In the year ahead, expect pain for some mortgage banks and gains for thrifts, advises Gary Gordon of Paine Webber Inc.
Rising rates hurt mortgage banks that specialize in fixed-rate loans while lifting thrifts that offer more adjustable-rate loans.
After a marginally better fourth quarter, Mr. Gordon anticipates many of the smaller mortgage banks will fade from the business, and that should improve profits for the survivors.
Mr. Gordon -- named top thrift analyst in the American Banker survey -- especially likes the big-three thrifts in California, Great Western Financial Corp., Golden West Financial Corp., and H.F. Ahmanson & Co. He says good loan volume and high quality loans point to higher profits in the next year for these companies.
Mr. Gordon maintains his buy rating on Countrywide Credit Industries, saying "Its loan-servicing portfolio can generate enough income to support the stock price."
Perhaps more significant than some of the competition-driven exits, according to Mr. Gordon, is the long-term technology-based change in the industry.
When Fannie Mae and Freddie Mac roll out their computer systems in 1995, the role of the mortgage banker may be diminished. "Fannie and Freddie should do a good bit of underwriting for the industry in the next few years," says Mr. Gordon.
"There are a lot easier ways to earn a living than being a mortgage banker," he said.
