Bank of America long has been a formidable competitor on the California mortgage scene. Just like the big West Coast thrifts, it has done brisk business in writing adjustablerate loans and holding them in its portfolio.

Lately, the bank has been popping up in some other places, too. In February, for example, it snapped up a midsize mortgage company in Minnesota, Bank United. Bank of America, sources say, went on to bid for New Jersey-based Margaretten Financial Corp., one of the largest independent mortgage banks.

Though Margaretten ultimately went to Chemical Banking Corp., there can be no mistaking Bank of America's ambitions. Indeed, some sources believe Bank of America even has looked at buying all or part of Countrywide, Industries, the industry leader.

Crucial Link

Like many commercial banks, Bank of America has come to view home mortgages as a crucial link to consumers. Moreover, executives say, the bank is eager to add some geographic diversity to its $28-billion mortgage portfolio, which represents nearly one-quarter of the bank's total assets.

Right now, about 85%of those mortgages are backed by homes in California; the bank says it wants to reduce that to about 50%.

"We have not really extended well outside of California," said James Jones, group executive vice president for consumer credit. "Even where we operated affiliate banking institutions, it has not been with nearly the velocity of California."

Reaching Out

Indeed, he and others say, Bank of America fully intend to ramp up originations from the banking branches outside California.

The danger of heavy concentration in one state became evident over the past few years as California sank into deep and protracted economic slump. To minimize credit quality problems, Bank of America curbed its mortgage lending, sliding to No. 14 among originators nationwide last year from No. 6 in 1990.

"We very much backed off from Southern California from a credit standpoint," said Mr. Jones.

The bank's originations also may have been hurt by a series of reorganizations following BankAmerica Corp.'s 1992 acquisition of Security Pacific Corp.

Key Job Filled

Those shifts appeared to end last October, when the bank recruited originations veteran Arthur D. Ringwald to run the merged mortgage operations.

Mr. Ringwald filled a post that had been vacant for more than a year. Previously, he headed up nationwide originations for Sears Mortgage Corp., and before that had put in stints at Phoenix-based Valley National Mortgage Co. and Margaretten.

Mr. Ringwald, observers say, could prove pivotal to Bank of America's expansion drive.

To make mortgages away from its stronghold in the coastal areas of California, Bank of America is going to need to develop new skills to market the fixed-rate and government-insured loans that many consumers in the hinterlands favor. These skills are the specialties of mortgage bankers.

Strategy Clue

The acquisition of United provides a good clue of what Mr. Ringwald has in mind.

"What I would love to get is a blending of mortgage banking and portfolio lending," said Mr. Ringwald. "Take our adjustable products to United, which has not had portfolio products, and bring in sales techniques to Bank of America."

Meanwhile, Mr. Ringwald already appears to have stemmed Bank of America's slide in originations share. For the first quarter of this year, the bank returned to the top 10, producing $3.16 billion of loans, according to the newsletter Inside Mortgage Finance.

Bank of America is by no means the only commercial bank to expand in mortgages this year. In addition to Chemical, Barnett Banks, Boatmen's Bancorp and First Security Corp. each have agreed to buy mortgage companies.

Mr. Jones of Bank America speaks for many of those banks when he explains the attraction of mortgages:

"If you look at the customer who is a homeowner, it is the single most observable determinant of a profitable relationship for us. Whether we subsequently sell them a depository relationship or an investment product or another loan product, the incidence of homeownership has an extraordinary correlation in terms of what the ultimate profitability of that customer is."

That, of course, implies that Bank of America is most apt to lend mortgages in markets where it also has bank branches. That is not the case with United; Bank of America has no branches in Minnesota. But, with the company scoping out bank acquisitions across the country, a banking presence in Minnesota may only be a matter of time.

"I wouldn't at all be surprised if Bank of America bought a mortgage bank to complement the eventual purchase of a bank in the same area,"' said James Rosenberg, an banking analyst at Lehman Brothers.

Too Big a Bite?

Whether Bank of America is seriously interested in a company the size of Countrywide is another question. While such a deal would provide instant geographic diversification, it would be a big bite even for Bank of America, observers say. Bank of America and Countrywide officials declined to comment.

Bank of America, however, is clearly planning to expand United, which last year produced $1.9 billion of mortgages and services about $4 billion of loans.

"The idea of Bank of America buying a small- or medium-sized mortgage company outside of our trade area is not likely to be something we would do unless we have plans of expanding," said Mr. Jones, adding, "whether we do it through United or acquisitions or de novo is undecided."

One big-reason for the purchase, according to Mr. Ringwald, was the chance to get a second servicing center.

Bank of America's main center is in Orange County, an area vulnerable to earthquake's. "In the event of a disater ... it is nice to be able to flick a switch and be back in business," said Mr. Ringwald.

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