With mortgage rates down and refinancing picking up, banks may be looking to acquire mortgage companies with strong loan-origination capabilities.

Industry observers say likely buyers are NationsBank Corp., BankAmerica Corp., and possibly First Nationwide Mortgage Corp. Prominent mortgage lenders such as North American Mortgage Co., Resource Bancshares Mortgage Group, and Standard Federal Bank have been touted as attractive targets.

First Nationwide is "acquisition-oriented" and is seeking to increase originations, a spokeswoman said. NationsBank and BankAmerica would not comment about possible acquisitions.

Such acquisitions could be a defensive move by institutions that need to protect large servicing portfolios as refinancings rise. By generating more new loans, they can replace those being prepaid, preserving the value of their portfolios.

There is little indication that mortgage rates will rise much in the next few months. On Wednesday, the Federal Reserve decided once again to leave interest rates unchanged.

Acquisitions of lending capability may be timely, but Gareth Plank, an analyst in San Francisco with New York-based UBS Securities, pointed to a downside for the acquirers. "If the long bond continues to head south and refinance activity picks up, the premiums for a strong originator will go up sharply," he said.

Still, industry observers don't expect merger activity to approach the level that occurred in 1993, when several banks gobbled up large independent mortgage banks.

"One of the problems is that there is a dearth of strong independent originators today," Mr. Plank said.

As of Wednesday, the yield on the benchmark 30-year Treasury bond was 6.45% while the weekly Freddie Mac survey pegged the rate on a 30-year fixed mortgage at 7.59%. The mortgage rate is more than 80 basis points below this year's high, set in July.

However, not all the merger activity is tied to mortgage rates. Earlier this week, HFS Inc. announced it would pay a 60% premium to acquire PHH Corp., a diversified financial services company that operates the 13th- largest mortgage originator. Analysts said, however, that because PHH has other businesses, HFS' rich offer could not be tied exclusively to the mortgage unit.

But the lower rate environment could partly explain why North American, currently the 12th-largest originator, has been the subject of takeover rumors as of late. The merger talk has not pushed the stock price up, but the shares have advanced by about 40% since July as rates have eased.

The Santa Rosa, Calif.-based mortgage bank has focused on originations while selling off much of its servicing rights. According to the company's October loan production data, refinance activity has picked up in the last month.

Still, some experts said mortgage companies would be unwise to jump the gun and pull off a deal just because rates are low now.

David A. Lereah, chief economist for the Mortgage Bankers Association of America, is predicting originations will tail off next year. He said overall housing demand should be lower next year "unless interest rates really tumble," a scenario he doesn't see as likely.

But Gerry Risi, senior vice president of Fort Lauderdale, Fla.-based CoreStates Capital Markets, said that any company that wants to buy origination assets should do so in the next few months. He added that it was hard to predict the future availability of such assets let alone what the interest rate environment will look like.

"If I were looking to acquire production assets, I don't think I'd be waiting," he said.

Mr. Plank said that San Francisco-based BankAmerica and NationsBank, based in Charlotte, N.C., are the most likely acquirers because both have large servicing portfolios and have demonstrated an interest in increasing their commitment to the mortgage business.

He added that San Francisco-based First Nationwide - 10th in servicing but only 26th in originations - also could be looking for production capabilities.

Resource Bancshares Mortgage in Columbia, S.C., and Troy, Mich.-based Standard Federal are attractive takeover candidates, according to Mr. Plank. Resource is the ninth-largest originator of loans and also has been building its servicing portfolio as well. Standard Federal is the largest originator among thrifts and 11th-largest overall.

But Mr. Risi said that North American was the most likely company to be bought because "production is their forte."

Mr. Plank agreed, citing the fact that North American has a large origination network in California, a market where many companies are seeking to enhance their presence. He added that buying North American would be a less expensive way of getting into California than buying a California thrift company such as H.F. Ahmanson & Co. or Great Western Financial Corp.

Mr. Lereah, the economist, said that banks should proceed with caution since it will be difficult to figure out what the Federal Reserve will do on interest rates until fourth-quarter economic data are available.

"If you're going to make a purchase you've got to take a longer-term view," Mr. Lereah said.

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