California mortgage lenders greeted the news of H.F. Ahmanson & Co.'s bid for Great Western Financial Corp. with something akin to glee.

While the deal would create a home-loan behemoth in the state, competitors saw the bid more as a sign of turmoil and indecision at the thrifts, and as an opportunity to pick up displaced customers and loan officers.

"You won't necessarily get one plus one equaling two," said Terrance G. Hodel, president of North American Mortgage Co., a big lender on the West Coast. "Together, they could be even less of a force." He said each had previously kept the other on its toes.

Walter C. Klein Jr., chief executive officer of First Nationwide Mortgage, another West Coast lender, is looking on with anticipation. "We probably have an appetite for a few good people," he said. "I think we will be opportunistic."

The stakes are high. California alone accounts for about one-quarter of the nation's mortgage volume, and the market is on the upswing. With so much on the line, recent alliances-like Washington Mutual's purchase of American Savings and Wells Fargo's purchase of First Interstate-drew groans from lenders concerned about stepped-up competition in California.

But that does not appear to be the case with Ahmanson's overture to Great Western. The in-market merger would couple two thrifts that, while powerful, specialize in just one product-the adjustable-rate mortgage.

Given current interest rates, most consumers are seeking fixed-rate mortgages, said Gregg Bennett, president of Hamilton Carter Smith, a mortgage investment bank in Beverly Hills.

Industry experts also say the merger offer comes at a time when the two thrifts' mortgage strategies are being redeveloped.

The combined operation would not be as nimble as a pure mortgage bank, one executive maintained. "The only time I'm ever afraid is when something is bearing down on me at high speed," said Angelo Mozilo, chairman of Countrywide Home Loans, another giant California lender. Mr. Mozilo has often been scornful of what he regards as the sluggish thrift industry.

On paper, the combined company looks like a powerhouse, with $11 billion of originations and a servicing portfolio of $109 billion. A merged Ahmanson and Great Western would have been the 10th-largest originator and seventh-largest servicer overall last year.

But a closer look shows that both companies' mortgage operations fared poorly in 1996. Ahmanson originated $5.2 billion, down 19% from 1995's total. Great Western originated $6.1 billion, down 17%.

And 1996 was a year in which most lenders saw loan production increase. This was especially true in California, "a massive market," said David Partridge, a director at Towers Perrin, a financial consulting firm in Valhalla, N.Y. "If you ever want to do retail, this is the place to do it."

Bruce G. Willison, Ahmanson's president, said that nobody should count out the combined lender. The merger would give Ahmanson a chance to show off its new mortgage system on a grand scale, he said.

Indeed, the combination would create "a bigger institution that can bring more clout to the table," said Paul Reid, president of American Home Funding, Richmond, Va.

Ahmanson has spent millions of dollars during the past three years to develop a sophisticated system that would save money by melding mortgage with other retail operations.

"One of the predominant trends in mortgage lending has been a return to economies of scale," Mr. Willison said.

But technology aside, big staff cuts, especially in an in-market merger, are one of the chief ways of saving money.

Ahmanson is willing to bring some executives over from Great Western, but it's too soon to say whom, said Ahmanson chairman Charles R. Rinehart.

This could be bad news for the lending team at Great Western, a mix of longtime insiders and fresh talent. Retail chief William Schenck came over from PNC Bank Corp. last year to oversee a group that includes veteran Sam Lyons, senior vice president for mortgages.

In December, Great Western hired Ray W. Sims, formerly chief executive of Knutson Mortgage, as executive vice president for mortgage lending. And Lawrence Spera, Knutson's secondary marketing chief, came over last month to take the same post at the thrift.

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