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The greatest challenge faced by PNC Bank Corp. after it purchased Sears Mortgage in late 1993 was the huge drop in originations in the year following the transaction, according to James Rohr, president of the Pittsburgh-based PNC.
"If we say the Sears transaction went fine, the question becomes, 'How can you say fine when mortgage originations in 1994 fell like a stone?'" Rohr said.
The fact that PNC's purchase of Sears Mortgage Banking Group actually included three components helped, Rohr said. The $328 million price PNC paid for Sears Mortgage Group included a 6.5 billion savings bank in California, the Sears mortgage company with its large origination network, and the securitization corporation.
The Sears Savings Bank included a large portfolio of adjustable-rate mortgages, which performed better than expected in 1994, Rohr said. Because of the rising interest rates, our floating portfolio became an unanticipated benefit as prepayments slowed down to nothing."
PNC Mortgage Corp. of America, now based in Vernon Hills, IL, originated $2.31 billion in mortgages in the first six months of this year, and its mortgage servicing portfolio now stands at about $40 billion.
Originations fell dramatically shortly after PNC bought Sears, making the transition more difficult in many ways, Rohr said. "If anybody tells you that the origination market in 1994 and the first quarter of 1995 was a lot of fun, I'd hang up on them pretty quick. It was a very difficult market," he said.
PNC took a number of steps to streamline both its origination and servicing operations. Since the Sears transaction, PNC has reduced the processing center of the merged companies from 22 to five, Rohr said. That allows us to manage our fixed costs on the origination side much more...