Wholesale lenders hit hardest by slump.

The longest and most pained faces in today's home-loan industry belong to the wholesale lenders.

With reduced loan-origination volume and heated price competition, mortgage bankers say wholesale lending - buying loans and servicing from mortgage brokers - is a pale shade of what is was in 1992 and 1993. And it will not be the same again for many years, some observers say.

"If you built your business on the broker business, you are really taking it in the shorts right now," Kevin D. Race, chief financial officer, Heel Mortgage Group, Charlotte, N.C.

While all of mortgage lending has suffered from the severe production downturn, wholesale lenders have faired worse.

Price-War Impact

The lender with the lowest price now attracts what little broker business remains, say analysts and bankers. In many cases, the price competition has changed profit margins on loans purchased from brokers into loss margins.

Since most brokers lack the type of real estate agent contacts needed to produce purchase loans, the downturn in refinancings has been crushing.

The Mortgage Bankers Association of America reported that only 11.2% of all loans in mid-July were refinances. That's down from a high of 65.9% last September, during the height of the refinance boom.

The drop off in refinances has made wholesale loans painfully paltry. And lenders and analysts predict it will drive some lenders to close up shop - for good.

'A Bloody Business'

"There is no question this is a bloody business right now," said Jonathan Gray, research analyst at Sanford C. Bernstein & Co.

And the bloodied are not just minor players who entered the wholesale-lending market when loan refinancing became lava hot in 1992. All major lenders-including Fleet Mortgage Group, Plaza Home Mortgage, and Countrywide Credit Industries - have felt the sting of the current wholesale market.

The home loan unit of Prudential Insurance Company of America alone has cut 35%, or 1,600, of its staff this year. The layoffs are due in part to Prudential's reliance on wholesale lending, said Donald K. Erling, executive vice president.

While interest rates are the reason for the industry's souring, the means is "kill-to-eat" loan pricing, said one lender.

Since February, lenders have been wholesale pricing like cornered cats, scratching, clawing for the bits of business left.

At Fleet Mortgage, for example, the pretax profit margin on the loans it produced dropped about 90 basis points, or 0.9%, from the second quarter 1993 to the three months this year, according estimates by Mr. Gray.

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