Officials at PW Funding Inc., an apartment lending specialist in Mineola, N.Y., say the multifamily mortgage business is ripe for consolidation.

"Everyone I talk to involved in commercial mortgage finance, and multifamily in particular, is convinced to varying degrees that the Internet is going to change the way we do business," said William T. Hyman, chief operating officer of PW Funding, a former PaineWebber unit that has originated $500 million over the last two years.

Adapting to the changes ahead requires capital, he said - and that means getting big.

This is one reason that PW Funding agreed last week to acquire Larson Financial Resources Inc. of Bernardsville, N.J., which handles multifamily and commercial mortgages. The deal is expected to close in the fourth quarter. The price was not disclosed.

Larson would add $900 million of servicing to PW Funding's $1.7 billion portfolio.

The agreement also recognizes the importance of offering a broad array of products, Mr. Hyman said.

"As long as you're offering competitive terms and service, your chances of retaining customers are increased by being able to offer them more choices," he said.

Several other merger deals have been announced this month in multifamily and commercial mortgage banking. KeyCorp of Cleveland said it would buy Newport Mortgage of Dallas; BB&T Corp. agreed to buy Laureate Capital Corp. of Charlotte, N.C., from Resource Bancshares Mortgage Group; and L.J. Melody & Co. of Houston bought Fogelman Beaty of Memphis.

PW Funding is authorized to originate and service multifamily mortgages for Fannie Mae. Acquiring Larson would give it a link to Freddie Mac, Fannie's one serious competitor in the secondary market for apartment mortgages.

KeyCorp, too, would gain a relationship with Freddie from its deal to buy Newport Mortgage.

In some circumstances a Freddie loan might suit a developer better than a Fannie loan, or vice versa, Mr. Hyman said.

For example, an important part of PW Funding's business is arranging commitments to replace construction loans with mortgages once construction is complete. Fannie and Freddie Both offer these forward-takeout commitments, but "Fannie Mae's product has a more established track record," Mr. Hyman said.

Fannie and Freddie both offer borrowers the option of locking in an interest rate before underwriting has been completed, lest rates rise. But "from what I hear, Freddie Mac's early rate lock can be executed faster," Mr. Hyman said.

Larson places some of its loans with life insurance companies, a source of funds for commercial mortgages that PW Funding has no access to, he said. The deal would also extend PW Funding's reach geographically. Though the company is based in New York, most of its business has been west of the Mississippi, Mr. Hyman said.

Larson, on the other hand, "has been a strong marketing presence in the Mid-Atlantic states, primarily New Jersey," he said. That would enable PW Funding to boost its production of Fannie Mae loans there.

PW Funding, founded in 1971. PaineWebber sold it to management in 1988.

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