In what could mark a sea change in the consolidation of mortgage banking, one of the nation's largest home lenders said Wednesday that it was halting a three-month effort to sell itself.

North American Mortgage Co., Santa Rosa, Calif., said it had been unable to fetch an adequate price.

Experts said the move could cast a chill over merger activity in mortgage banking. For the past year, such mergers have been running at a rapid pace, and prices have often been steep.

A number of other mortgage companies have put themselves on the auction block in just the past few weeks. But these companies, including units of Keycorp and Bank of New York Co., may be forced to reduce their price expectations, analysts said.

North American's announcement stunned investors. The company's shares fell to as low as $18.875 on Wednesday, down 27% from Tuesday's $26 close.

The company also announced a third-quarter loss of $4.2 million, or 27 cents a share.

North American is the nation's seventh-largest originator of home loans and services some $20 billion of loans.

The company has been looking for a buyer since at least August, when it announced it had hired Morgan Stanley to help it evaluate a "strategic alternative."

"The current market for a mortgage company of our size proved to be not as strong as we had hoped," said John F. Farrell Jr., chairman of North American. "Although we had discussions with several parties, we did not receive any proposals that we believed were in the best interests of our shareholders."

Several banks, including Bank of Boston and NationsBank, made "serious expressions of interest" to the company, according to a source, but were unwilling to pay as much as North American's management North American was trading in the mid-30s until late September, when rumors of a wide bid-ask spread drove the stock down.

In a conference call Wednesday, North American officials declined to provide any information about bidders or bids.

A 35% drop in the mortgage market this year, and strong interest in the industry from commercial banks, combined to bring about the sale of many major lenders -- including American Residential Mortgage to Chase Manhattan Bank and Margaretten & Co. to Chemical Bank.

The high prices paid for many properties brought other companies on to the market, including North American. "That game is over," said Thomas O'Donnell, an analyst with Smith Barney. "There are still compelling reasons for mortgage companies to sell to banks," he said, but added that sellers who missed the top of the market may elect not to sell.

The loss of 27 cents a share compares with a gain of 83 cents a share, or $13.1 million, in the period last year. The First Call consensus was a loss of 17 cents a share.

"The process of reducing capacity within the industry has been slow and therefore price competition has been more intense and prolonged than we had anticipated," said Terrance G. Hodel, president of North American. Total revenues were $51.4 million, a 41% decline from third quarter 1993 revenues of $86.7 million.

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