Two major banks are bidding for Arbor National Mortgage, sources said - and a deal may be close at hand.

Bank of Boston Corp. and Shawmut National Corp. are both said to be interested in the Westbury, N.Y.-based lender.

"It would be a good fit for Shawmut, and Bank of Boston is known to have looked at several mortgage properties," said one source following the deal.

Arbor and Bank of Boston declined to comment, and Shawmut officials couldn't be reached.

Arbor, one of the biggest mortgage banks in the Northeast, was put on the auction block this spring at about $28 a share, or $185 million - a price many deemed too high. Since then, the company has backed down somewhat on price, sources said.

Arbor stock was changing hands at $19.25 per share in midday trading Tuesday, down 75 cents.

Arbor produces some $4 billion of mortgages a year and processes monthly payments on $5 billion of loans.

Despite serious interest on the part of the two banks, market observers cautioned that a deal is by no means assured.

Since Arbor is controlled by, chairman Ivan Kauffman, any deal depends largely on his willingness to sell at the price that the market offers, sources said.

Bank of Boston is already active on the nationwide mortgage market through BancBoston Mortgage, Jacksonville, Fla. Shawmut, based in Hartford and Boston, operates Shawmut Mortgage Co., a leader in the New England market.

Manufacturers and Traders Trust Co., Buffalo, N.Y., was close to a deal to buy Arbor several weeks ago but talks were scuttled for reasons that could not be determined.

Goldman Sachs & Co. is representing Arbor in its effort to be sold.

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After American Residential Mortgage announced late Monday that it has retained Salomon Brothers to help sell the company its share price shot up 18%, to $21.

Salomon has said that the company has received "several preliminary indications of interest."

The identities of those parties could not be learned, but a long list of banks has been looking at mortgage companies in recent months. Among them: Chase Manhattan Corp., NationsBank Corp. and BankAmerica Corp.

Both Chase and NationsBank made bids for the mortgage assets of U.S. Bank of Oregon and both also made bids for Margaretten Financial.

Bank of America is also hungry for mortgage assets, sources said. But American Residential's location - California - is thought by some to make it a less attractive property for Bank of America.

American Residential produced about $10 billion of mortgages in 1993 and closed the year servicing $18.2 billion of loans. It has a market capitalization of almost $250 million.

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Two privately held mortgage banks, First Town Mortgage Corp. and Victoria Mortgage Corp. have agreed to merge.

The two companies have a combined servicing portfolio of $5.1 billion and together produced $2.3 billion of home loans in 1993.

Peter R. Norden, president of First Town, will be chief executive of the combined corporation.

Bear, Stearns & Co. advised both parties.

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