TUCSON, Ariz. - Top executives in home equity lending say adaptability and a high level of customer service are the keys to continued growth in this rapidly expanding market.

The message was delivered by executives at the National Second Mortgage Association annual convention last week at a resort here in the Sonora Desert.

The convention drew a record crowd this year - about 440 registered, 20% more than last year - largely because the home equity lending market has burgeoned over the last year.

But the new attendees sparked talk about how companies that have been in the business longer can keep their own production strong.

Such finance companies lend mostly to people who cannot qualify for loans that meet the standards of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp.

Lenders who have in the past stuck to such agency-quality organizations "finally have opened their eyes and begun accepting this product in a big way," said John T. Hayt, chief executive of Equicredit Corp., Jacksonville, Fla., and the trade group's president.

But he warned that lenders must be wary of credit risks.

Although he did not identify any mortgage companies, Mr. Hayt ostensibly was referring to new entrants into the market. He also cautioned that price wars are beginning.

But outside the conference room where Mr. Hayt delivered his introductory remarks, lenders were buzzing about the new players. An executive vice president at one of the nation's top finance companies said his firm was not worried about the new entrants' potential.

"They come and go," he said. "As soon as rates drop again, they will be gone."

Mainstay originators of loans of less-than-perfect credit are betting on wholesale and correspondent lending to keep their growth potnt. At a well- attended session on funding for third-party originators, lenders said mortgage brokers and smaller mortgage bankers are hungry for temporary sources of funding, called warehouse lines.

"I don't see a practical limitation for this over the next few years," said Frank B. Smith, president of Princap Mortgage Warehouse Inc. in Maple Shade, N.J..

He said B-to-D lenders are in the same position that A lenders were in 10 to 15 years ago. He said the B-to-D lenders are flexible, they are in tune with the market, and they can assimilate their origination operation to service any borrower.

Lenders who only make loans salable to the agencies can't do that, he said. Thus, B-to-D loan originations are difficult for them.

"It's like mixing key lime pie and a sardine sandwich, it just doesn't work," he said. Adaptability is a crucial trait for the industry's future success, he added.

"You have to be flexible to anticipate changes in the marketplace, " he said.

George Nicholas, chairman and chief executive at Industry Mortgage Co., Tampa, represents the new direction some home equity lenders are taking.

Industry Mortgage was created a year ago as a partnership of 12 lenders. It is designed to be a pure conduit for originators of loans with less- than-stellar credit ratings - a sort of Fannie Mae for financial companies.

Mr. Nicholas' company has been buying and securitizing home equity loans made by many of the market's new players - including some older originators.

His business is booming, he said.

"I think what people are beginning to realize is that agency loans come when rates are down," he said. "B-C loans come whenever."

His recipe for keeping B-to-D lenders in their growth mode is straightforward: provide great service to customers.

"You are always going to have someone come in who underprices you," he said. "Strong relationships, they survive the challenges of time."

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