North American Mortgage Co. remains one of the nation's largest residential mortgage loan originators, ranking 10th in terms of its $9.8 billion loan production, despite a 44.6% last.

North American's main production sources are wholesale, working with several thousand brokers; and retail, originating loans through its branch network. The broker network focuses on refinancings, while the retail branches concentrate on home purchases through real estate brokers.

During 1994's first six months, North American opened 36 new production offices and purchased two branches. However, with the dramatic falloff in loan originations, the company cut short its ambitious growth plans during the second half, reducing employees by 1,100 and closing 30 branches.

In conjunction with the restructuring, North American took an $8.5 million writeoff.

The balance sheet remains highly liquid, with roughly 90% of assets invested in first-lien mortgage loans sold forward to investors and cash and advances to government-sponsored agencies.

Net earnings declined to roughly $8.2 million for the year, from 1993's record $47.7 million. The drop corresponded to pricing pressures and a plunge in loan originations. Production fees, reflecting an approximate 45% decline in originations, fell 40% to $75.1 million.

The originations trend highlights the collapse in the refinancing market. Meanwhile net servicing income, or "business hedge," increased only $16.9 million.

Though amortization fell to $1 million in 1994, it was only $5.1 million in 1993, so the change was not dramatic.

Losses on mortgage loan sales were the most significant factor hurting earnings. These losses resulted from pricing concessions in the highly competitive California and Texas markets. Portfolio lenders re-emerged as strong mortgage banking competitors, aggressively pricing adjustable-rate loans below the market.

Also, several other mortgage banks have been acquired by large banks, giving them the capacity to maintain market share over the long term. To remain in the market, North American continued pricing below the secondary market.

The result was a $15 million loss on loan sales last year, including hedging gains, after gains of $37.9 million in 1993 and $26.4 million in 1992.

North American will continue to post origination losses if this competitive environment persists.

Net interest income remained fairly stable last year, but margins are likely to compress with the rise in ARM loan originations, the flattened yield curve, and lower loan originations.

If, however, fixed-rate loans come back in favor with a rate decline, extra production and wider net interest spreads should let North American increase income.

Today's origination environment is focused on new-home purchases, which require more branches for working with local real estate brokers. North American continues to evaluate its branch network in conjunction with expected production volumes.

Though the outlook for production remains uncertain, industry experts expect volume to keep falling, to roughly $500 billion to $600 billion - far below 1993's record $1 trillion and 1994's $774 billion.

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