National City Corp. is poised to join the heavyweights of mortgage originators this year.
Last week the Cleveland bank holding company announced it was buying 29 mortgage origination offices from First Maryland Bancorp.
The deals capped a busy year for National City. Last January it bought 61 mortgage offices from Bank United of Texas. And last month it said it was acquiring First of America Bank Corp., a Kalamazoo, Mich., bank that was on track to originate $1.3 billion of mortgages in 1997.
Leo Knight Jr., president of Miamisburg, Ohio-based National City Mortgage, said the company could originate more than $10 billion of mortgages in 1998. That would put it near the top 10 of mortgage originators.
Most of National City's production volume comes from retail channels. The offices it is acquiring from First Maryland are all retail branches. Some banks have been scaling back retail mortgage operations because of their high fixed costs, but industry observers said National City is one of the most technologically savvy and efficient lenders.
"National City understands the retail production business, and they've been successful in previous acquisitions," said Jeffrey M. Levine, national director of investment banking for BayView Financial Trading Group.
National City is acquiring 29 offices of Eastern Mortgage Services and First National Mortgage from First Maryland, a subsidiary of Allied Irish Banks. Mr. Knight said the offices are spread across seven states, including Mississippi, where National City did not have a presence.
The offices are concentrated in the Mid-Atlantic region. Twenty-two of them are in New Jersey, Maryland, Pennsylvania, and Virginia.
"Our strategy is to go where the population is. We are looking for areas that will see population growth in the future," Mr. Knight said.
Other Ohio financial institutions have been expanding their mortgage operations eastward as well.
In October Charter One Financial, a Cleveland thrift, acquired Rochester Community Savings Bank, the holding company for American Home Funding, a Richmond, Va., mortgage bank. Cleveland-based KeyCorp bought Parsippany, N.J., subprime lender Champion Mortgage Co. in September.
Analysts said mortgage acquisitions give banks the chance to hawk other products to a new group of customers.
"The siren song of cross-selling is something appealing to many banks," said James Schutz, an analyst with ABN Amro Chicago Corp.
National City has bank branches in only two of the states where it is acquiring mortgage offices: Pennsylvania and Kentucky. But Mr. Schutz said National City may look to make a bank acquisition in the East.
Other analysts said banks are wise to bulk up on the production side because they will need to replace loans that run off. The current interest rate environment will translate into even more refinancing, depleting the value of servicing, they maintain.
"The best hedge for a servicing portfolio is a strong origination network," said Joseph C. Duwan, an analyst at Keefe, Bruyette & Woods Inc.
National City will have a $31 billion servicing portfolio when its First of America deal closes.
