Once again, the mortgage Goliaths have defeated an industry David.
Patriot Mortgage Co., a privately owned firm in St. Louis, has quit making home loans and sold its five branches in three states, its chairman said. He said competition from big banks had worn him down.
"I was tired of residential lending," said chairman Robert Keating. "It's highly competitive and volatile, to say the least."
Patriot is the latest in a string of small lenders to exit the mortgage business recently. Since the beginning of 1995, at least 28 lenders with loan originations of less than $1 billion have been sold, according to SNL Securities Data, Charlottesville, Va.
The large banks' fast-growing mortgage units have put pricing pressures on other lenders, Mr. Keating said. That made it difficult for his company, which he said originated $300 million of loans last year, to attract borrowers and retain talented employees.
Banks like Norwest Corp. and NationsBank Corp. have been on a shopping spree, snapping up mortgage companies as quickly as they go on the auction block. In the process, they have become formidable industry players.
Mr. Keating said three buyers took over his company's branches in Pennsylvania, New Jersey, and Missouri in the last two months.
He declined to identify the buyers, but an employee at one branch confirmed that the offices in Missouri and New Jersey were acquired by Trustcorp Mortgage, South Bend, Ind.
Thomas O'Donnell, a mortgage industry analyst at Smith Barney & Co., New York, said he thought an ideal mortgage company should have a regional reach and a $10 billion to $20 billion loan servicing portfolio that is easy to manage.
The company's origination capacity would have to be $5 billion to $10 billion in order to replenish the portfolio when interest rates drop and loans are paid off.
Economies of scale give large lenders an advantage over smaller players, allowing them to keep operating costs down, Mr. O'Donnell said.
As mortgages become more like commodities, it is increasingly difficult for small lenders to compete. But with only one national lender now operating - Pasadena, Calif.-based Countrywide Home Loans - room remains for lenders of all sizes, Mr. O'Donnell said.
"I think we will see there will always be a place for small companies and for the Countrywides," Mr. O'Donnell said.
Since shutting down Patriot's operations, Mr. Keating, a former director of the mortgage banking group at Salomon Brothers Inc., has joined forces with General Motors Acceptance Corp. in a commercial lending venture, he said.
The branch sales came after the collapse of a deal this year to sell the entire unit to David Frank, former chief executive of Chemical Residential Mortgage Corp.