The first-quarter earnings reports of mortgage companies have so far had a common theme: Origination volume remains will above the level of a year earlier, but profits are under pressure because of competitive pricing. And many companies have been selling what amounts to the family jewels - servicing rights - to prop up reported earnings.

A case in point is Plaza Home Mortgage Corp., Santa Ana, Calif., which earned just $21,000 in the first quarter of this year, or less than 1 cent a share. A year earlier, the company earned $2.9 million, or 26 cents a share.

Though originations were up 69% from a year earlier, the company had to sell more than $9 million in servicing rights just to break even. Part of the problem, said chairman Jack French, was a charge of $3.1 million for amortization of servicing rights. But another factor was that originations were simply not as profitable as in the past.

Similarly, North American Mortgage Corp., Santa Rosa, Calif., says it lost $5.6 million on loan sales in the first quarter because of price cuts it made to remain competitive.

Its earnings for the first quarter were $11.1 million, or 70 cents a share, against $8.4 million, or 61 cents a share, in 1993. That's a gain in share earnings of just 15%, but originations were up 60%. And the company took in $43.6 million from servicing sales, up from $18.6 million a year earlier.

Terrance G. Hodel, president, said intensified price competition had reduced profit margins in loan production. That may be an understatement; it looks as if the company actually lost money on originations and had to rely on servicing sales to fill the pothole.

The story was the same at Margaretten Financial Corp., Perth Amboy, N.J., which is evaluating takeover bids from a number of suitors. Origination volume climbed 50% from the level in the three months a year ago but origination revenues fell by about 8%. In its announcement, the company said the decline reflected competitive conditions.

Profits of $6 million were virtually the same as those a year earlier, with about $5 million due to a rise in servicing sales.

Mortgage companies have always looked on their servicing portfolios as a source of earnings to even out the peaks and valleys of originations.

But this is a little different. Companies are not merely propping up their reported earnings but subsidizing their pricing and market-share battles with the servicing war chests that have been swollen by two years of record originations.

The second and third quarters of last year were monster ones for mortgage companies, so year-to-year volume comparisons are likely to turn sharply unfavorable.

Presumably, the industry will have trimmed its overhead by then (see article, page 1). It seems less likely that price competition will wane, especially with so many newly rich companies determined to increase their share of a shrinking market.

Investors have always been a what-have-you-done-for-me-lately bunch, and they can't be expected to show much patience with indifferent quarterly earnings.

Top management at the publicly held mortgage companies is well aware of investor attitudes and is likely looking ahead to a bleak year in the stock market.

That would explain why some of them have seen fit to put themselves on the sales block. It may be a long time before mortgage stocks become a favorite again, so some may feel it's better to cash out now at a premium in the private market.

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