Shortly after the Chase/Chemical merger in 1996, Thomas Jacob faced some cynicism about the new Chase's commitment to the mortgage business.

Return on equity for his mortgage unit was in the single digits, and several executives of the "old" Chase Manhattan Mortgage were headed out the door.

Furthermore, some big 1994 acquisitions-Chase's purchase of American Residential Mortgage Corp. and Chemical's purchase of Margaretten Financial Corp.-still hadn't been fully assimilated.

But Mr. Jacob, the Chemical executive who became CEO of Chase Manhattan Mortgage, has quelled the doubts. Its return on common equity was 14.9% in the first half, and its net income was up 90%, to $93 million.

"I take my hat off to him," said Joseph P. Bryant Jr., first vice president of residential lending at Home Federal Savings, the operating unit of New York Bancorp. "The integration of all those entities has been a herculean task."

Trying to consolidate the origination and servicing of two sizable units made life "hectic," Mr. Jacob said. The merger created the nation's third- largest mortgage originator and servicer. Chase originated $16.5 billion of mortgages in the half and had a servicing portfolio of $163.2 billion at midyear.

"The secret of our success is we were able to retain the best of the best to create a seasoned management team," Mr. Jacob said.

The heads of retail and correspondent lending come from Chase. The technology chief and head of the alternative origination division are from Margaretten. The wholesale lending and servicing heads are from Chemical.

And Mr. Jacob brought a breadth of banking experience to the job, unlike many mortgage banking bigshots, who have earned their stripes as loan officers or division managers in a mortgage bank.

Mr. Jacob, 60, started in the international operations unit of Chemical Bank in 1974 and since then has led the retail operations and technology, consumer marketing, and credit card divisions.

He had overseen Chemical's mortgage business since 1990 and has led the combined mortgage operations of Chase since last year's merger.

Now that melding is essentially complete, Mr. Jacob said he hopes to use the skills he has learned from other businesses to shake up the pedestrian mortgage lending business.

"He is a visionary, very creative," said William H. Curley, president of Cohane Rafferty Securities Inc., a Harrison, N.Y.-based mortgage investment banking firm and servicing broker. "He clearly can take Chase into the year 2000."

Mr. Jacob said he does not want to blindly follow the norms in the mortgage industry.

Many bank-owned mortgage companies talk about cross-selling nonmortgage products, but Mr. Jacob said he thinks the mortgage industry needs to focus more on finding new ways to originate.

It appears that all Mr. Jacob ever needed to know about the mortgage business he learned from working in the credit card industry.

"The basic discipline that the card industry has taught us is customer focus, understanding customer value," he said. "The marketing discipline of the card industry is what we tried to transfer to the mortgage business."

To drum up business Chase Mortgage has two telemarketing centers as well as deals with the AFL-CIO and Remax, the nation's fourth-largest real estate agency.

But profitability is more important than volume, Mr. Jacob said, and mortgage lenders tend not to realize the fact.

For example, he noted, sales forces are traditionally paid by volume.

At Chase Mortgage, though, volume is only part of the formula used to figure compensation for production division managers; the main component is net income from the loans.

To increase profitability Chase is making more subprime loans, whose rates are higher than those on plain-vanilla.

When Chase and Chemical merged they were doing about $13 million to $15 million a month in B and C loans, Mr. Jacob said. Now Chase Manhattan Funding, the Chase Mortgage division that originates such loans, is racking up about $70 million a month.

Chase aims to build its subprime business from within rather than buy capacity, as KeyCorp did recently when it bought Parsippany, N.J.-based Champion Mortgage, Mr. Jacob said.

"We have demonstrated that we can grow de novo," he said. "We do not see a need for an acquisition at this time."

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