Norwest to Buy Prudential Mortgage-Lending Unit

Norwest Corp. said it will buy Prudential Insurance Co. of America’s mortgage-lending unit and half its $80-billion mortgage-processing business to bolster its No. 1 position in the consolidating U.S. mortgage industry.

Minneapolis-based Norwest and Newark, N.J.-based Prudential did not disclose terms of the transaction.

Norwest’s purchase of Prudential Home Mortgage Co. adds the nation’s fourth-largest mortgage operation, with $15.7 billion in loans last year, to the biggest mortgage lender in the United States.

The banking and financial services company, through its Norwest Mortgage Inc. unit, also agreed to buy 50% of Prudential’s mortgage-servicing business, which handles billing and processing for a fee.

“We will be a leader in virtually all channels in the business,” said Mark Korell, president of Des Moines-based Norwest Mortgage.

The acquisition will improve Norwest’s earnings per share in the first year, the company said.

Norwest Mortgage in the third quarter surpassed Pasadena-based Countrywide Credit Industries Inc. to become the largest U.S. mortgage lender, according to Inside Mortgage Finance, a trade publication. The Norwest parent company has $72 billion in assets and more than 3,000 offices in the United States, Canada, the Caribbean and Central America.

Norwest will also become a sub-servicer for the remaining $40 billion in the Prudential mortgage portfolio--handling the billing and processing--while Prudential retains ownership of the servicing rights.

“There’s a handful of mortgage companies that could take on something of this size, and Norwest is probably the perfect example,” analyst Joseph Duwan of Keefe Bruyette & Woods Inc. said.

Prudential put its St. Louis-based mortgage-lending operation up for sale in March so it could focus on its insurance business. The company in 1994 had the worst year in its now 123-year history, losing $1.2 billion because of lower insurance sales, payouts on catastrophe policies and litigation costs from a brokerage scandal.

Norwest didn’t purchase two other parts of Prudential’s mortgage unit--Lenders Services Inc., a Pittsburgh-based appraisal and title company, and Residential Information Services, a Dallas-based mortgage-servicing support unit.

The sale of a major part of Prudential’s mortgage business is the latest in a broad consolidation of the slumping industry. Banks and mortgage lenders found increased value in servicing old loans when new loans declined in 1994 amid higher interest rates.

Prudential’s mortgage lending dropped 36% last year from $24 billion in 1994, which was a 44% decline from $43 billion in 1993. Prudential Home Mortgage was the nation’s fifth-largest mortgage lender in 1995.

Prudential’s entire Residential Services Corp. has about 3,200 employees, with almost 1,000 in Frederick, Md., where it has a major servicing operation. Norwest agreed to buy that office, as well as another servicing center in Springfield, Ill.

Norwest spokeswoman Anita Liskey said it was too early to say whether the work force will be cut at the operations it is buying.

Norwest shares closed at $32.50, up 12.5 cents on the New York Stock Exchange. Prudential is mutually owned by its policyholders.