Mellon Bank Corp.'s mortgage division, which was put on the block last week, is expected to fetch more than $1 billion as the giant loan servicers - and maybe some midsize players - skirmish for market position.

Mellon Mortgage, based in Houston, originated $6.2 billion of loans in the first eight months of 1998 and has a $73.5 billion servicing portfolio. The unit's rank among mortgage servicers and originators slipped in recent years as other big banks made acquisitions.

"The selling price could be pretty significant, maybe 150 to 200 basis points," said George Bicher, an analyst at BT Alex. Brown. That would mean a price tag of $1.1 billion to $1.5 billion.

The size of the deal will not discourage buyers, observers said: Size is one of the unit's attractions. "There is appetite," said Brenda White, managing director at Warburg Dillon Read LLC. "The deal will get done."

The most likely suitors would be "the usual suspects, the megaplayers," Ms. White said.

Chase Manhattan Mortgage, Bank of America Corp., Norwest Corp. and Countrywide Home Lending are the leading servicers in the country, each with more than $200 billion in servicing.

Ms. White said a major player below the top tier could acquire the business and catapult its servicing portfolio above $100 billion.

HomeSide Lending's acquisition of Bank One's mortgage servicing portfolio last April vaulted it above the $100 billion mark, making it the No. 6 servicer as of September. "It's possible we could see a surprise entrant like we did with HomeSide," Ms. White said, though she added it was "more likely it will be one of the megaplayers."

"It's a volatile industry and, frankly, they're selling at a good time," said ABN Amro's senior bank analyst James M. Schultz.

Mellon's decision to sell the unit is part of the Pittsburgh banking company's strategy of focusing on fee income businesses such as trust and mutual funds.

It also aims to expand in the West. To that end, the bank said Wednesday that it had set up a second board of directors for Mellon Financial Corp.- West Coast.

The bank's waning interest in Mellon Mortgage was not readily apparent in recent years.

In 1995, Mellon purchased Metmor Financial, boosting its servicing portfolio by 46%. Last April, Mellon Mortgage made a system conversion that doubled its servicing capacity.

"This is the final step in dismantling what was going to be a huge mortgage business," Mr. Bicher said.

Most recently, Mellon sold 26 of its mortgage offices last September to Chase Manhattan, saying they were outside the bank's main region.

"Their mortgage unit was too small to be competitive in what is becoming an intensely competitive industry," Mr. Bicher said.

Last year's origination and refinancing boom gave banks fee income in their mortgage divisions but wreaked havoc on the servicing portfolios of some.

In April Wells Fargo & Co. sold $28 billion of servicing to General Motors Co.'s mortgage unit, and what was then named Banc One Corp. sold an $18 billion portfolio to Homeside Lending.

Mellon Bank has decided to keep its "jumbo" loan portfolio: mortgages from $350,000 to $3 million. The loans represent only a fraction of Mellon's total mortgage business, but include the higher-income customers to whom their other divisions cater.

"They'll hold onto their jumbo loans because that's a core business for them," Mr. Schultz said. Mellon has been cross-selling mortgage products to its wealthy Dreyfus Fund customers since 1995.

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