Fixed-Rate Lending Surges at Great Western

Great Western Bank, plunging into the hot market for fixed-rate mortgages, said it boosted originations of the loans by nearly 90% month-to-month in October.

The California thrift, the nation's second largest, specializes in making and holding adjustable-rate mortgages. But in recent weeks, its ancillary business of writing fixed-rate loans and selling them into the secondary market has ballooned.

Great Western wrote about $250 million of fixed-rate loans last month, up from $134 million in September, said E.S. Lyons, a senior vice president.

The loans accounted for 38% of all Great Western's October originations, up from 25% in September and about 18% in January, he said in a phone interview. Further rises are "not inconceivable," he added.

Lowest Rates in 14 Years

The buildup illustrates how thrifts are responding to the renewed popularity of fixed-rate mortgages. Homebuyers as well as owners seeking to refinance mortgages have been clamoring to take advantage of the lowest fixed rates in 14 years.

At H.F. Ahmanson & Co., the nation's largest thrift company, fixed-rate loans made up 31% of originations in October, up from 30% in September and 18% in January, a spokeswoman said.

In the 1980s, Great Western focused almost exclusively on originating adjustables. It wanted to convert the bulk of its assets, mostly fixed-rate mortgages at the beginning of the decade, into adjustable-rate instruments. The aim was to reduce the risk of funding costs rising faster than asset yields.

Now that the revamping of the balance sheet is complete, the $39.5 billion-asset company is more willing to write and sell fixed-rate loans. By selling them, Great Western avoids rate risk but earns steady fees by funneling monthly payments from homeowners to investors.

As of midyear, Great Western was the 22d-largest servicer of loans for investors, handling $13.6 billion of mortgages.

Mr. Lyons emphasized that writing and holding adjustables remains the thrift's most profitable pursuit. Selling and servicing fixed-rate loans is an attractive supplement, he said.

Analysts generally approve of the new strategy. "If Great Western wants to be a leading consumer lender in the 1990s, it can't turn a blind eye to fixed-rate loans," said Bruce Harting, an analyst at Salomon Brothers.

But Gary Gordon, an analyst at PaineWebber Inc., warned that loan officers may neglect adjustables amid the clamor for fixed-rate loans.

"The strategy makes sense if Great Western can maintain its ARM business," he said. "But I've got to believe that will be very difficult."

Ahmanson, for its part, does not expect its fixed-rate production to climb much above the current 31% of all originations.

Richard Deihl, the company's chairman, said that holding the loans entails too much rate risk while heavy sales of originations can threaten asset growth.

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