When It Comes to Servicing, Go Cheap.(Astoria Federal Savings and Loan Association)

Is anyone really surprised that Astoria Federal finally pulled the ripcord and decided to exit the business of servicing residential loans? Probably not. In fact, we may very well see many other Astoria Federal-like shops decide to outsource their servicing to firms such as Dovenmuehle, Cenlar, GMAC, Countrywide, take your pick.

For those of you who aren't well acquainted with Astoria's decision to outsource the servicing function, let's review the basics: According to figures compiled by Mortgage Servicing News, at mid-June, Astoria serviced $10.7 billion in home mortgages, ranking 48th nationwide.

On a market-share basis, Astoria controlled a meager 0.14% of the U.S. residential loan market compared to 12.1% for industry leader Countrywide Home Loans of Calabasas, Calif.

Let's face it - Astoria had no designs on being a top 20 ranked servicer, but like many firms, wanted to keep tabs on its customers. Sometimes, a shop that isn't making a whole lot of money on its servicing operation will stay in the business anyway because they want to maintain a basic core relationship with the customer with the hope of cross-selling other financial products to Joe and Mary Sixpack.

Was Astoria having trouble servicing loans? No, not at all. Announcing that Astoria was outsourcing its servicing function to Dovenmuehle, company CEO George Engelke Jr. noted that the thrift's servicing division "consistently performed at high levels." As far as its delinquencies are concerned, they're at record lows.

So what was the problem? Astoria is publicly traded and according to Mr. Engelke, a well-regarded industry veteran, "We must and will strive to increase operating efficiency in all aspects of our operations." (Stock analysts love that kind of talk.)

Initially, Astoria will take a $1 million hit to shift the servicing portfolio to the privately owned Dovenmuehle, which is headquartered in Illinois. (Keep in mind, Astoria will, technically speaking, own the underlying servicing strip.) Next year, Astoria hopes to save at least $2 million (pretax) by having Dovenmuehle handle the servicing chore for them.