The Mortgage Bankers Association of America has inaugurated a stock index designed to track the market value of 19 publicly-traded mortgage banking companies.

"The primary motivation behind the development of the index is to elevate the discussion of mortgage-banking performance to a higher level," said David Lereah, chief economist of the Washington-based group.

Mr. Lereah believes that mortgage banking is a generally poorly understood, and consequently undervalued, industry.

Mortgage Companies Hedge

To support this, Mr. Lereah points to the apparent investor belief that lower interest rates are unabashedly good for mortgage banks (see chart). "Most mortgage companies that both originate and service mortgage loans are naturally hedged to some degree from interest-rate changes."

To qualify for the index, companies must be nonportfolio mortgage lenders and must originate and service mortgages. Mortgage banking activities must contribute more than half of the companies' revenues. All companies that fulfill the criteria will be included in the index, which will measure total market value of the companies tracked.

Industry Comparisons

"The index will permit analysts and industry observers to compare the stock performance of ... mortgage companies against stocks of other industry groups, such as banks and thrift institutions," said Mr. Lereah.

"Publicly traded mortgage-banking companies are a relatively new phenomenon to investors," he said. "At present, differences in true company value verses equity value exist but convergence may be near.

"Investors are currently climbing learning curves on the mortgage banking business, while reliable and standardized performance data are becoming more relatively available. Hopefully, the MBA stock index will contribute to this learning process in a positive way."

Makeup of Index

The index takes Jan. 1, 1993, as a starting point of 100 and stood on Oct. 1 at 123.3, down from a March high of 127.

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