To some thrifts, correspondent lending has lost its shine.
At least two big lenders have scaled back their purchases from other originators in recent weeks. Others seem to be heading in a similar direction.
Downey Savings and Loan Association, Newport Beach, Calif., and Western Financial Savings Bank, Irvine, Calif., have either closed or dramatically reduced their presence in correspondent lending.
Sources say Golden West Financial Corp., the Oakland, Calif., parent of the nation's third-largest thrift, World Savings and Loan Association, has also shut down its correspondent lending operations.
Golden West officials did not respond to requests for comment.
"I think that more and more thrifts are slowing it [correspondent lending! down or getting out completely," said George A. Martinet, a Western Financial vice president for secondary marketing.
Downey began purposely pricing itself out of the correspondent market three weeks ago, said chief executive Thomas E. Prince.
The nation's 38th-largest thrift had been a strong player in correspondent lending throughout the third quarter.
But Mr. Prince said Downey's capital was now adequately deployed and it no longer had a need for correspondent lending.
"It is not a primary business that we are actively pursuing," he said.
In the third quarter, Downey purchased $35 million of loans from correspondent originators. That pales compared to the thrift's total originations of adjustable-rate mortgages - $409 million.
Mr. Prince said Downey would be focusing on doing direct residential lending and selling retail products through its branches, among other primary lines of business.
He said Downey might return to correspondent lending should it have similar needs to reduce idle capital.
Mortgage bankers say the on-again, off-again nature of correspondent lending has been causing havoc.
They say they must approach thrifts for adjustable loans. But the supply of quality adjustable product is weak.
"One will spring up and another will die out.
One will fill up and sit back for a while," said Albert C. Kocourek, president and chief executive, Entrust Financial Corp., Columbia, Md.
"When you get right down to it, the banks don't have to play by the same rules as the mortgage bankers."
Downey's Mr. Prince suggested that some thrifts were purposely not supplying adjustable loans to mortgage bankers.
"They would rather see them die on the vine," he said.
Western Financial cut its correspondent lending operation a couple of weeks ago.
Mr. Martinet said the thrift would now concetrate on wholesale and retail lending.
"We felt we needed to focus on what we do best, and that's wholesale and retail," he said. "It wasn't the best thing for u.s."