The mortgage industry seems to be in a constant state of chaos, in the newest scientific sense - a turbulence from which a new orderliness and some new entities emerge.

That turbulence has been coming recently from volatility in interest rates that leads to alternating periods of strong business and overcapacity. During those intervals of overcapacity - present time included - the intense competition squeezes much of the profit and some of the players out of the game.

How intense is the pricing competition? North American Mortgage Co., Santa Rosa Calif., said Monday that in the second quarter it "subsidized" its loan prices to the tune of $8.8 million. That means North American, the nation's second-largest independent mortgage lender, lost money on loan sales, largely by paying more for loans on a wholesale basis than it could get for them in the secondary market.

Some of the latest developments on the consolidation front:

*Wells Fargo Bank said last week it that it had engaged PHH Mortgage Services to originate loans on its behalf in 10 states outside California. This continues an arrangement between Cherry Hill, N.J.-based PHH and First Interstate Bank, which was acquired by Wells in April. Originations through Wells' California offices will continue to be handled by a joint venture between Wells and Norwest Mortgage Inc., Des Moines.

*KeyCorp, Cleveland, which sold its $25 billion servicing portfolio more than a year ago, has continued to originate mortgages through its branch offices - but has been selling all this production to Countrywide Home Loans, Pasadena, Calif., along with the servicing rights.

*Irvine, Calif.-based Victoria Mortgage Corp., which hired Jeffrey Stiefler, a former president of American Express Corp., just months ago with an eye to becoming a major-league lender, has thrown in the towel instead and will be liquidated, according to industry sources.

Meanwhile, lenders have been looking for alternatives to conventional home loans. Those who are scaling back their involvement in mortgage investment are deploying the freed-up capital into what they hope are more profitable lines of business, such as subprime and home equity lending. That's the route KeyCorp has chosen.

So the chaos means that capital and talent are flowing toward the ventures with the highest returns, inefficient providers are being weeded out, and a few superefficient giants are getting even more gigantic.


On a more positive note, the nation got 700,000 new homeowners in the second quarter as the rate of homeownership edged up to 65.4%, according to White House figures.

An announcement said homeownership has been expanding over the last two years at the fastest rate since 1965, when quarterly figures were first compiled.

Laura Tyson, President Clinton's national economic adviser, said that the gain was achieved despite rising interest rates, and that the affordability of housing would remain high in the immediate future. She said the improvements were signs that the President's economic program was working, adding that housing would serve as a powerful engine for continued economic growth.

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