North American Mortgage Co. is now the subject of takeover rumors, just weeks after the company announced two major diversification efforts.

An unidentified New York money manager was quoted in Business Week as saying that Countrywide Credit Industries Inc., MGIC Investment Corp., and Green Tree Financial Corp. were interested in buying Santa Rosa, Calif.-based North American. The money manager added that the company could fetch a price of $35 a share.

North American chairman and chief executive John J. Farrell Jr. had no comment about the report.

Investors seemed not to give it much credence. Though North American's shares trade heavily Friday, the day the story was published - volume was double the daily average for the year - the price moved up only 50 cents, to $21.375. The stock closed at $20.50 on Monday.

Some Wall Street dealers said the market reaction was ho-hum because no one would pay such a high premium for North American. Their argument is that with everyone in the industry searching for ways to offset the declining profitability in conforming loans, nobody is likely to pay a 70% premium for North American, primarily a conforming lender.

Still, other analysts said that North American, which has been the subject of takeover rumors in the past, is now an even more attractive target, since it announced that it would enter the subprime origination business as well as purchase the assets of Lomas Insurance.

UBS Securities analyst Gareth Plank said that North American could be an attractive fit for a bank-owned mortgage company, but the buyer would have to be one of the larger commercial banks. He said many of them are "still reaching for the Pepto Bismol" when it comes to their mortgage operations.

Many independent mortgage lenders have been bought up by banks in the last few years and very few of the acquisitions could be deemed successes. Mr. Plank cited NationsBank and Bank of America as two banks that might be looking at North American; both have shown a commitment to growing their mortgage businesses.

Green Tree is probably the most plausible of the three companies mentioned by the money manager. Smith Barney analyst Thomas O'Donnell said the company, which does most of its mortgage lending to mobile-home owners, has been diversifying as of late and that North American and its extensive retail network could be a good fit for its own subprime lending operations.

The other two companies would seem to be longshots at best.

Mr. Plank said that Countrywide would probably not want to make a play for North American because North American has larger retail offices and employs commissioned loan officers. Countrywide prefers a lower-cost approach when it comes to retail.

Mr. O'Donnell added that an acquisition of this magnitude would be a big departure for Countrywide, which has traditionally eschewed mergers in favor of growing the company internally.

Mr. Plank said that MGIC has been diversifying so it is more likely than Countrywide to be interested in North American but still called it a "bit of a stretch" to say it would buy the company.

MGIC is a mortgage insurer. Mortgage insurance companies have enjoyed higher levels of profitability in the last few years so it seems highly unlikely that the company would want to purchase a mortgage lender.

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