In the world of mortgages, Chase means jumbo. Jumbo loans. Super jumbos. And all in jumbo quantity.

Thanks to its strength in high-balance mortgages, Chase Manhattan Corp. has consistently ranked among the nation's top originators and servicers of home loans.

Chase, however, is now going downscale. In an effort to boost its share of the total mortgage market, the New York giant has begun a pronounced push for loans below the jumbo level -- that is, smaller than $203,150.

Last month, Chase acquired a Louisiana company that specializes in government-insured mortgages, long a staple of middle America. And other Chase units are stepping up their production of nonjumbo conventional mortgages.

"We have a very good position in the jumbo market and we're going to continue to grow it," said Fred B. Koons, who heads up Chase's mortgage businesses. "But you're also going to see steady growth at the lower end of the market."

Rising Share

This year, loans smaller than jumbos are expected to account for nearly one-third of Chase's mortgage production, up from about 15% in the past few years. The company's total originations, meanwhile, are on track to exceed $13 billion, up from $9.4 billion last year.

In addition to increasing lending volume, the move to smaller loans should make Chase less susceptible to the special peril of jumbos: high prepayment rates.

When interest rates fall, jumbo borrowers are often the first to refinance, because the cuts in their monthly payments can be very large. As a result, payoffs of existing loans have been nipping at Chase's $35 billion servicing portfolio for more than a year.

Looking to the Future

Though acknowledging this problem, Chase officials say it was not the impetus for the expansion. Rather, they say, the strategy stems from Chase's view of how the mortgage industry's long-running consolidation will play out.

When the current refinancing boom ends, Chase says, a big shakeout will follow. That, in turn, will acclerate a division of the industry into two camps: a handful of huge lenders with scale economies and a large number of small companies with strong local ties.

"The midsize players are going to get their brains beat out," said Robert Hunter, head of consumer financial services for Chase Manhattan.

Chase, he and others said, firmly intends to be one of the mega-lenders. But it doubts it can do that without moving beyond jumbos, which account for just one of every five new mortgages industrywide.

|We Can't Limit Ourselves'

"If we're going to be part of the consolidation, we can't limit ourselves to that 20% of the market," Mr. Hunter said.

The job of making the expansion happen rests squarely on Mr. Koons, who has been head of Tampa, Fla.-based Chase Home Mortgage Corp. since 1987.

His responsibilities were recently expanded to include Troy & Nichols -- the Louisiana acquisition -- and Personal Financial Services, a Chase unit that specializes in super jumbos, which are greater than $350,000.

His approach, he says, will be to boost customer referrals among the three units while allowing each to retain its individual focus. Troy & Nichols, which wrote $1.3 billion of loans in the first half of the year, will even keep its name.

In recent weeks, the 49-year old executive has been barnstorming the country to sell his plans to Chase's 3,100 mortgage employees. Last Thursday, for instance, he addressed salespeople in Dallas, where Chase Home Mortgage, Personal Financial Services, and Troy & Nichols each has offices.

In the Spotlight

As Mr. Koons proceeds with this balancing act, rivals will be watching closely.

"Everything I've ever heard is that Fred is a top-notch player," said Joe K. Pickett, chairman of Bank of Boston Corp.'s mortgage unit. "When he does something, I sit up and take notice."

Indeed, Chase's mortgage business enjoys a sterling reputation in the industry and on Wall Street. Last year, when more than a dozen mortgage companies went public, analysts speculated that a spinoff of Chase's mortgage operations could fetch more than $2 billion.

The business, to be sure, has lost some of its luster because of the run-up in mortgage prepayments. Chase Manhattan Corp. said revenue from all its fee businesses fell 6% in the first quarter, to $367 million, primarily because of writedowns of mortgage servicing assets.

Reputation for Service

Still, few people question Chase's prowess in mortgages. The company's customer service is considered outstanding, with some applications turned around in just one or two days, including appraisals. And Chase's credit quality has held up exceptionally well.

"Chase is viewed as producing about the highest-quality mortgage loans out there," said Ira Wagner, a director in the mortgage-backed securities department of First Boston Corp.

As of June 30, 3.5% of the mortgages serviced by Chase were past due by 30 days or more. The industry norm is about 4.3%, according to a March survey by the Mortgage Bankers Association of America.

Solid credit quality has been crucial to Chase's success, because it has helped build demand for the company's loans in the secondary market. Like the big California thrifts, Chase generally holds the adjustable-rate mortgages it writes and sells the fixed-rate models.

Securitization Program

Since most of Chase's loans are too big to sell to the government-sponsored secondary market agencies, Chase sells a sizable amount under its own securitization program. In the first half of this year, the company issued more than $2 billion of mortgage securities. (See related story on this page.)

Mr. Koons, meanwhile, is clearly excited about the prospect of guiding Chase into the brave new world of mortgage banking. As he sees it, big lenders like Chase have only begun to realize their potential.

"There are more scale benefits available than we as an industry have achieved," he says. "We have underinvested in technology, both in servicing and originations."

|The Payback Will Be There'

However, he said, that is starting to change because the emerging breed of mega-lenders is taking a more stategic view of their businesses. "It looks like the investments will follow, and the payback will be there," he said.

But first, the industry may have to cope with some tough times. Once the refinancing boom stops, he says, the industry will undergo a shakeout every bit as severe as one that occurred after interest rates spiked in 1987.

"You're going to see a lot of companies lay off a lot of people, and other companies are going to sell themselves," he says.

Mr. Koons, however, fully expects to find some opportunity in the upheaval. And in the meantime, he says, he is quite content. "I'm just plodding along building my originations capacity."

Fred B. Koons

Title: Chairman, Chase Home Mortgage Corp. Latest accomplishments: * Acquired Troy &

Nichols Inc.,

Monroe, La. * Won responsibility

for all mortgage

businesses of Chase

Manhattan Corp. Previous employers: * Molton, Allen &

William Corp., a

mortgage company

in Birmingham, Ala.

(1975-80) * Collateral Mortgage

Inc., Birmingham

(1965-75) Education: * MBA, University of

Alabama, 1972; * BBA, University of

Alabama, 1968 Age: 49 Home: Tampa, Fla. Family: Married, One son in college Extracurricular: Sailing his 45-foot custom-designed sloop

Home Loan Empire

Chase Manhattan Corp.'s mortgage business Units Chase Home Mortgage, Personal Finance Services, Troy & Nichols Employees 3,100 Originations $6.6 billion in first half of 1993 National rank: 7 Servicing $34.7 billion on June 30 National rank: 13 Delinquency rate 3.5% Industry average: 4.3% Sources: American Banker, Inside Mortgage Finance, company reports, Mortgage Bankers Association of America

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