As the dust settles on HomeSide Lending Inc.'s cataclysmic week, which included $1.75 billion of writedowns and the departure of its top three executives, fingers of blame are being pointed from Australia at the United States - and back.

Some say the Jacksonville, Fla., mortgage company's business model was flawed from the start. Others say National Australia Bank, or NAB, which bought HomeSide for $1.23 billion three years ago and is now exploring a sale, overpaid by as much as $600 million and is now trying to save face by faulting its U.S. subsidiary.

And some argue that the massive writedowns are a sign of bigger problems lurking in mortgage servicing portfolios across the industry.

The dramatic blowup is even more intriguing since it occurred during one of the best mortgage industry years on record. Because low interest rates are fueling refinancings and the home purchase market has been unexpectedly strong, some say this year's originations may top $1.8 trillion, $300 billion above the record set in 1998.

NAB has written down more than $2 billion on the U.S. mortgage unit's portfolio since July, and several sources say the bank dismissed HomeSide's chief executive officer, chief financial officer, and chief operating officer. (Officially, the three resigned Tuesday.)

HomeSide officials declined to comment for this article. NAB did not return calls seeking comment.

In addition, most observers agree that HomeSide fell victim to a worst-case scenario this year when its servicing portfolio experienced prepayment rates well above anticipated levels as a result of the low interest rates.

As a wholesale and correspondent lender feeding a huge servicing portfolio - HomeSide was No. 6 in servicing at the end of June, with $187.4 billion of assets - it faced a challenging environment this year.

But the question that remains is why such a disaster hit at HomeSide when the rest of the industry faces similar issues.

"That is the $64,000 question," said Gerard Cassidy, an analyst at Tucker Anthony Sutro in Portland, Maine. "Others have run into this, and in the past HomeSide has been able to navigate huge refinancing years without any significant problems."

Thomas J. Abruzzo, a senior director at Fitch Inc., said HomeSide's business model caused the calamity. As a correspondent lender, it could not originate enough loans, even this year, to restock its depleted servicing portfolio, he said.

And several sources said it paid too much for loans bought from brokers.

"On a stand-alone basis, we never viewed the company as being in a strong position," Mr. Abruzzo said. "It was always poorly capitalized, had a limited position in the mortgage banking arena, and had a very limited origination capability, especially on the retail side."

HomeSide relies on correspondent, wholesale, and bulk purchase channels to generate increases in servicing and to supplement runoff from its portfolio, he said. "That was clearly a big flaw in the franchise to begin with."

And some say this flaw may signal broader problems in the industry.

Tom Murray, the owner of TJ Murray Co., a Columbia, S.C., mortgage consulting firm, said the price war being waged by wholesale and correspondent lenders is comparable to the one that led to the savings and loan crisis of the late 1980s.

The lenders are building "everything but the kitchen sink" into the prices they pay for loans, he said. This leads to massive losses when the loans are prepaid and have to be written off - as happened at HomeSide, he said.

Some wholesale or correspondent lenders are willing to pay mortgage brokers as much as two-and-a-half points above what retail players are offering, Mr. Murray said. "The correspondent is giving up most, if not all, their profit just to get the business," he said. "Then they record too much income up-front, and when prepayments exceed their expectations, they write it off."

However, several industry observers said HomeSide is a well-run company with a respected management. Some sources expressed surprise that the situation had deteriorated so far.

"When HomeSide was public, it was a high-quality, well-managed, well-regarded company," Mr. Cassidy said. "For this to happen to them comes as a surprise to us."

Larry E. Swedroe, a mortgage industry veteran and now a partner at Buckingham Asset Management in St. Louis, worked with HomeSide's just-departed CFO, Blake Wilson, at Prudential Home Mortgage before it was sold to Norwest Corp. (now Wells Fargo & Co.) in 1996.

Mr. Swedroe said he was "surprised it happened under Blake's watch." More broadly, though the mortgage business is enjoying a banner year, he said, it has become difficult to turn a profit in the sector. Fannie Mae and Freddie Mac continue to drive margins down, and the cyclical nature of the business makes it almost impossible to be prepared for interest rate fluctuations, he added.

"The whole business doesn't make any sense to me, and that's why you're seeing many people disappear," Mr. Swedroe said. "Eventually you'll have a monopoly of a few big players."

One source with knowledge of HomeSide and its sale to NAB said the debacle is the fault of the Australian parent, not HomeSide.

NAB paid far too much for the company, and when it realized its mistake, it also found that money could not be made in the U.S. mortgage market, the source said. "The problems at HomeSide have almost nothing to do with three guys who were fired," the source added. "NAB just simply overpaid for the servicing value."

On Tuesday the banking company acknowledged that it had hired Cohane Rafferty Securities LLC to determine HomeSide's market value. In the face of mounting losses, NAB asked Cohane to provide the lowest price it might get, the source said. In the end, the Australian parent may receive a better price, the source said, but at least the writedowns have stopped the losses, and the HomeSide executives have now taken the blame.

Whoever buys HomeSide could walk away with a steal, the source said. "There could be as much as $1 billion being left on the table."

Most sources agreed that the only potential buyer for HomeSide would be one of the mortgage giants, for example, Washington Mutual Inc., Wells Fargo & Co., or Chase Manhattan Mortgage Corp.

In the circumstances, the departure of the HomeSide executives may have been inevitable.

"It's obvious that heads had to roll on these types of writeoffs," Mr. Cassidy said. "A company doesn't make that kind of investment and report that kind of loss without having some personal issues, and clearly these guys were the guys that had to go."

And in the end, hubris may also have played a role. Mr. Swedroe said a basic problem in the mortgage industry - and one of the most common human errors - is that executives assume that anything unlikely is impossible anything possible is definite. The recent interest rate decline shows that "neither of those things is true," he said.

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