Talk of mergers and acquisitions once again drove trading in mortgage banking stocks last week, as yet another major player acknowledged that it was seeking a buyer.

This time, American Residential Mortgage made the announcement, and the news had an immediate and spectacular effect on the California-based mortgage lender's shares.

After Am Res stated last Monday that it had retained Salomon Brothers Inc. to seek out a mortgage-hungry bank, the company's common stock took off. A surge that lasted until the end of the week skyrocketed the shares by 35%, to $23.25.

Express America Mortgage, Arbor National Mortgage and Lomas Financial have all retained investment banks in recent months.

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Expressions of Interest

American Residential indicated last week that it had received "preliminary expressions of interest" from outside parties, presumably commercial banks. Last week a rumor was making the rounds that a major moneycenter bank was looking over the lender's books.

Any company that buys American Residential will purchase both a sizable portfolio of mortgage servicing rights and a far-flung originations network.

At the end of last year, American Residential owned the rights to process payments on mortgages totaling more than $18 billion. The company also originated $9.7 billion of home loans last year.

American Residential's announcement gave a shot in the arm to the share price of other mortgage companies that are viewed as potential targets.

North American Mortgage rose $1.375, to $24.125. It, too, is viewed as an attractive target. The company has hired an investment bank, sources say, but has also publicly stated that it is not for sale.

Mortgage banks are being driven to consider selling to commercial banks primarily by two strong forces. First, the fundamentals of the home lending, a cyclical industry, are clearly in decline. After a record year for originations in 1993, rising rates have choked refinancings down to almost zero, resulting in volume that is down 30% to 40%.

But of more importance, according to analysts, is that commercial banks have demonstrated a willingness to pay substantially more for mortgage banking assets than they are fetching in the public markets.

However, some investment bankers are beginning to wonder if the flood of companies being offered will suppress prices.

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