The consolidation of the mortgage industry appears to have entered a new phase. Household Mortgage Services announced it would stop originating home loans and lay off 200 people. Analysts said the closing could signal a new wave of shutdowns now that the market for mortgage assets has cooled.

A spokesman said the company made no attempt to find a buyer for its loan production operation. Because of a highly competitive pricing in the mortgage market, profits from loan originations have been elusive, so production capacity has little market value.

The Prospect Heights, Ill., subsidiary of Household International Inc., is the largest lender to shut down its operation since the home-loan market turned sour earlier this year. It originated about $4.2 billion of home loans in 1993, making it No. 39 in the nation.

"I don't think they will be the last to get out of mortgage production," said Stuart Feldstein, president of SMR Research Inc., Budd Lake, N.J. "I don't think anyone should be shocked at a mortgage company deciding not to continue. There are bound to be some casualties of war. If anything, I am surprised we haven't seen more of them."

Similarly, David Hochstim, an equity analyst at Bear, Stearns & Co., said: "It is another sign that the (lending) business is extremely difficult to make money in."

Gary Gordon, an analyst with PaineWebber Inc., said the industry had overcapacity and shutdowns would be beneficial. He noted that Household International was very focused on short-term results, and the returns didn't seem right in mortgages. "The good news is that they are part of a trend," he said.

A company spokesman described the move by Household as "a bold action." Earlier this year, the company cut about 500 workers "because of the industrywide downturn in mortgage originations," according to an announcement.

The company explained the move by saying only that "a significant factor in the decision was the company's belief that mortgages would continue to be a low-profit-margin product, and that its resources would better be applied to (the) advancement of its high-value product lines."

The company spokesman declined to give further details. He said the company was "not finished with our future planning on this."

The company was still uncertain as to how it would handle future requests for mortgages by its customers. The spokesman said Household would still provide mortgages, but "obviously it will be a collaborative effort with other providers because we are getting out of the business."

Many lenders have been struggling since interest rates began to rise in February. Substantial staff cuts have been common.

Prudential Home Mortgage Co., Clayton, Mo., has reduced its work force by at least 1,600 to 3,000 this year. And Countrywide Credit Industries, Pasadena, Calif., cut about 800 staffers this year.

Layoffs have been fewer in recent months.

Household's problems are not new. The company did not fare as well as other lenders during the recent, two-year refinance boom.

Household was one of very few lenders that saw a drop in originations during the first six months of 1993, when the refi boom was in full bloom, according to SMR Research.

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