Steven F. Herbert, chief financial officer of Resource Bancshares Mortgage Group, says he is astonished by the recent selloff in his company's stock.

One would expect the stock to trade lower when rising interest rates are curtailing lending volume. But the Columbia, S.C., mortgage bank's shares have dropped 50% over the last four months, to a low of $6 this week. That is 50% less than book value.

"The company would regard this as oversold," Mr. Herbert said in an interview Wednesday.

Homeowners are no longer rushing to refinance their mortgages as they did last year, so volumes are down for most lenders. Resource's July loan production was $719 million, off 45% from a year earlier. Second-quarter earnings fell more than 70%, to $0.16 per share.

"In a cyclical business the earnings of our agency-eligible production operations are going to cycle. That's the way it is," Mr. Herbert said.

Compounding the problem: unlike other big lenders, Resource intentionally keeps its servicing portfolio small. When rates rise, servicing -- the business of collecting loan payments from borrowers and remitting them to investors -- becomes more valuable, because customers are less likely to prepay. Theoretically, a large servicing book would make up for the originations shortfall.

But Resource has to hold more capital against its servicing than depositories, so it cannot earn as high a return. Instead, the company aggregates servicing rights and sells them to larger lenders. Resource currently services $8.9 billion of residential mortgages, $3.1 billion of which is held for sale.

That was a lucrative strategy last year, when the megaservicers were desperate to replenish their portfolios, but this year it means Resource has no "macro hedge."

Mr. Herbert said Resource has other "counter-cyclical" businesses to offset the slump in conventional mortgage volume, such as subprime lending, commercial mortgages, and leasing. It began diversifying in 1996.

"You have to prepare in the good times for when this season comes," Mr. Herbert said. "We'll be able to sustain ourselves through the down cycle because we've prepared for it."

Resource's largest institutional shareholder, Wallace R. Weitz of Omaha, agrees that the stock is undervalued -- but fears a rebound will be a long time coming.

"I'm confident the stock will eventually rise substantially higher than $6, but I don't know it won't go lower first, and I don't know we won't be stuck at $6 for a long time," said Mr. Weitz, who owns 3.4 million shares, or 16%, of Resource.

Unlike other originators, Resource has not had to cut staff, because it has no branches, instead getting its loans from brokers and correspondents. Hence, it has fewer fixed costs than a retail shop. Operating expenses in the second quarter were $19 million, down 20% from the fourth quarter of last year; those savings came from eliminating temps and overtime and normal attrition, Mr. Herbert said.

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