Thomas Jacob is looking beyond merging the sprawling mortgage operations of Chase Manhattan Bank and Chemical Bank toward expanding the industry's third-largest mortgage company.

"We're not as large as we'd like to be in the B and C market" for loans to people with blemished credit records, said Mr. Jacob, the mortgage company president. That market produces more than $100 billion in originations a year.

When the two New York banking companies closed their merger March 31, Chase Mortgage brought to the union $74 billion of servicing, Chemical $55 billion.

Both units also brought to the deal about $14 billion of originations, placing the lender among the top five originators.

Although he did not specify the company's volume of B and C lending, Mr. Jacob said, "It's an area where we are going to be stronger."

He also said Chase Mortgage should reach more first-time buyers by offering more government-sponsored loans. He also seeks to target existing customers, saying the lender should leverage its relationships with them by promoting cross-selling opportunities.

Mr. Jacob's zeal for expansion might seem unusual, given his enormous task of combining two of the largest mortgage companies. The 20-year Chemical veteran welcomes the challenge, which is among the most difficult he has faced.

The merger "is proceeding well," he said. "We've been able to make decisions quickly, in an atmosphere that is relatively free of rancor and contention."

Chase's top management has high aspirations for the mortgage unit.

"We have the brand, talent, and resources to be a successful player well into the 21st century," said vice chairman Donald L. Boudreau, who is Mr. Jacob's supervisor. "That is exactly what we plan to do." The Chemical and Chase units each brought different strengths - from their established operations as well as companies they purchased in 1994. Some observers have remarked that Mr. Jacob is merging not two mortgage companies, but four: Chase and its American Residential Holding Corp., and Chemical and its Margaretten Financial Corp.

Because each operation has its own culture and product specialties - for example, Chemical's government-sponsored loans and Chase's jumbos - at least one industry veteran questions how the final unit will come together.

"The cultures don't match," said Allen Hardester, a mortgage consultant based in Columbia, Md. "People who do jumbos are not geared to do VA and FHA loans, and vice versa."

The operation also has too much overlap, Mr. Hardester said. "You have too many layers of management, too many offices calling on the same clientele. That doesn't produce the synergism that this massive merger was geared to produce."

In addition to those challenges, Chase will have to keep its troops - loan officers and regional managers - happy as it proceeds with the consolidation, said a former loan officer with Chemical's operation.

Some key employment contracts are coming up in July, said the loan officer, who asked not to be identified. "It will be interesting to see if they stay on" with the new Chase Mortgage.

Mr. Jacob said Chase Mortgage will make the merger work, to satisfy personnel, product, and profitability goals.

He declined to discuss operating results, but he said the combined unit hit the ground running and is operating profitably.

To help the unit to continue making money, Chase will close more than 125 offices and a servicing center, with about 1,000 of 7,000 jobs being eliminated.

Mr. Jacob expects to reduce operating costs by 15% without compromising services. "That's the name of the game," he said. "If you can reengineer your structure to become a low-cost originator, then you have the ability to compete a lot better."

Mr. Jacob said his company must retain good salespeople, because with the merger, "this is a time when all our competition is sensing an opportunity to recruit."

Chase spent "an enormous amount of time telling our people about the changes," Mr. Jacob said.

Issues such as territories and compensation were mainly on loan officers' minds, and most were satisfied with the answers that Chase provided, he said. "I doubt if we've lost 5% of our key managers and loan officers."

Chase also dealt with its other constituents. All 1.5 million of the companies' borrowers received a letter explaining that their servicer was being merged and that service was not expected to be disrupted.

Chase Mortgage officers paid visits to real estate agents and mortgage brokers to tell them about the integration and outline its effects.

Mr. Jacob said some tasks cannot be handled right away. For instance, consolidating processing and servicing systems is expected to take at least another year.

So far, though he is pleased with the progress.

"It's still early in the game," Mr. Jacob said. "The integration is by no means over, but so far, we have executed our program according to plan.'

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