The mortgage unit of NationsBank Corp. has launched an aggressive lending campaign in California, and other lenders are feeling the pressure.
Making heavy use of two small acquisitions, NationsBanc Mortgage has shot out of nowhere to become one of the leading lenders of the West.
The company's monthly originations in California and Arizona surged 417% during the first six months of this year, to $310 million in June.
In the huge California market, NationsBank is now the sixth-largest originator of residential mortgages, with 2.15% of the business, according DataQuick Information Systems, Burlingame, Calif.
NationsBank's rapid expansion is the result of competitive pricing in the hot refinancing business and a heavy reliance on wholesale lending, which entails getting loans through brokers. This strategy has allowed NationsBank to grow quickly with a minimal investment in office space and staff.
About 75% of the company's originations this year in California and Arizona have come from wholesale lending.
"For the past three or four months, NationsBank has consistently been very aggressive, especially on the wholesale side," said Angelo Mozilo, vice chairman of Countrywide Credit Industries Pasadena.
He added: "It's a free country. They can do what they want."
Officials at other institutions said that NationsBank's appearance on the scene surprised them. "We hadn't even seen NationsBank before May," said a spokeswoman for one California thrift.
Countrywide, which does both wholesale and retail mortgage lending, is one of the institutions most directly affected by NationsBank's emergence on the scene. Countrywide has some 60 wholesale offices. Some other big lenders, such as Home Savings of America, have only small wholesale operations.
Mr. Mozilo said that NationsBank has been offering brokers substantially more than other lenders have been paying.
"We can't compete with them; their price is too aggressive," he said.
NationsBank, for its part, says its strategy is not to be the most aggressive player but to be among the low-cost providers.
NationsBank gained a foothold in California and Arizona in November 1994 with the purchase of two small mortgage companies in Pasadena - Rancho Santa Margarita Mortgage, which ranked 102d in California in May 1994, and 107th-ranked Cypress Financial Corp.
On Jan. 1, the companies became part of NationsBanc Mortgage Corp.
"We wanted to expand nationally, and we thought if we started with a small company that was manageable in terms of branches, we had a real opportunity to expand much faster than some of the other companies we've been competing with," said Daniel Hellams, executive vice president of NationsBanc Mortgage, which is based in Dallas.
California was attractive because after several years of deteriorating property values, the state seemed poised for recovery, he said. NationsBank also expected a reduction in interest rates, leading to a strong refinance market.
Mr. Hellams said NationsBank anticipated that the refinance market could be driven by customers who had purchased loans tied to the 11th district cost of funds index with negative amortization - a relatively uncommon type of mortgage outside California.
When interest rates increase, the payments on these loans remain stable, but the difference between the actual interest rate and the rate the customer is paying is added to the principal. Borrowers with these types of loans may refinance when interest rates decline, Mr. Hellams said.
NationsBank intends to expand its retail sales effort to the point where it accounts for about half of originations, and to expand its operations to Oregon and Washington, Mr. Hellams said.
NationsBanc Mortgage has 24 branch offices in California and Arizona and is adding staff. It has hired about 24 new employees, and has brought in about 30 contract employees.
According to DataQuick, the average size of a NationsBank's loan is relatively high. In the category of resale or refinanced loans, NationsBank's average loan was $255,000, larger than any of the other top 10 lenders.