Mortgaging Someone Else's Future

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Cendant (NYSE: CD) CEO Henry Silverman built his company through aggressive M&A, which he learned at Reliance Group Holdings and the Blackstone Group. All good deal makers have a sense of finding values; they should also know when to bail.

That was the case last week when Cendant announced it was considering "strategic alternatives" for its mortgage business. Interestingly enough, Silverman does not want to completely let go. He wants a deal that allows for cross-selling with its other divisions, such as Century 21 and Coldwell Banker.

Cendant provided vague reasons for selling. Then again, the reason should be clear: The interest-rate environment is adversely affecting refinancings.

Cendant's mortgage business, however, is focused on servicing existing mortgages, which is believed to be more stable. For example, in May the Principal Financial Group (NYSE: PFG) sold its mortgage servicing business for a healthy $1.26 billion to Citigroup (NYSE: C). There are rumors that buyers such as Countrywide (NYSE: CFC) and J.P. Morgan Chase (NYSE: JPM) are spooked on doing mortgage deals, at least in the short term.

And they should be. The crash in earnings at Washington Mutual (NYSE: WM) was a shock to the Street. Besides, if Silverman does want to sell, is it really a good time to be buying?

Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements. He does not own shares in any stocks mentioned.