The nation's biggest banks snapped up mortgage assets at an almost insatiable clip last year as investment officers seized the chance to take moderate risks for solid returns.

Holdings of the 75 banks with the largest portfolios jumped 24% to $461.6 billion by mid-1996, according to an American Banker survey.

The leap allowed those banks to maintain the share of their total holdings represented by mortgage investments at 29%-while merger-related growth was boosting overall assets from mid-1995 levels.

The picture is quite different when the holdings of all banks are considered. The banking industry held $887.8 billion of mortgage investments as of last September, a mere 2% increase from its holdings in mid-1995.

Whole loans held in portfolio make up the largest chunk of mortgage assets-some $557.8 billion at mid-1996, compared with $543 billion the year before. In 1996, whole loan holdings outdistanced investments in sophisticated collateralized mortgage obligations by a 4-for-1 margin and more basic mortgage-backed issues by a 2-for-1 margin.

Investing in mortgage securities-packages of bonds backed by mortgage loans-has long been a key tactic for banks. The strategy allows lenders to diversify their portfolios by adding investments that fall, on the risk spectrum, between government-backed Treasuries and corporate bonds.

Banks often turn with more urgency to mortgage securities when they fill portfolio quotas for whole loans, analysts said.

At the same time, lenders that are having a hard time originating mortgages will often use mortgage securities as a proxy for the loans. "Some banks have been unable to originate a lot of product, so mortgage- backed securities fill that investment need," said Jonathan Leiberman, senior analyst with Moody's Investors Service.

Industry watchers expect investing patterns to hold relatively steady through this year, with banks continuing to buy mortgage securities and hold a portion of the loans they originate.

"I don't see any reason for banks to back away from the mortgage segment," Mr. Leiberman said.

The mortgage survey, while offering a snapshot of the industry as a whole, also gives an indication of individual lenders' strategies:

?Some banks are very big believers in mortgages as ballast for their overall asset base. Norwest Bank of Wyoming had 76% of its assets in mortgage loans or investments at mid-1996, followed by PNC Mortgage Bank, with 68%, and Syracuse's Onbank, with 60%.

?PNC Bank led the increase in overall mortgage investments by growing 596% to $15.7 billion. Union Bank of California's mortgage holdings grew 426%, to $3.9 billion, and Republic National Bank's mortgage investments rose 142%, to $13.2 billion.

?On the flip side, NBD Bank shed 56% of its mortgage holdings, to $3.2 billion, Norwest Bank of Minnesota reduced its holdings of whole loans and securities by 48%, to $3.3 billion, and Key Bank of New York shed 33% of its mortgage investments, leaving the KeyCorp unit with $3.5 billion.

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