Mellon Mortgage Co. is finding the Pacific Northwest, its new stomping ground, quite comfortable despite the weak mortgage market.

Richard L. Solheim, Mellon's president, said the Houston-based lender is comfortably integrating the production and servicing operations of U.S. Bancorp Mortgage Co., which it purchased last August. He said that acquisition and others made by Mellon in the past year bode well for the lender's success - despite a wilted market.

"We got what we wanted," Mr. Solheim said.

What the Mellon Bank Corp. subsidiary wanted was a larger retail production network. With today's refinancing volume nothing more than a whisper, Mellon expects that purchase originations will provide strong production flow.

"We think we are positioned very well with the production we have right now and with the people we have right now," he said. "We are where we need to be."

The company continues to integrate its recent purchases, he said.

The U.S. Bancorp purchase added 50 mortgage production offices and $3.6 billion of servicing to Mellon's coffers.

In addition to U.S. Bancorp, Mellon Mortgage made two other purchases in 1994. It acquired Northern Mortgage Co. late last summer. The Norwell, Mass., lender had four branches with in the state and a $96 million servicing portfolio. And it bought four residential mortgage offices in Texas from Roosevelt Bank of Chesterfield, Mo., in July.

Mr. Solheim hinted that more acquisitions may be made in coming months.

Mellon has suffered from the same fallout of loan volume as other lenders. When Mellon bought U.S. Bancorp in August, about 75 employees were laid off. Mr. Solheim said an additional 200 or so Mellon workers nationwide have lost their jobs in the last 2#1/2 months. Mellon Mortgage now employs 1,460.

"We have sized ourselves to what we think that volume is going to be," he explained.

He said Mellon's nationwide production has fallen off about 50%, generally in line with the rest of the home loan industry. He said Mellon has adopted a policy of not releasing specific loan production figures.

Mellon now has a servicing portfolio of $30.6 billion, up from $17.4 billion a year ago.

Some Pacific Northwest lenders have suggested that the U.S. Bancorp purchase is not the shining apple Mellon has made it out to be, but Mr. Solheim is quick to dismiss such talk.

U.S. Bancorp Mortgage was clearly not the moneymaker its parent, U.S. Bank, had hoped for. There were some executive changes at the mortgage unit that competitors looked upon as a shakeup shortly before Mellon made its move. And U.S. Bancorp's market share had been slipping before Mellon bought it.

According to TRW Redi Property Data, Riverside, Calif., U.S. Bancorp's share of the home loan market fell to 1.42%, or 12th place, in Oregon and Washington as of September. That's down from 3.84% for 1993, when U.S. Bancorp was the second-largest lender in those states.

Mr. Solheim defended the record of the acquired mortgage unit. He said Mellon did not buy all of U.S. Bancorp, only its retail production and servicing portfolio - both solid entities. He said it was possible that U.S. Bancorp's market share fell around the time of Mellon's purchase because of the transition.

A Bellevue, Wash., mortgage broker said that several new lenders such as Citicorp Mortgage Inc., Stamford, Conn.; Mission Hills Mortgage Corp., Santa Ana, Calif.; and Weyerhaeuser Mortgage Co., Woodland Hills, Calif., have recently increased their presence in the area. The mortgage broker said many lenders have been suffering from falling market shares in 1994 as a result.

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