When it comes to pure heat, few mortgage lenders can match Resource Bancshares Mortgage Group. It simply sizzles.

Started from scratch just four years ago, the Columbia, S.C., company is on track to produce more than $4.5 billion of mortgages this year. That should easily put it among the top 50 players in the country.

The company, which went public in May, has achieved its heft by specializing in "correspondent" mortgage banking, the fastest growing segment of the industry.

Rather than run a costly branch system, Resource gets its loans through a network of 233 banks, thrifts, and mortgage companies. Small feeder lenders like these have proliferated in the wake of the thrift crisis and a mortgage banking shakeout in the the late 1980s.

Resource is "the right company in the right place at the right time." says Joseph A. Jolson, an analyst at Montgomery Securities, San Francisco.

The rapid growth, however, is also raising some eyebrows.

Industry veterans privately question whether the upstart has what it takes to weather a serious spike in interest rates. If Resource ever crashes, they warn, the fallout could hurt the many other mortgage banks that have gone public since the beginning of last year (See related story, facing page).

Big Paychecks at Top

Then there's the matter of executive Resource's co-vice chairmen, David W. Johnson Jr. and Lee E. Shelton, each pulled down more than $1.6 million in cash compensation last year.

That topped the paychecks of such mortgage heavyweights as James A. Johnson, chairman of the Federal National Mortgage Association ($1.1 million), and James F. Montgomery, chairman of Great Western Financial Corp. ($1.4 million).

Resource defends the payouts as the just rewards for creating a valuable mortgage bank from the ground up. With its stock recently trading at $10 - up from $8.75 at the offering - the company has a market value of more than $100 million.

Backed by Venture Capital

Indeed, Resource was born with entrepreneurship in its blood. It is a child of Resource Bancshares Corp., a small-bank holding company backed by Patricoff & Co. and other heavy-hitting venture capital concerns. Resource Bancshares still owns 42% of the mortgage unit.

Edward J. Sebastian, founder of the parent company, recruited Mr. Johnson - an alumnus of Bear, Stearns & Co. - to start the mortgage unit in 1989.

Mr. Shelton signed up two years later, fresh from leading a spectacular expansion of BarclaysAmerican Mortgage Corp. Christopher C. Bowen, another Barclays man, rounded out the management team as chief financial officer.

While the executives had the background to run full-service mortgage company, they quickly narrowed their focus to correspondent lending.

Seized an Opportunity

No other company was serving that market exclusively, they recall, and more and more small lenders were looking to sell their production to bigger players. A number of the feeder companies were small operations set up by survivors of failed thrifts and restructured mortgage banks.

"Everybody talks about service but this is all we do," says Mr. Shelton. "If a correspondent calls to talk with our company, they'll probably speak with David or myself - not a whole bunch of regional representatives."

"We don't compete against our correspondents," he adds. "A lot of companies that are involved in correspondent lending are also involved in retail and may, in fact, have branch offices in the same towns as the correspondents."

In addition to steering clear of retail lending, Resource avoids mortgage brokerages, preferring to deal with companies that have more capital.

So far, Resource has been reselling all its new loans and most of the related servicing rights. As a result, its servicing portfolio stands at a relatively small $1.2 billion.

Vulnerable to Rate Hike?

Some observers maintain that this leaves Resource vulnerable to rising interest rates. As rates rise, they say, Resource will face dwindling loan volume and won't have substantial servicing fees to fall back on.

Mr. Shelton, however, is unfazed. For one thing, he says, Resource intends to steadily increase its market share in correspondent lending, meaning a drop in industrywide lending won't necessarily diminish the firm's own volume.

Moreover, Resource is steadily building its servicing business. In fact, that was one of the main reasons for going public.

As a unit of a bank company, Resource had been subject to stiff capital requirements for servicing, said Mr. Sebastian, who heads Resource Bancshares Corp. With that company now holding only a minority stake, the capital rules no longer apply, he said.

Mr. Jolson of Montgomery, whose firm was lead manager of the public offering, figures the servicing portfolio will hit $4.4 billion by the end of next year.

As for executive pay, it has been reigned in somewhat by a compensation plan that took effect with the offering. Mr. Sebastian, however, offers no apologies for last year's payout to the two vice chairmen.

"Like I always tell people, I wish they'd made twice as much," he says. "The company, instead of being worth a $100-plus million, might have been worth $200 million."

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