Making its first substantial move into New England, Mellon Mortgage Co. has acquired Northern Mortgage Co. in Massachusetts.

The deal gives Mellon four branches and a $96 million servicing portfolio in the Bay State.

Mellon's purchase comes on the heels of its acquisition Of U.S. Bancorp Mortgage Co., Portland, Ore., in July. The $75 million purchase was one of the lender's most significant ever.

In July, Mellon Mortgage also purchased a few branches in Texas. Apart from these deals, Mellon Mortgage has 20 offices.

The acquisitions signify Mellon's renewed interest in home lending. Analysts have said that the mortgage company must "get larger or back away" if it expects to remain competitive in home lending.

The industry, in general, has been consolidating at a rapid pace. Lenders have been eager to buy mortgage businesses since interest rates began rising last February.

Today the Mellon unit, based in Houston, has a servicing portfolio of more than $27 billion. It was the nation's 21st-largest home-loan servicer as of June 1994.

Mellon opened a regional office in Braintree, Mass., in May. Peter. A. Milewski, Mellon's New England region production manager, said the lender wants to continue to expand greatly in the Northeast.

"Ideally, we would like to have a physical presence' in all of the six New England states within the next two years," Mr. Milewski said.

He hopes Mellon's four new branches will generate about $200 million in retail loan volume and $150 million to $220 million in wholesale each year.

Mellon would not disclose the price for Northern Mortgage's Massachusetts lending assets. But Mr. Milewski said Mellon paid Northern a reasonable price considering that the nation's economy is still struggling.

Mellon has chosen New England's toughest market to start its Northeastern market penetration.

Single-family home sales in the Boston area alone have grown a healthy 42% in the last four years, according to the Greater Boston Real Estate Board.

But with a better lending environment has come a bandwagon full of national lenders to the state, including Countrywide Funding Corp. and GMAC Mortgage Corp.

"This is a strategically important market to be in," Mr. Milewski said.

He said New England was also a "natural extension" for Mellon Mortgage after its parent, Mellon Bank Corp., purchased Boston Co., a trust and money management firm, last year.

--Howard Kapiloff contributed to this article.

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