Rift Rekindled by League's Plan on Mortgage-Backed Securities

Article excerpt

HONOLULU -- A basic division among thrift executives resurfaced this week when the U.S. League of Savings Institutions announced its plan to sponsor mortgage-backed securities.

"I know there is a substantial difference in opinion in our industry over the role of these financing devices," Gerald Levy, the league's vice chairman, said in announcing the program here Monday.

The split lies between thrifts that want to act like mortgage bankers by originating loans for sale and those that want to remain portfolio lenders. Mortgage banking thrifts want the ability to quickly trade their loans by putting them into security form, while others favor local lenders making and holding mortgages.

Portfolio lenders regained strength for their strategy with the advent of adjustable-rate mortgages, whose rates shift with market rates and protect the value of thift assets. Many portfolio lenders in the latter group want to keep Wall Street firms, with their fees on trading mortgage securities, from getting a dominant position in the mortgage markets.

Yet in its new plan, called Salomon Capital Access for Savings Institutions, the league aligns itself with Salomon Brothers Inc., the leading Wall Street trader of mortgage securities.

The program could swell Salomon's volume and profits in mortgage securities and apparently represents a shift in league philosophy. 'Classic Split'

The announcement was well received here at the league's 30th annual conference on the secondary mortgage market. Thrifts firmly committed to mortgage banking dominate the 2,000 delegates.

Mr. Levy, in fact, noted that he will be the league's first chairman from a mortgage banking thrift when he assumes that post next year. His Guaranty Savings and Loan Association is a Milwaukee thrift with about $200 million in assets and a philosophy of actively trading mortgages.

"But I recognize that some members view any perfection of secondary market products as a threat to portfolio lenders," Mr. Levy said.

"It's a classic split. But the savings business has changed. We will never all be in agreement again, but we will continue to talk and work together," he said.

Salomon initially will underwrite and issue collateralized mortgage obligations, or CMOs, backed with pools of mortgages pulled together by the league from its members.

The plan will enable small thrifts to take advantage of the better pricing in the collateralized mortgage obligations. The obligations channel the cash flow from mortgages into several classes, resulting in different bonds that can be sold separately.

The creation of several securities with different maturities attracts more investors and better prices than selling simple mortgage-backed securities. …