Why the Top Five Won't Be Buying Anytime Soon.(mortgage banks)

In case you haven't noticed, the top five residential servicers in the U.S. have a combined market share of 43%. The top 10, as a group, have a 53.33% market share. Translated into English, that means the top five service a huge chunk of the $6 trillion or so in outstanding mortgages on our shores.

It's no secret in the industry that consolidation among residential servicers has been rampant. The trend really caught fire back in 1996 when Norwest Mortgage (since merged with Wells Fargo) bought one of its top competitors, Prudential Home Mortgage of Clayton, Mo.

At the time it was the largest deal in the annals of mortgage banking, involving $81 billion in servicing rights. Eventually, Norwest/Wells wound up with about half the $81 billion, because it didn't want the risk associated with some of Pru's jumbo product.

Since that deal, it's been off to the races for mortgage M&A, with Wells, Chase Manhattan and Washington Mutual each taking their turn and being the aggressive acquirer of the year. (Countrywide, smartly, has avoided taking a drink from the M&A bottle.)

In 2002, WaMu was the big kahuna of mortgage M&A buying both Dime Savings/NAMC of New York and CalFed and its First Nationwide unit. But don't expect the M&A gauntlet to heat up any time soon. As one investment banker put it: "The M&A business is dead, period."

Yes, even WaMu is taking a rest from gobbling up competitors. Wells? Mark Oman and company don't seem interested in buying anymore, neither does Chase (parent: J.P. Morgan), which probably still has a bad taste in its mouth from its acquisition of midsized subprime lender/servicer, Advanta Mortgage.

Stated differently, the top five servicers which also happen to be (more or less) the top five loan producers, don't need to buy anymore because they've already become fattened cows. And in this business, when it comes to servicing, being fat, or big, I should say, is good.