The two largest bank-owned mortgage companies reported solid gains in net income in the second quarter, despite lower lending volume and higher interest rates.
Analysts said Norwest benefited from its huge servicing portfolio, while Chase's result was boosted by cost savings from merging the operations of Chase and Chemical Banking Corp.
Norwest's portfolio, the industry's largest, totaled $191.1 billion at June 30, a total that does not include subservicing.
The Des Moines unit of the Minneapolis banking company originated $12.6 billion in the second quarter, a 15.4% reduction from a year earlier and $23 billion in the first half of the year, a 13.9% drop.
Chase originated $16.3 billion in the first half of 1997, about a 2.5% reduction from last year's first-half production.
In a lower interest rate environment, servicing is worth less because people are more likely to pay off their loans quicker. But when rates fall, origination volume generally picks up.
Katrina Blecher, an analyst at Gruntal & Co., said Norwest hedges its portfolio very closely so any decline in servicing values would probably be offset by an increase in origination fees.
"Even if there is a downward movement in rates, their earnings really only have up to go," Ms. Blecher said.
Norwest Mortgage's net income increased 14.8%, to $35.3 million, in the second quarter. Net income from mortgage banking accounted for 10.7% of Norwest Corp.'s total profits. For the first six months of the year, net income was $69.1 million, a 13.1% increase from the previous year.
Ms. Blecher said that Norwest has been very conservative in accounting for its servicing rights, recording a $42 million amortization charge on servicing rights for the quarter.
Raphael Soifer, an analyst at Brown Brothers, Harriman & Co., noted a "great deal of overlap" in the mortgage units of Chase and Chemical Banking Corp.
Thomas Jacob, Chase Manhattan Mortgage's chief executive officer, said the consolidation of Chase's and Chemical's servicing operations is complete and "went without a hitch."
Mr. Jacob said production margins increased because origination expenses have declined since the merger.
Chase Manhattan Mortgage, Edison, N.J., earned $47 million, a 74% increase from a year earlier. For the first half of 1997, the mortgage subsidiary earned $97 million, 90% higher than the first six months of 1996. Chase's mortgage banking earnings accounted for just under 5% of New York-based Chase Manhattan Corp.'s total net income.
As of June 30, Chase's servicing portfolio was $167.1 billion, second only to Norwest.
He added that Chase has also bolstered its offerings of more profitable subprime loans-mortgages to people with poor credit histories-as well as home equity loans. In the first six months of this year, Chase originated $316 million in subprime loans.