In just four months since the Chase-Chemical merger, Chase Manhattan Mortgage Corp. has used its muscle to land substantial new sources of business, swatting away some heavy-duty competitors.

The company recently landed a plum account as the preferred mortgage lender for the AFL-CIO, with the bank's large network of branch offices a key attraction that lured the labor organization away from telemarketing powerhouse PHH Mortgage Corp.

Marketing relationships with affinity groups - such as trade and professional associations and labor unions - are well established in the credit card industry. In mortgages, however, such marketing has been done mostly by a small cadre of specialists, including PHH.

The AFL-CIO deal, not yet announced, is already producing a steady stream of originations, sources inside Chase said. The affiliation with the powerful conglomeration of 79 unions, comprising about 13 million members, could swell into a flood of highly profitable loans, industry observers say.

Chase continues to pursue new affiliations, said Gregg Gorman, an executive vice president with the mortgage unit. The company has more than 100 affinity relationships and will be looking not only toward new companies but whole new markets. Corporate relocation is one area the mortgage lender is investigating for new alliances, he added.

Chase recently entered into a joint venture with Remax International, the large chain of real estate agencies, that could generate a lot of business. Chase is said to have beaten out several nationally prominent lenders for the deal.

Specialized marketing arrangements such as the ones with Remax and the AFL-CIO are coveted in the mortgage industry, because they are more profitable than cold prospecting for customers.

Before the merger with Chemical Banking Corp., Chase Manhattan had acquired American Residential Corp., La Jolla, Calif., and Chemical had bought Margaretten Financial Corp., Perth Amboy, N.J. This provided the merged company with a powerful network of mortgage offices, which are said to have been a key element in the AFL-CIO deal.

Norwest Mortgage Corp. and Prudential Home Loan, which have since merged, were said to be among the others vying for the relationship.

The AFL-CIO's previous partner, the very profitable PHH, specializes in marketing to affinity groups and has a reputation for efficiency.

"Market service dynamics change," a PHH representative explained when asked about the AFL-CIO's new choice. The company's centralized delivery system - through which loan transactions are conducted by telephone and channeled through its New Jersey or Colorado office - wasn't enough for the labor group, which "wanted a more hands-on connection," he said.

Chase Manhattan Bank has more than 700 retail branches, and the mortgage company has 200 nationwide. Union members can walk into any of them to apply for a loan, or make arrangements by phone.

Through Chase, members will also have the option of applying for FHA and VA loans. "PHH just couldn't meet the face-to-face responsibilities that these kinds of loans require," said John Ross, a representative from Union Privilege, the office of the AFL/CIO that sets up member benefits.

Chase has also provided several benefits to union members to sweeten the deal. It is offering a 2% down program (PHH had offered only a 3% down program), as well as a $250 rebate of the application fee, and more competitive rates.

"The majority of union members have higher-than-average incomes, but many of them were still locked out of homeownership" under the PHH program, Mr. Ross said.

PHH garnered more than $900 million in mortgage loans from the AFL-CIO in its four years as the group's designated affinity lender. Chase is hoping that the additional incentives it is offering will increase that number.

Although Chase was given the assignment a few months ago, when PHH's four-year contract expired, the AFL-CIO has put off announcing the deal until all details are ironed out.

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