With profits down or nonexistent, mortgage bankers are desperately looking for answers. The latest rage is restructuring the origination function and reengineering their delivery systems.

One recent article in this paper suggested that to survive means looking at total customer needs, building a new and diversified product line, and creating delivery capability to capture and fulfill these broader needs.

This is all perfectly true, but it ignores the key issue facing all too many mortgage bankers today. The critical question they must be asking is not how to do the business better, but whether or not they should even remain in the business.

For a great number of companies, the most logical strategy is to exit mortgage banking entirely.

If the overriding goal is to preserve shareholder value, then reengineering of delivery systems is avoiding the awful truth that margins have become unacceptably narrow. Companies are putting a large percentage of their servicing value into the price of the loan. When loans close, there is almost no value left.

For many companies, all forms of financial analysis can be thrown out. Instead, directors and managers can simply divide their capital by their monthly losses. They can then see how many months the company can survive before it runs out of capital.

Unfortunately, there are too many managers who are in denial about this awful prospect.

While it may be psychologically understandable, managers should not be allowed to dissipate shareholders' value fighting what may be an unwinnable fight.

Many managers are telling their boards that they can outlast the competition. Boards need to question this premise carefully. Today's competition is bigger and better-capitalized than ever.

We spent time with one company with less than $5 billion of servicing and doing about $150 million of monthly volume.

When they talked about outlasting the competition, we had to ask them why they thought they could outlast Norwest, Countrywide, and NationsBank.

The answer was that they couldn't.

But like so much of their competition, they perceived their biggest struggle to be diminished volume. In many cases, this is not the true issue.

Companies with this perception need to rigorously examine their profitability per loan. Due to the ongoing price war, we are now in a situation where for many companies, the more volume they do, the more they lose.

To play such a game is suicidal. Companies can hide the bleeding for a while by selling off more and more servicing, but what will they do when that is all gone?

If this is the case, management should seriously consider an immediate withdrawal from the origination business. They can either retreat to being a servicing-only company, or they can sell off the servicing and simply shut down that which can't sold.

This is what the Bank of New York is doing with its mortgage banking company; its officers are to be applauded for their clarity of thought.

When management beseeches the board for a little more time, when they talk about their new strategy to obtain volume, tough questions need to be asked. And unless there are some extraordinarily compelling answers, directors ought to think about that which was formerly unthinkable.

Two years ago, getting into mortgage banking seemed like a logical thing to do if one was in financial services. It was almost unthinkable not to be in mortgage banking.

Today, the logical response may be to get out.

Mr. Garrett headed American Liberty Bank, an Oakland, Calif., thrift that was sold last year. He then formed American Liberty Mortgage, which he has since pared down to one employee.

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