BANKING / FINANCE : Shearson Lehman Hutton Seeking Bigger Piece of Mortgage-Servicing Pie

Large mortgage bankers don’t make their money by selling the loans they originate to investors. They generate most of their income from fees they charge for servicing those loans--sending out bills, collecting payments and paying taxes and insurance for the investors.

And it is a big business.

Shearson Lehman Hutton Mortgage Co. in Newport Beach, one of the nation’s largest mortgage bankers, was servicing more than $14.1 billion in loans at the end of December. That made it the nation’s sixth largest--and California’s largest--mortgage servicing firm last year, according to American Banker, a daily trade newspaper.

Though the company would not reveal financial details, mortgage firms typically receive a fee of about 0.4% of the loan amounts they service, the American Banker said. That’s $60 million in revenue for a firm servicing $15 billion in loans.

The company expects its servicing unit to grow even larger this year. It is considering the purchase of servicing rights to $5 billion in loans, said Walter P. Blass, the firm’s chairman and president.

The company, a subsidiary of Shearson Lehman Hutton Inc., also is negotiating to build a 150,000-square-foot structure to house enough servicing operations to handle up to $50 billion in loans. The company plans to build on one of four sites near its current San Bernardino servicing center.

The goal is not to be the biggest servicer, just the best servicer and the most profitable one, Blass said. The biggest is Citicorp Mortgage Inc., a St. Louis subsidiary of New York’s giant Citicorp banking company. Its servicing portfolio had $52.2 billion in loans last year.

There is certainly room to grow. Despite its size, Citicorp had less than 2% of the market. In fact, the top 100 mortgage servicing operations accounted for less than 20% of the $3 trillion in outstanding mortgage debt, according to the American Banker.