Wall Street Watch: Centura Buys Its Way Into Securitizing Game

Some banks spend millions setting up stand-alone units to turn mortgages into securities. Centura Banks Inc. took a quicker and possibly less expensive route.

The Rocky Mount, N.C., banking company just purchased a large stake in First Greensboro Home Equity Corp., a company that creates its own mortgage securities. The Greensboro, N.C., lender makes the securities out of loans to people who have blemished credit records. These borrowers range from those who have missed a few loan payments to those who have a bankruptcy in their past.

Centura Banks, which delights in innovative programs like operating branches in supermarkets, believes the First Greensboro deal and the securitization program it provides are ideal.

"This is a great opportunity for us to diversify our income stream," said Robert R. Mauldin, chairman of Centura. "First Greensboro is a highly profitable, well-managed company in a growing market niche."

Representatives of both companies declined to disclose annual volume or the purchase price. Mr. Johnson did say the investment is expected to begin adding to the $5.5 billion-asset bank's bottom line within a year.

Demand continues to swell for the kinds of securities that First Greensboro produces. Securitizations of so-called B and C and home equity loans grew 28% in the first quarter, to $4.6 billion, according to Duff & Phelps Credit Rating Co.

First Greensboro, which was set up in 1989, operates 31 offices in 10 states. The company got in on the beginning of the boom for B and C loans that are packaged and sold to banks, life insurance companies, and other large investors.

Centura Banks purposely chose to invest in an outside company instead of setting up its own unit to originate and securitize B and C loans, said Ronald Johnson, the bank's senior vice president.

"We not only bought part of the company, we acquired its management's expertise," he said.

And to further motivate First Greensboro's management, the bank bought just 49% of the lender, so that its founders would retain a controlling interest.

First Greensboro executives said that although the company had a number of suitors, it was attracted by the commitment Centura was willing to make. "Centura is willing to invest in the future of our company," said First Greensboro's president, Buddy Jordan, who will continue to lead the company. "This alliance gives us all the ingredients needed to continue our growth plans."

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The Federal National Mortgage Association will begin a marketing tour in Japan this week on behalf of its mortgage-backed securities.

"It's a promising time to go back to Japan," said Gene Spencer, head of mortgage-backed investor marketing, who is leading the trip. The tour is its first in two years.

"There's anecdotal evidence that the Japanese are returning to the U.S. money markets with investments," a Fannie Mae spokeswoman, Kate Fralin, told Dow Jones.

From 1988 to 1992 Japanese commercial banks and insurance companies were active investors in mortgage-backeds. But those institutions pulled out in 1992, when "they got burnt early by mortgage derivatives that didn't perform," according to mortgage analyst Joseph Hu of Oppenheimer & Co.

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