It was only the beginning.

The spate of mergers that took place between mortgage banks this year was just the start of what could turn into a wave of companies exiting the business.

At least one of the top 10 mortgage servicers will be acquired in 1997, says David M. Partridge, a director at Towers Perrin, a consulting firm in Valhalla, N.Y.

In addition, he said, as companies become increasingly dissatisfied with low profit margins, one of the top five servicers may sell off that side of its business.

Mr. Partridge and Paul T. Johnson, another Towers Perrin consultant, would not single out lenders that they thought were looking to sell. But the two said they could identify companies that are likely to stick around. This category includes Norwest Mortgage, Countrywide Credit Industries, NationsBanc Mortgage, and BankAmerica Mortgage.

Norwest and Countrywide are the two largest servicers in the nation. NationsBanc ranks sixth and BankAmerica eighth.

Mr. Partridge also predicted that some 20% of all servicers will sell their portfolios in 1997. If that happens, $500 billion in servicing rights could change hands, he said.

On the originations side, Mr. Johnson predicted that 10% to 20% of lenders will exit the loan production business, because it is the least profitable part of mortgage banking. He said that only a significant drop in interest rates would prevent a rash of companies from selling or closing down.

The two consultants said the new year will also present other challenges to the industry. Mr. Partridge said one wild card is whether real estate brokers will be able to compete with traditional mortgage banks.

In November, HFS Inc., owner of real estate brokerage agencies Century 21 and Coldwell Banker, said it would purchase PHH Corp., one of the largest mortgage originators.

Mr. Partridge said that if HFS can get 30% to 40% of its brokerage customers to also apply for a PHH mortgage, it will create a fundamental change in how mortgages are originated. The merger could make it easier for customers to get a loan at the point of a home purchase, he noted.

Mr. Johnson said technology companies will also begin to play a larger role in mortgage banking. He said software producers like Microsoft, which are known for effective marketing and distribution of products, could partner with financial institutions to offer alternatives like the Internet as a place to shop for mortgages.

"Customers are clearly accepting of people like Bill Gates," Mr. Partridge said.

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