A merger between First Union Corp. and First Fidelity Bancorp would create more than just a banking Goliath. It would make the new company the dominant home equity lender east of the Mississippi.

The combined entity would be the second-largest home equity lender in the nation, with holdings of $4.2 billion at the end of 1994. Only BankAmerica Corp.'s $6.6 billion was larger.

But questions have been raised about whether the megabank will be able to make the most of its home equity lending muscle.

"They could be a factor, my gosh, a significant factor," said C. Stuart LaDow, an Allison Part, Pa., consultant specializing in home equity lending. "Will they do it? The jury is still out on that one."

The first problem for First Union and First Fidelity is that the structures of their home equity lending operations differ vastly.

First Union does much of its home equity lending through a subsidiary, First Union Home Equity Corp., also based in Charlotte, N.C. Meanwhile, Newark, N.J.-based First Fidelity originates most of its home equity loans through its branches.

"There will have to be a priority established within the new institution to really get in and set up an entity designated to concentrate on home equity lending," Mr. LaDow said.

Greg M. Hining, president of First Union Home Equity, said that the two banks would likely work separately at first.

"As time goes on, I am sure we will all be looking for ways to help each other out," he said.

He said consumer lending executives at the two banks would soon meet to resolve any competitive conflicts that may exist. (First Union Home Equity has some offices in First Fidelity's market.) He also expects that First Union may be able to initiate First Fidelity into the arena of making loans to credit-impaired borrowers.

"Hopefully, we will be able to leverage off each other," he said.

But leveraging may not be enough, warned Mr. LaDow, the consultant. He said First Union, though a successful home equity lender, had not been as aggressive as it could be. He said that would have to change in order for the First Union-First Fidelity home equity marriage to work.

David Olson, a Columbia, Md., consultant, said the new bank would be challenged ever further to achieve home equity lending success on the East Coast. The East has shown slower growth in home equity lending than other regions, he said.

According to Regional Financial Associates, a West Chester, Pa., consulting firm, home equity loans outstanding in First Fidelity's main territory - New York, New Jersey, Connecticut, and Pennsylvania - grew only 0.1% in the fourth quarter last year from the level in the 1993 quarter. In Connecticut alone, home equity lending dropped 7.2% during that period.

First Union's region was a bit better. Its seven-state turf saw home equity loans outstanding increase 7.8%, according to Regional Financial Associates. But that's a far cry from the 11% growth in the Great Lakes region.

Mr. Hining is not concerned. He said First Union has been expanding its home equity lending nicely - with First Fidelity as a competitor in some markets. Together, they should fare even better, he said.

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