Low interest rates spurred tremendous growth in second-quarter production volume for the three largest bank-owned mortgage companies.

For at least one, Norwest Mortgage, that translated into higher net income.

The Norwest Corp. unit's earnings increased 53%, to $54 million. Originations more than doubled, to $26 billion, half of which was retail business.

Because of its large retail presence, Norwest is "better positioned than most lenders to come out of this" low interest rate environment with better performance, said Peter Wissinger, managing director of consumer lending and servicing.

The margins in retail, he said, "are substantially higher than in the third-party business."

He noted that Norwest Mortgage has added more than 500 salespeople this year. "That's helping drive our retail volumes. We'll continue to grow retail aggressively through the year and in 1999."

Fleet Financial Group Inc. said its mortgage unit's earnings "exceeded expectations," but it did not give specific numbers for the subsidiary.

Fleet Mortgage's originations reached $9 billion in the second quarter, up from $4.4 billion a year earlier.

It beat both the production levels of the 1993 refinancing boom and the runoff created by refinancings, the bank's earnings release said.

Fleet Mortgage's retail production in the second quarter increased to $1 billion, from $303 million the year before, and wholesale volume tripled, to $1.2 billion, said William Schenck, the unit's chief executive officer.

Mr. Schenck added that the company's consumer direct channel, which includes both telemarketing and relocation services, produced loans at an annual rate of $1 billion in the second quarter. Fleet started its consumer direct division last year.

"The challenge we all have in the business is to sustain as much of this volume as we can in coming months," Mr. Schenck said. "We intend to emerge from the refi boom with a higher level of volume than when we went into it."

At Chase Home Finance, the mortgage division of Chase Manhattan Corp., revenues were flat, at $247 million, compared with the second quarter of 1997, and cash operating earnings declined to $61 million, from $66 million.

Chase's numbers might have looked better if not for an internal reorganization. The bank sold its marine and recreational vehicle businesses, which would have contributed to the mortgage group's revenues.

Earnings also were dampened by refinancings, said Glenn Mouridy, chief financial officer of Chase Home Finance. Unlike many other mortgage companies, Chase holds a large volume of loans in portfolio, $31 billion, and the yield on that portfolio was hurt by prepayments, he said.

Revenue from servicing fees declined 21% from a year earlier, to $49 million, largely as a result of prepayments and consequent amortization, Mr. Mouridy said.

Still, revenue from originations and sales, which includes gains from selling loans in the secondary market, grew 180%, to $84 million. Chase's servicing portfolio grew to $181 billion, from $167 billion, and originations doubled, to $19.1 billion, according to data from National Mortgage News.

"The second half should be stronger than the first half," Mr. Mouridy said. "We're looking for a very healthy year-over-year increase in revenues and net income and a very stable pattern of earnings."

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