Banks Rushing to Join the Field
LaGesse, David, American Banker
NEW YORK -- Large commercial banks, led by Citicorp and its Citi Mae operation, are gearing up to compete with established conduits in the secondary mortgage market.
Like a waking giant, Cit Mae since January has tripled its five-year volume of mortgage security deals, James Breslin, the head of Citi Mae, said last week.
"Until we picked it up, Cit Mae had basically sat idle for several years," said Mr. Breslin, a vice president of Citibank's capital markets group.
Citicorp established the conduit, modeled after the secondary market operations of mortgage insurance companies, to help New York thrifts with a few private placements, he said.
Now Citicorp has hired Mr. Breslin from the secondary market operation of the nation's largest mortgage insurer, Mortgage Guaranty Insurance Co., Milwaukee. His appointed task: to revive Citi Mae.
"We previously looked at it as an ancillary service for our thrift clients who wanted to sell mortgages," Mr. Breslin said. "Now we're approaching it more as investment bankers."
Likewise, Manufacturers Hanover Trust Co. and Chase Manhattan Bank are starting their own mortgage security operations to compete in the secondary market.
Others inevitably will jump in, said Richard Dorfman, a secondary market expert with the Columbia Group Inc., a consultant group in McLean, Va. "But some will just try to pick up some change on a few deals, while others will commit the money and resources to be major players."
Rank Citicorp among the latter, Mr. Breslin predicted. Norwest Going Strong
One commercial bank holding company, Norwest Corp., has already pushed to the forefront of the booming secondary mortgage market. The Minnesota-based company, through a new subsidiary, Residential Funding Corp., is aggressively buying mortgages and selling them as public securities.
The public market for securities is dominated by quasifederal agencies, particularly the Federal Home Loan Mortgage Corp., or Freddie Mac, and the Federal National Mortgage Association, or Fannie Mae.
The conduits provide expertise and credit guarantees that turn hundreds of mortgages into more valuable securities, Mr. Dorfman said.
Other financial conglomerates are using their size and credit rating to compete in the secondary market. Besides Norwest, General Electric Credit Corp. and Sears, Roebuck and Co. have set up conduits to compete with the agencies -- though they largely are limited to handling loans the agencies cannot handle, including loans for more than $114,000.
Financial Corp. of America, holding company for the nation's largest thrift -- American Savings and Loan Association, Stockton, Calif. -- also has announced plans to set up a conduit. …