Thornburg Mortgage Inc. is moving from buying mortgage securities to actually making mortgage loans.

The $4.5 billion-asset real estate investment trust started a correspondent lending program this year and plans to lend directly to consumers -- though selectively, in keeping with its policy of investing only in assets with the highest credit quality.

"From mid-1993 to mid-1997 we didn't find much opportunity in the loan sector," said Larry A. Goldstone, president and chief operating officer of the REIT in Santa Fe, N.M. But two years ago mortgage securities became "expensive relative to loans," he said, and Thornburg, seeing "an opportunity on the loan side," began buying bulk packages of loans.

Mr. Goldstone estimated that Thornburg has bought about $1.5 billion of loans, mostly from Merrill Lynch Credit Corp., since 1997.

Thornburg pools the loans it buys into securities, which it retains. By securitizing mortgages, it creates Aaa-rated assets, which are easier to trade and hence cheaper to finance than an unrated batch of loans.

In June, Thornburg kicked off its correspondent lending program, buying mortgage from banks and thrifts -- including FleetBoston and Dime Bancorp -- as the loans are closed. So far its production through this channel has been minuscule -- only $19 million through September -- but Mr. Goldstone said Thornburg's 20 correspondents have the potential to deliver $150 million a month.

Rising interest rates this year have hurt most mortgage bankers' profits. But Thornburg only buys adjustable-rate mortgages, which have become more in demand as homebuyers have become less apt to lock themselves into a fixed rate.

The trust focuses on adjustable-rate loans to protect itself from the possibility that interest rates will skyrocket. Its appetite for such mortgages has dovetailed with mortgage bankers' need to find buyers in this environment, Mr. Goldstone said.

Surprisingly, Thornburg securitizes 70% of its correspondent production through Fannie Mae. Why sell loans to Thornburg and not directly to one of the secondary market companies? Because Thornburg takes on the so-called pipeline risk -- the danger that interest rates will rise before a lender sells a bundle of loans in the secondary market, forcing the lender to sell at a discount.

"We're hedging their pipeline for them," Mr. Goldstone said. Thornburg's correspondents retain the servicing rights, making the REIT one of few sellers of loans to Fannie Mae that does not also service them.

Thornburg's next step is to build a direct-to-consumer channel, which would make loans through direct mail, telemarketing, and the Internet. Thornburg would target people with whom it already has a relationship, such as mutual fund shareholders of its Thornburg Investment Management affiliate. "We're not going to blanket the country with billboards or radio and TV ads," Mr. Goldstone said. He added that the REIT plans to contract out the origination capabilities of established lenders.

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