into California, a huge mortgage market, but it expands the company's product offering.

Ryland Funding has created a niche originating mortgages from consumers with blemished credit histories -- an area Crestar has avoided because it hasn't had the expertise, Mr. Edmunds said.

"We think it has considerable potential because there is not as much competition in that arena," he said.

The acquisition also gives Crestar Mortgage's parent company, Richmond-based Crestar Financial, a way to generate more business while relying less on commercial lending. Many banks are looking for products and services that will bring in business and reduce their reliance on loans that they must keep on the books.

"That is one of the main reasons we did it, to generate fee income," Mr. Edmunds said.

Crestar Financial has been a prolific acquirer of banks and thrifts over the years. At year's end, it snapped up Baltimore-based Loyola Capital Corp. for about $259 million.

Michael Coiro, an analyst with Johnston, Lemon & Co., a Washington-based brokerage company, said mortgage servicing can be a highly profitable business, especially for large companies like Crestar that have systems in place to handle increased volume. The bigger the business, the more lucrative it becomes, Mr. Coiro said.

"You either expand it, or get out of it," Mr. Coiro said. "They are of the size that it is worth it to grow the business."

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