WASHINGTON -- As adjustable-rate home loans surge in popularity, mortgage banks are finding it harder to compete.

Big thrifts, which generally specialize in adjustables, are offering the loans at rock-bottom rates. Mortgage banking companies say they simply can't match the prices without suffering losses when selling the loans into the secondary market.

While many had hoped to sell adjustables to thrifts, those deals are proving difficult to forge.

The upshot, observers say, is that mortgage banks are starting to lose the commanding lead in originations that they established during the two-year refinancing boom.

Mortgage companies' share of all new home loans, which exceeded 50% last year, is likely to fall to as little as 40% this year, said Gary Gordon, an analyst at PaineWebber Inc. Thrifts, meanwhile, are expected to be the main beneficiaries.

Certainly, there is no end in sight to the rise of adjustables. On Tuesday, the Federal Housing Finance Board reported that adjustables jumped to 43% of originations in June from 36% in May.

When interest rates rise, as they have this year, adjustables typically gain ground. That's because consumers gravitate to the loans' low initial rates.

Adjustables, however, have long been the bane of mortgage banks. The companies, which sell the bulk of their loans into the secondary market, have usually found investors to be more eager for fixed loans.

While mortgage banks had hoped to be more competitive this time around, that does not appear to be the case.

With the refinancing boom dead, originations at industry leader Countrywide Credit Industries tumbled 52% in June from a year earlier, to $2.1 billion. At North American Mortgage Co., volume was off 58%. By contrast, thrifts have weathered the slump much better.

At Great Western Financial Corp., the nation's second-largest thrift company, loan volume was off just 12% in the first six months of the year. And an increasingly large portion of originations are adjustables for the company's portfolio.

The bottom line, experts say, is that thrifts are offering consumers cheaper loans.

A popular adjustable at Great Western starts at 3.60%, adjusts up to about 6.13% in three months, and cannot exceed a rate of 11.25%.

Mortgage firms, on the other hand, generally set their rates based on the pricing of Fannie Mae and Freddie Mac, the main buyers of home loans. And right now, a standard loan bought by the agencies is being offered to consumers at about 5.75%. That rate adjusts up in a year to 7.75% and caps at 11.75%.

"It's hard to convince anyone to [take] them," said Gregory Kushner, vice president of Arlington Capital Mortgage Corp. in Wilmington, Del.

No Help from Thrifts

To get a bigger piece of the market, mortgage bankers - particularly in California - have been trying to line up deals to sell loans to thrifts. But thrifts have been reluctant to help.

For example, negotiations between Countrywide Credit Industries and American Savings Bank, Irvine, Calif., stalled because the thrift wanted Countrywide to write adjustables at a higher rate than American offers, according to Mario Antoci, chairman of American Savings.

"Countrywide can't compete with us. Why would I help them?" he said.

Great Western bluntly told Countrywide that it didn't want to align itself with a tough competitor, said Sam Lyons, senior vice president of mortgage banking.

"Our own volume is picking up," he said. "We don't need the alliance."

Some deals, however, are indeed coming together. Terrance G. Hodel, president of North American Mortgage Co., confirmed that his company has made a deal for providing a thrift with adjustables pegged to western thrifts' costs of funds. He declined to name the thrift.

"All large California mortgage bankers are trying to get" deals like this, Mr. Hodel said.

Many mortgage bankers are hoping for more support from Fannie Mae and Freddie Mac.

But the agencies have shown restraint in the new market for adjustables. At Freddie Mac, for example, adjustables accounted for just 13% of all purchases in June.

Though Fannie Mae has begun buying a new, 10-year adjustable, the loan has yet to gather volume. Products typically take months to catch on, said Donna Callejon, senior vice president, mortgage-backed securities and marketing.

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