Christopher T. Gilson, president of Capstead Inc., a subsidiary of the mortgage company, said the move to shut its conduit - in which the company makes loans and sells their portfolios - was in response to a fiercely competitive market in which he said it can no longer compete. "Everybody and his uncle has jumped into jumbos and B and C lending," Mr. Gilson said. Companies entered these segments of the industry to diversify when volume was down in other areas, resulting in competitive pricing, he said. "I haven't figured out how to make money when you start out in the hole." The Dallas-based company will focus on loan servicing and portfolio management, which have always been its core businesses, Mr. Gilson said. The company also refinances loans and provides purchase money to servicing customers. Part of Capstead's strategy is to focus on what it does well, Mr. Gilson said. In its servicing activities, the company will concentrate on the servicing of conforming loans sold to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., staying away from government loans. He said the conduit was never a core part of the company's strategy. "It helped put us on the map in the 1992 to 1993 period," Mr. Gilson said of the conduit, during which its annual volume reached $5.2 billion. But 1994 and 1995 were tough. Capstead's management decided it was too tough. A combination of excess capacity and competitive pricing in a shrinking market forced Capstead to look at the conduit and consider its future over the last two years, Mr. Gilson said. Lately, Capstead has set its sights on increasing its servicing portfolio. It is now nipping at the heels of the top servicers, standing at No. 22 in American Banker's ranking of the top servicers at midyear, with $20.6 billion in servicing. It was the largest increase among the top servicers. The company's commitment to the servicing side of the business intensified in 1994 when it became apparent that originating loans would not bode well for the lender in the post-refinance era. In an interview at the beginning of 1995, Mr. Gilson said the company would pay premium prices for servicing with low interest rates, to build a portfolio with as little prepayment risk as possible.

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