Many thrifts are turning to mortgage bankers, brokers, and smaller banks as sources of loans. The hope is that correspondent lending will keep production high, increase portfolio diversity, and take advantage of consumers' hunger for adjustable-rate mortgages.

Meanwhile, the retail lenders, eager to offer the public low-rate loans, are shopping for thrifts with which to set up correspondent relationships.

"It is an area of growth for the thrift business," said John D. KoCh, executive vice president, Charter One Bank, Cleveland.

North American Mortgage Co. is one lender on the prowl. The Santa Rosa, Calif., lender is considering a relationship with one of a handful of thrifts.

Marilyn Hardin, secondary marketing vice president, said North American would decide on a thrift within the next few weeks.

Ms. Hardin said North American was considering, among others, California Federal Bank, Los Angeles, and Great Western Financial Corp., Chatsworth, Calif.

Great Western has introduced recently an as-yet-unnamed correspondent lending program in conjunction with Mortgage Guaranty Insurance Corp.

The thrift is in discussions with 15 to 18 mortgage companies, said Sam Lyons, senior vice president. Mr, Lyons said he expects Great Western to sign its first correspondent by yearend.

Milwaukee-based MGIC will act as the contract underwriter, dealing directly with the mortgage banks. Mr. Lyons said MGIC officials had a better idea of "who is good" among lenders.

"Every mortgage bank on earth has contacted us about originating 11th District Cost of Fund loans," he said, referring to the index on which many thrifts base some of its adjustable-rate mortgages.

David Lereah, chief economist at the Mortgage Bankers Association of America, estimates from anecdotal evidence that perhaps 50% of all lenders are now forming correspondent lending relationships with thrifts.

"It's a good deal for both," Mr. Lereah said. "You have mortgage banks who have real good retail offices, who can bring in the business. But thrifts have the products."

Charier One is slowly expanding its pool of correspondent lenders. Mr. Koch said although it was an extremely competitive market, correspondent lending offered some benefits.

"It allows you to extend your activity without the bricks and mortar," he said.

In contrast, Ray. Martin, chief executive officer, Los Angeles-based Coast Federal Bank, said his thrift has little need for a correspondent lending operation. He said Coast, as well as other thrifts, are making enough loans on their own.

Security Bank has a correspondent lending division. But Louis V. Stadler, senior vice president, said the Milwaukee thrift is not seeking new correspondents now.

Mr. Stadler said Security has a sufficient amount of its cash flow funneling into its dozen correspondents. Mr. Stadler said he sees correspondent lending as a means to greater loan diversity and increased production. He said it was important thrifts have ample cash before they launch a correspondent lending operation.

There have been some rumblings in the home-lending industry that thrifts are taking advantage of mortgage banks while they are suffering from terrific declines in originations as a result of high interest rates.

But Mr. Koch, of Charter One Bank, emphasized thrifts in correspondent lending were not preying on mortgage banks.

"This is not like a 'we won' kind of thing at all," he said. He said it was simply a business opportunity to make more loans.

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