MOUNT LAUREL, N.J. - USAA Federal Savings Bank has contracted for PHH US Mortgage Corp. to be its sole first-mortgage originator.

The thrift is a unit of United Services Automobile Association, an organization of present and former military officers that is the nation's premier affinity-group source of home loans. The bank also provides financial services to nonmembers.

PHH had been sharing the rights to originate loans for the San Antonio- based association with First Union Mortgage Co., Charlotte, N.C. But a few weeks ago, it gave full origination rights to PHH - a coup in the highly competitive market.

The agreement was not announced publicly.

With the association's 2.8 million members in its pocket, PHH assumes the mantle of top affinity lender in the nation. It is rivaled only by Prudential Home Mortgage, which has relationships with other powerhouse trade groups like 2.2 million-strong National Education Association.

Affinity lenders make arrangements with trade or professional groups to receive loan applications from lenders. To generate such loans, lenders staff large telemarketing operations and centralized processing units.

The full-fledged commitment to PHH comes after more than a year of speculation and rumors that United Services Automobile Association was dissatisfied with First Union, but both parties repeatedly denied any strain in their relationship.

Michael E. Lynch, an assistant vice president at the association, said weakening loan volume persuaded the group to break with First Union.

"We feel that PHH can better handle the volume we are doing now," he said "It wasn't a slap against First Union; it was just a better fit with PHH."

A senior executive at First Union Mortgage declined to comment.

First Union and PHH originated more than $2 billion of loans for the association in 1993, according to its figures, but last year originations fell to $1.1 billion. So far this year, group members have taken $375 million of home loans.

First Union continues to originate second mortgages for members.

H. Robert Nagel, PHH US Mortgage president, said the association demands much for its partners - a plus from his perspective. "They take us to a new level" of service and performance, he said.

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