Home Equity: Virginia Utility Seems to Be Powering Up for Loan Push

Saxon Mortgage Capital Corp., the home lending unit of Dominion Resources Inc. - a major power and gas company - seems to have something big on the stove.

Observers say Saxon, of Richmond, Va., could be positioning itself for healthy expansion, just as many of its rivals are folding or downsizing because of capital constraints.

Lending volume has been on the rise, and last week Saxon promoted to its top spot an executive with impressive credentials in the subprime field.

Michael L. Sawyer, 42, now president of the mortgage unit, worked with such nonbank leaders as Household Financial Services, Novus Financial Corp. and Ford Consumer Finance before joining Saxon in 1995.

Saxon Mortgage Capital is one of five divisions in Dominion Capital, the finance subsidiary of Dominion Resources-the $18 billion holding company for Virginia Power and Gas. These deep pockets have helped Saxon avoid potholes other specialty lenders hit in recent months, analysts said.

Dominion Resources has been making mortgage loans since its purchase of Saxon several years ago. But business has really picked up: Saxon securitized more than $1.5 billion in mortgage loans in 1997, up from $672 million in 1996.

A decline in the profitability of loan securitization last year resulted in an upswing in the amount of loans Saxon held in its portfolio-$377 million in mortgage loans as of September, up 340% from the year earlier.

The parent company is looking to Mr. Sawyer to use his "combination of skills and experience with major national lenders" to help "maintain profitable momentum," Dominion Capital chief executive David L. Heavenridge said..

Many large utility companies have mortgage subsidiaries, noted Joan Goodman, a power company analyst with DLJ, Chicago. "They own lots of land, develop the land, and then sell the homes," making an in-house mortgage unit a natural fit, she said,

If a mortgage unit is generating a healthy capital stream, some utility companies even borrow cash from the division for other businesses, Ms. Goodman said.

Ms. Goodman said she expects utility companies to become bigger players in mortgage and financial services. "They're definitely concentrating on this," she said.

Utility companies are undergoing deregulation, much as banks were ten years ago, Ms. Goodman noted. These companies are selling generators and plants, leaving them with "piles of cash" to invest.

To utility companies, a mortgage firm is a "tremendously beautiful business, because they don't have to lay out capital for plants and equipment," Ms. Goodman said.

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