After Merger, BankAmerica May Rank No. 1

In linking up with Security Pacific Corp., BankAmerica Corp. should cement its position as the leading mortgage originator in the huge California market. Indeed, the new company may well rank as the most active originator in the country.

"It's going to be a formidable competitor," said E.S. Lyons, manager of mortgage banking for Great Western Bank, Beverly Hills, Calif.

In the first half of the year, BankAmerica wrote an estimated $4.5 billion of home loans, while Security Pacific reported $1.5 billion in originations. The combined production virtually tied the $5.9 billion of Norwest Corp., the nation's No. 1 originator for the period.

8% of California Market

The new company also will be a major player in the business of servicing mortgages for investors, possibly achieving significant economies of scale. Though neither partner now appears in the top 25, the combined entity will rank around No. 15, handling $15 billion in loans. (The servicing portfolio will be closer to $40 billion if loans held by the company are counted).

Without question, the greatest market impact will be in California, where both merger partners have focused their mortgage efforts.

Recent lending levels suggest that the new BankAmerica will account for 8% of all originations of first and second mortgages in California. BankAmerica's share, which is now about 5.5%, will then be more than twice that of its closest rival, Home Savings of America, according to Mortgage Information Corp., San Francisco.

As BankAmerica and Security Pacific begin originating as one, "the biggest issue will be how extensively they use all their branches," said Dan Feshbach, president of Mortgage Information.

Historically, big banks have made little use of their branches for originations, relying instead on commissioned loan officers calling on realty brokers and homebuilders.

Increasing Branch Originations

But the two merger partners, particularly Security Pacific, have made big pushes to pump up branch originations in recent years. Experts say the combined entity will have an extraordinary opportunity for such lending: some 2,000 branches, even after closing redundant sites.

The new company could also benefit from some complementary strengths of the partners.

The current BankAmerica, for example, brings a broad array of origination techniques, including an active program of originating through mortgage brokers and other institutions. Security Pacific, meanwhile, is considered top-notch in selling loans on the secondary market, an activity that increases the capacity to originate.

Consistency in Key Products

There are some other pluses, too. Frank Shultz, the head of BankAmerica's mortgage operations, is thought to be on friendly terms with Security Pacific's Scott McAfee. Mr. McAfee led his company's mortgage effort until recently, when he assumed broader responsibilities in consumer lending.

And the companies already see eye to eye on key products. Most notably, both have made heavy use of an unusual type of adjustable-rate mortgage that is pegged to yields on certificates of deposit. The banks say the loans fit well in their portfolios - and competitors have found the interest rates hard to match.

All the same, the merging of the mortgage operation is sure to have some rocky moments - particularly in the area of staffing. "These things always disrupt the hell out of the people," said a senior mortgage executive at another large bank.

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