Highlighting a massive push by commercial banks into home lending, Chemical Banking Corp. has agreed to buy Margaretten Financial Corp. for $330 million in cash.

The deal, announced Thursday, should make Chemical the fourth-largest originator of mortgages in the country, up from No. 7 last year. The two companies produced a combined $26.7 billion of mortgages last year.

Margaretten, based in Perth Amboy, N.J., is one of the oldest and largest mortgage banks. Often hailed as a model retail lender, it operates 78 loan offices across the country.

The deal marks the latest in a series of mortgage company acquisitions by banks. In recent months, BankAmerica Corp., Barnett Banks and Boatmen's Bancshares each announced plans to buy mortgage companies.

Other Nonbank Deals

More broadly, the transaction shows how commercial banks are increasingly focusing their acquisition efforts on nonbanks. Last year, for example, Mellon Bank Corp. agreed to buy Dreyfus Corp., the giant mutual funds concern. And NationsBank Corp. acquired Chicago Trading and Research Group, a prominent firm in options, swaps and other financial derivatives.

"Rather than geographic expansion, it's functional expansion," said Thomas Hanley, bank analyst at CS First Boston.

Banks have been drawn to mortgage companies both by the potential to cross-sell other products to mortgage borrowers and by the fee income and available from mortgage servicing. After producing a loan, a mortgage company typically sells it on the secondary market and earns fees by processing monthly payments.

The deal is expected to increase Chemical's servicing portfolio by more than 40%, to $54.5 billion of loans. Chemical said it would become the nation's fifth-largest servicer.

"Chemical views mortgage banking as a critical element of its nationwide financial services strategy," said Michael Hegarty, senior executive vice president of retail banking.

A Hot Property

Investment bankers say the bidding for Margaretten was spirited, with BankAmerica, Chase Manhattan Corp. and Nationsbank each participating.

The deal, one of the largest mortgage acquisitions ever, should enhance Chemical's prowess in retail mortgage lending. Up to now, the Chemical's mortgage operations have been heavily titled toward wholesale lending, which entails buying loans from other lenders. Wholesale accounted for nearly 80% of Chemical's $15.1 billion in new mortgages last year.

Margaretten, by contrast, is best known for its 25-state retail network.

"It is an almost perfectly complementary mix," said Arthur Soter, an analyst at Morgan Stanley & Co.

Loan Demand Is Down

Margaretten is selling at a time when rising interest rates have severely constrained consumer demand for mortgages. A number of other mortgage companies also have put themselves on the auction block, including East Coast neighbor Arbor National Mortgage.

Margaretten was spun off from Primerica Inc. in early 1992. The initial offering price was $20 a share, a level the stock did not see again until two weeks ago, when Margaretten revealed it was in talks with potential acquirors. The Chemical deal works out to $25 a share.

Felix M. Beck, chairman and chief executive officer of Margaretten will remain as chairman but will relinquish the position of chief executive to David Frank, currently Margaretten's No. 2 executive.

Chemical said the deal would have no effect on this year's earnings and would add to 1995 profits. Chemical's stock closed at $34.50 a share, up 13 cents.

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