Slump Sends Calif. Lenders Scrambling For Business Within State,

The latest housing news from the Golden State is, as expected, quite dismal: TRW Redi Property Data says home sales fell by 12% in Southern California in 1995.

But lenders based in the state have hardly been caught by surprise.

The biggest companies have been following a basic strategy of reducing their dependence on lending within California.

Indeed, large lenders have had little choice but to become geographically diversified, said Sam Lyons, senior vice president of mortgage banking at Great Western Bank, Chatsworth, Calif. He said economic uncertainty continues to keep many Californians on the sidelines of the housing market.

"California is still our strongest state and will continue to be, but we have now achieved 50% lending outside California," Mr. Lyons said.

The nation's largest independent mortgage originator, Countrywide Credit Industries, Pasadena, Calif., is following a similar strategy. "If you look at the company about five years ago, about 40% of our originations were in California. Over the last five years, we've been able to decrease our reliance on the California market," said spokeswoman Laura Snow.

Countrywide has targeted the booming economies of Colorado, Utah, and parts of Washington and Oregon, Ms. Snow said.

Bank of America, Home Savings Bank, of Irwindale, Calif., and California Federal Bank are some other examples of large lenders who have sought out stronger markets outside California.

But what of smaller lenders for whom out-of-state diversification is not so easy?

Mark Zandi, chief economist at Regional Financial Associates, recommends that small lenders follow a niche strategy within the state.

"California is a very heterogeneous housing market," Mr. Zandi said. "Stay in the market, because you know it, but find those regional niches in the California economy."

Examples of strong niches include areas around the entertainment, tourism, and high-tech businesses, he said.

The $2 billion-asset Cenfed Bank, Pasadena, which makes loans only in California, announced last week that it would no longer purchase loans from wholesale brokers, because of tough competition in pricing. Cenfed will confine itself to originating loans through its branches, said William Nichol, chief financial officer.

In addition, the thrift will put more emphasis on making Small Business Administration loans, Mr. Nichol said.

At TRW Redi Property Data, analyst Nima Nattagh sees little relief for California lenders over the next several years.

"Lenders have to get used to lower origination volumes," Mr. Nattagh said. "Every year we hear the market will turn, and it hasn't happened."

He predicts that in coming years, California home sales will measure about 350,000 units, and purchase originations will be about $55 billion - roughly 40% of the heady levels of the 1980s.

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