loan production at some of the nation's largest thrifts has shrunk by more than a third on their home turf, California. TRW Redi Property Data reports that loan production for the first nine months of 1995 at the nation's largest thrift, Home Savings of America, Irwindale, Calif., fell to $2.4 billion - off 43% from the same period last year. At Great Western Bank, Chatsworth, Calif., the drop was 37%, to $1.9 billion. Some other thrifts had smaller drops. Production fell 8% at California Federal Bank, Los Angeles, to $1.2 billion. Thrift executives cite a mixture of causes: a general decline in loan volumes in California, the market's shift away from adjustable-rate mortgages, and new competition from large banks, such as NationsBank and Norwest, that are using their own portfolios to crack the California market. But the single biggest cause of the drop in volumes is the switch by consumers to fixed-rate loans. While the largest thrifts have initiated a strategy of making fixed-rate loans for sale to Fannie Mae and Freddie Mac, it's an uphill task. At Home Savings, spokeswoman Mary Trigg said it takes a while to build up the fixed-rate business at a thrift. "Basically you have to change your reputation with realtors, and our reputation is as an adjustable-rate lender," she said. The market in California is about evenly divided between adjustable- and fixed-rate loans. But at Home Savings, fixed-rate loans made up only one- third of all loans in the third quarter. Executives say they have also lost volume because large, out-of-state banks are taking advantage of current market conditions, which are traditionally hard on thrifts, to make inroads into the California market. Thrift executives are most heated when they talk about NationsBank's entry into California. They maintain that the bank is using its portfolio to buy market share by offering ultra low rates. "The most formidable competitor is the large, well-capitalized bank who has decided they want to buy part of the market," said Sam Lyons, senior vice president of mortgage banking at Great Western. NationsBank is offering some of the lowest prices around on intermediate-term adjustable-rate mortgages - an especially hot product in California these days, he said. Rates start below those of standard 30-year fixed-rate loans, and adjust after three, five, seven, or 10 years. Mr. Lyons said NationsBank is making the loans at rates below those of secondary-market investors. It is able to do so, he said, because the loans appear to be intended for the bank's portfolio. In the first nine months this year, NationsBank made $1.9 billion of loans in California, up from $20 million in the same period last year. It is now the state's No. 6 mortgage lender, according to TRW Redi Property Data. At NationsBank Mortgage Corp., Danny Hellams, executive vice president of sales and marketing, said his bank is using aggressive pricing and portfolio muscle to crack the California market. "Sometimes it takes some pricing leadership to be able to develop relationships that you can then nurture and that will turn into long-term product delivery channels going forward," Mr. Hellams said. One thrift is bucking the trend. American Savings Bank has increased production by 6.2% to $2.9 billion in the first three quarters, TRW Redi reported. In the process, it has displaced Home Savings as California's second-largest lender. Mario Antoci, chief executive at American, credits the gains to a new sales culture at the thrift. While other lenders were preoccupied with the refinance boom, American was cultivating ties to real estate agents, he said. The thrift also has a strong wholesale program with 500 brokers. Like other large thrifts, American is now looking at out-of-state markets, Mr. Antoci said. The thrift will soon open its first office outside California, in Phoenix, he said. "In the past we followed the ARM cycle. So when ARMs were doing well, we did well. When they weren't doing well, our volume dropped," Mr. Antoci said. "Now we have sort of leveled it off by being a player in both markets."

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