It has been a trying time for Bay View Capital Corp. president and chief executive officer Edward H. Sondker.

Nearly three months after the San Mateo, Calif., thrift company announced its intention to buy PSB Lending Corp., a high-loan-to-value lender, Bay View backed out of the deal.

The reason, it said in an Aug. 27 announcement, was that the Office of Thrift Supervision had issued a bulletin that day limiting a thrift's high- LTV loans to 100% of capital.

"Anytime you announce a deal and the regulatory circumstances change, it makes it very difficult for both parties," Mr. Sondker said in an interview last week. "It's unfortunate we couldn't consummate the transaction, but we have no control over the regulatory environment."

Though he acknowledged that the acquisition of Carlsbad, Calif.-based PSB would have surpassed the loan-to-capital ratio set by the agency, Mr. Sondker said the real risk with this type of lending arises from inexperience.

"Any type of lending is dangerous if you don't handle it in a prudent manner and don't have the expertise," Mr. Sondker said. "We felt comfortable that we could manage the process safely."

He said the $5.5 billion-asset thrift has been extending credit very similar to high-LTV loans, which let a homeowner take out a first or second mortgage for more than a property is worth.

Bay View Credit, the thrift company's auto finance subsidiary, makes car loans to borrowers with strong credit ratings, often for more than the wholesale value of the automobile, Mr. Sondker said.

"There are a lot of similarities-the products are virtually the same," he said. "We've owned (Bay View Credit) for two and a half years, but they've been in business for 30, and the product has held up extremely well."

Though Mr. Sondker praised the OTS for its open dialogue with him in recent months, Bay View plans to leave the agency's jurisdiction. On the day it announced it had dropped the acquisition plan-which will prompt an $850,000 charge in the third quarter-Bay View also said it would apply this month to the Office of the Comptroller of the Currency for a national bank charter.

The thrift CEO insisted that the charter switch has nothing to do with the canceled deal. Rather, like many thrifts, Bay View has been moving away from making single-family mortgages and toward a product mix similar to a commercial bank's.

Its checking, savings, and money market accounts have increased from 21% of retail deposits at yearend 1995 to 44% today, according to the company.

"We need to change our charter to keep doing what we are doing-our balance sheet is going to get to the point where we can't be a thrift," Mr. Sondker said. For example, Bay View is in danger of bumping into a 30% cap on consumer loans.

"We are not single-family mortgage lenders; we are totally focused on business and consumer lending," he said.

The thrift decided against going for a state charter because it wanted to take advantage of the OCC's power to preempt state laws. Bay View, mostly through Bay View Credit, operates in 17 states.

Outside observers praised the plan, saying that becoming a commercial bank would cap a three-year move in that direction for Bay View.

"This is a good move for this institution," said Campbell K. Chaney, an analyst at Sandler O'Neill & Partners, Walnut Creek, Calif. "Ed has been telling me since he came on board that he wants to reduce exposure to mortgage assets, and in this market environment, who can blame him?"

Mr. Sondker said it is unlikely he will pursue another high-LTV acquisition within the limits set by thrift regulators.

"We've come to the conclusion that in this environment we are not going to be doing high-LTV lending," he said.

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