Undaunted by the prospect of a bust in the home loan market, First Union Mortgage Corp. is planning a dramatic expansion of its telephone marketing staff.

The Charlotte, N.C., unit of First Union Corp. plans to more than double its phone-generated lending next year, to $3.8 billion, said James Abbott, president of the unit, in an interview. He said he planned to hire 250 more telemarketing staffers within two months.

The buildup highlights a technique that a number of major mortgage lenders are using to expand in an uncertain market. Many experts say that mortgage demand could fall sharply if interest rates rise and the two-year-old refinancing boom ends.

Toll-Free Numbers

In mortgage telemarketing, lenders invite consumers to initiate mortgage applications via toll-free phone numbers. Leaders also call up existing customers systematically to make sure they don't refinance with rivals.

The main appeal of telemarketing is that it's easy to start up and shut down, executives and analysts say. In opening new branches, by contrast, lenders risk getting stuck with costly, unused space when volume dries up.

"It's the one thing they can do to shore up whatever market share is left when rates go up," said Stuart A. Feldstein, president of SMR Research Corp., a financial research company in Budd Lake, N.J.

Against the Grain

Not all observers are applauding First Union's move, however.

Francis X. Suozzo, senior U.S. bank analyst at S.G. Warburg, a New York investment bank, said he was surprised that the company would expand "in this stage of the mortgage cycle."

He said the impending end to the refinancing boom should dispose a company to hold the line on staffing or to make cuts.

"On balance, they would be going against the trend of the rest of the industry," he said.

Staff Doubled at Data Center

The telemarketing expansion is the second initiative that First Union has disclosed in recent weeks to boost mortgage volume. The first was a doubling of the staff in its regional processing center in Virginia Beach, Va., to 113 people.

Mr. Abbott described the telemarketing expansion as an effort to retain a leadership position in that sector of originations. Last year, First Union's telemarketing team produced $1.7 billion of loans, or almost 20% of First Union's total mortgage originations.

"I think, quite frankly, it is a necessary strategic initiative," he said. "It would be imprudent on our part not to do it."

Certainly, First Union is not the only mortgage lender expanding in telemarketing. Among the others are North American Mortgage Co., Santa Rosa, Calif; Lomas Mortgage USA, Dallas; and PHH US Mortgage Corp., Cherry Hill, N.J.

Under First Union's plan, the company will add to every facet of its loan telemarketing operation - loan officers, processors, underwriters, closers, and post-closing reviewers. That should triple First Union's capacity for phone-generated lending, Mr. Abbott said.

By increasing its telemarketing, First Union hopes to recapture some of the runoff in its servicing portfolio caused by refinancings, Mr. Abbott said.

And after refi boom subsides and runoff slows, First Union will be even better positioned for the growth it is expecting in the market for home purchase mortgages. Homebuilding has been especially strong in the company's home state of North Carolina in recent months.

Important Customer

One industry insider speculated that First Union needed to expand in order to provide adequate service to its largest "affinity marketing" customer, United Services Automobile Association.

North American Mortgage, meanwhile, increased its telemarketing staff by 60% this year and plans still further growth, said Pete Vonnikson, executive vice president.

"A lot of consumers feel this is an easier way to get a mortgage," he said.

According to a recent survey of North American's borrowers who secured loans via telemarketing, 95% rated the experience "good" or "excellent."

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