North American Mortgage Corp. has struck a deal with Home Savings of America that will allow it to market the thrift's popular adjustable-rate mortgages nationwide.
North American, one of the largest mortgage banks, will take applications and pass them on to Home Savings, the nation's largest thrift. Home Savings, the main unit of H.F. Ahmanson & Co., will likely hold the loans in its massive portfolio.
This alliance underscorhes a major shift in the competitive dynamics of the mortgage market. While mortgage banks ruled the industry during the refinance boom, they are now finding they must team up with thrifts to stay competitive.
The agreement will give North American access to this year's most formidable mortgage product: a home loan linked to the 11th District Cost of Funds index, or COFI.
North American president Terrance G. Hodel announced the relationship at a financial services conference in New York this week, sponsored by Alex. Brown & Sons, the brokerage house.
North American, based in Santa Ana, Calif., has been originating the loans since November, he said. Both Mr. Hodel and a Home Savings spokeswoman declined to specify a volume target or limit for the program.
As rates have risen this year, consumers have turned increasingly to adjustable-rate loans -- especially those tied to COFI, which has not risen as fast as the treasury market. But, such loans are only valued as assets by thrifts, which believed they are a good match for their liabilities.
Last week the average start rate for a COFI adjustable mortgage was 4.91% as compared to an average of 6.37% for loans linked to the one-year treasury note, according to HSH-Associates, a company that monitors mortgage rates.
"I think it's a great product for North American. The thrifts have been eating all these guys' lunches for them. It will be a way to protect market share," said Michael Corasaniti, an Alex. Brown analyst.
Under the terms of the agreement, North American will take the loan application and will perform a preliminary underwriting. Home Savings will then do its own evaluation of the loan. If it passes Home Savings' muster, North American will close the credit in its own name and then sell it to the thrift along with the servicing rights.
"We've had to learn their underwriting standards. They are not easier, just different," said Mr. Hodel.
From Home Savings' perspective, the exclusive relationship is another means to pump up production. "This is us looking for another distribution channel. We are still committed to our [in-house] loan associates," said the spokeswoman.
Home Savings, based in Irwindale, Calif., has originated $7.7 billion of adjustable mortgages in the first three quarters of this year. In the third quarter, 99% of the loans were tied to COFI. It has seen its market share move to 4.4% in California in the third quarter of 1994, up from 2.8% in the fourth quarter of 1993.
North American, in contrast, has seen its volume and market share drop. The lender had volume of $1.7 billion in the third quarter of 1994 verses $4.5 billion in the same period last year. Its market share of national originations was less than 2.5% in the third quarter, down from around 4% in the fourth quarter of 1993.