HFS Inc., the giant hotel and realty franchiser, is getting ready for a massive push into mortgages that could quickly make it one of the nation's top five lenders.

The company, which has 8,500 Century 21, Coldwell Banker, and ERA Realty offices nationwide, cleared the decks for its drive last week by breaking with PNC Mortgage Corp., a lending partner it had inherited when it acquired Coldwell Banker last year. PNC had been originating loans at about 200 Coldwell offices.

By dropping PNC rather than bringing it in as a larger partner at all three realty chains, HFS was signaling it believes it has the capability to go it alone, industry observers said. Sharing revenues with a major partner would make the project less desirable, they added.

HFS will begin to offer loans to homebuyers at the realty offices of all three chains-which are said to account for one of every five homes sold each year-after completing the acquisition of PHH Mortgage Corp. next month.

"We have the capability to do something that's not been done on a wide- scale basis before," said Steven Holmes, vice chairman of HFS, who confirmed the plan to roll out mortgage offerings to the entire realty system. Now, the realty program will operate on "a much more significant scale" than the PNC effort, he said.

He did not estimate volume, but industry observers said the program could produce $10 billion or more of loans. Such volume would vault HFS into the No. 5 position among the nation's lenders. PHH originated about $9 billion last year.

One observer said HFS has quickly put together the firepower to go it alone despite being a newcomer to lending. PHH was No. 13 nationally as a loan originator in June 1996, with volume of about $4.5 billion for the first six months.

"They're positioning to do something that everyone has dreamed about for a long time: one-stop shopping," said Gareth Plank, a mortgage analyst at UBS Securities, a unit of Union Bank of Switzerland.

"No one has been able so far to tie the homebuying and borrowing transactions together in one tidy package," Mr. Plank said.

Because lenders don't generally own real estate offices, marriages between brokers and real estate agents were virtually impossible. At best, lenders hooked up with a single Realtor, with limited results.

HFS inherited such an arrangement with its purchase of Coldwell Banker, which in 1994 began a selling arrangement with PNC Mortgage. HFS ended that agreement Monday by buying out PNC, reportedly for more than $1 million.

HFS' 8,500 offices will have the chance to hook up with PHH, which will operate loan sites in the offices.

The transition will not happen overnight, but HFS believes the arrangement will ultimately make it a mortgage powerhouse. "We will sign up as many offices as possible," Mr. Holmes said. The offices are individually owned by franchisees.

The development has been a topic of speculation since last year, when HFS began building its mortgage operation. But until now, the company had kept its plans close to the vest.

Now that HFS has gone public with its intentions, some industry executives are uneasy.

"It's definitely a competitive pressure," said Charles Froman, government affairs director for the National Association of Mortgage Brokers, McLean, Va.

HFS will have to be very careful because the Real Estate Settlement Procedures Act regulates fee payments between different units of the same company. Also, there could be "conflicting cultures" between realty agents used to doing things one way and the new in-house loan officers, Mr. Plank said.

Under HFS' plan, PHH mortgages will be available through PHH officers stationed in real estate offices, or through the multilender structure that PNC had set up. PNC will remain among the companies included in the multilender system, which PHH will now operate.

The move by HFS dashed PNC's hopes of expanding its program from Coldwell to the ERA and Century 21 offices that HFS now owns.

Saiyid T. Naqvi, president of PNC Mortgage, said HFS had made it clear that it wanted its new mortgage company, PHH, to take the lead.

PNC was given "a choice," Mr. Naqvi said. "Either we sell our interest to them or have them come up with a competitive arrangement" involving PHH.

In agreeing to a buyout, PNC recouped more than $1 million of start-up costs, plus "a very good return," Mr. Naqvi said.

PNC remains a supporter of team arrangements like the one it had with Coldwell.

"We do believe in a multichannel structure," Mr. Naqvi said. "We will be looking at hooking up with real estate or construction businesses."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.