BankAmerica Corp. officials vowed last week to regain leadership in the California mortgage market from Seattle-based Washington Mutual Inc.

Washington Mutual overtook Bank of America as California's largest mortgage lender in August after acquiring Great Western Financial in July. But BankAmerica officials said they don't think that's a permanent change.

"We think they're a very good company," but "we're not going to cede the market," said James G. Jones, group executive vice president of consumer credit.

Sounding confident, even cocky, Mr. Jones and Arthur D. Ringwald, group executive vice president and CEO of BankAmerica Mortgage, made these remarks during a wide-ranging discussion of Bank of America's strategy in the face of dramatic industry consolidation. The bank's ability to hold or sell mortgages as the market dictates puts it in a strong position, the executives said.

In the first eight months of 1997, Washington Mutual originated 8.92% of California's $74 billion in home loans, including Great Western's loans. BankAmerica has a 7.89% share, according to Experian, a real estate information company in Anaheim, Calif. More recent numbers were not available.

Nationally, Bank of America made $4.49 billion in single-family home loans in the third quarter. Washington Mutual made $5.9 billion.

At its first daylong meeting with analysts last week, BankAmerica's top brass said mortgage lending is meeting the bank's hurdle rate of return, which is roughly 12% on common equity, analysts said.

In the interview, Mr. Ringwald contrasted Bank of America's strategy with other big lenders, such as Norwest Mortgage and Countrywide. He pointed out that Bank of America competes in every aspect of mortgage lending-the making of loans, their servicing, and holding them. Neither Norwest nor Countrywide is a big mortgage investor.

"If we were a battleship, we have all the nuclear weapons," Mr. Ringwald said.

He said the bank's capacity to hold loans will be especially valuable when fixed-rate loans, usually sold to Fannie Mae and Freddie Mac, no longer dominate the market.

"When rates go back (up) and ARMs are in vogue, we feel we will be a formidable competitor," Mr. Ringwald said.

Since Mr. Ringwald arrived in 1993, Bank of America has changed from a largely regional lender to a national one. It expanded into the Northeast, Midwest, and Middle Atlantic states by buying mortgage banks in New York and Minnesota in 1994 and 1995. This year it has opened mortgage lending offices in suburban Washington, D.C., and Chicago and purchased a large Hawaii mortgage bank.

At midyear Bank of America had originated $6.7 billion of mortgages, making it the nation's seventh-largest originator. It ranks eighth among servicers, with servicing rights on $84.4 billion of mortgages. On Sept. 30, Bank of America held $34.3 billion of first mortgages in its portfolio.

Mr. Jones attributed Bank of America's success to its persistence at the thin-margin business.

Realtors, vendors, and technology providers are all unsure whether some banks will stay the course, Mr. Jones said, and "one of the things we've done is we've stayed."

Mr. Jones said Bank of America is working hard to put all the information it has about its customers to good use in marketing mortgages. Cross-selling is a high priority in all areas of the retail bank, as Bank of America tries to get its customers-many of whom buy only one product from it-to sign on for another.

Much as credit cards with specific features-fixed versus adjustable rates, annual fees or no fees, reward premiums-are marketed to customers according to their preferences, mortgages will be tailored to the preferences of customers, Mr. Jones said.

Bank of America has developed a model that identifies customers who are likely to prepay their mortgages, and uses it to market more effectively, Mr. Ringwald said.

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