Beneficial Leads Finance Companies in Second Mortgage Loans, Survey Finds

By Cacace, L. Michael | American Banker, June 13, 1986 | Go to article overview

Beneficial Leads Finance Companies in Second Mortgage Loans, Survey Finds


Cacace, L. Michael, American Banker


Beneficial Leads Finance Companies In Second Mortgage Loans, Survey Finds

NEW YORK -- Beneficial Corp. has taken a decisive lead in the finance company market for second mortgage loans. Beneficial had $3.09 billion in second mortgage loans outstanding on Dec. 31, 1985. This was 77% more than the second largest finance company in the field, Household Financial Services, with $1.74 billion in second mortgage loans at yearend.

These are some of the findings from the American Banker's 36th annual survey of the top 100 finance companies in total capital funds on Dec. 31, 1985, published today. For the first time this year, the survey has been expanded to identify the top 10 firms in second mortgage lending.

Recently, the Federal Reserve Board has begun to track second mortgage loans issued by the finance companies. The Fed found that finance company loans secured by real estate -- the bulk of which are second mortgage loans -- totaled $30.4 billion on Dec. 31, up 15.6% from $26.3 billion a year earlier. And over the first quarter of this year, these loans are continuing to grow at an annual rate of almost 15%, totaling $31.5 billion on March 31.

The American Banker survey found that the top 10 finance companies in second mortgage loans accounted for more than 40% of the industry total at yearend 1985. The top 10 firms had $12.8 billion in these loans, or 42% of the industry total.

Transamerica Financial Corp., Los Angeles, with $1.5 billion in second mortgage loans, ranks third behind Beneficial, Wilmington, Del., and Household Financial, Prospect Heights, Ill. Following Transamerica is Associates Corporation of North America, Dallas, with $1.4 billion, and Commercial Credit Co., Baltimore, with $973.6 million.

Second mortgage loans have grown substantially over the past several years. They are popular with consumers because of the large sums that can be borrowed and because interest rates are lower than those on unsecured loans.

From the finance company's point of view, second mortgage loans are preferable to unsecured loans because the former have lower rates of delinquency and lower up-front costs than unsecured loans.

According to data from the American Financial Services Association, Washington, D.C., unsecured loans as a percentage of total finance company receivables have declined from 20% in 1977 to 5% in 1985. Over the 1977-1985 period, second mortgage loans have more than doubled, going from less than 4% of total receivables in '77 to approximately 9% of total finance company receivables in '85. The peak year for second mortgage loans was 1982, when they accounted for 12% of receivables. The relative decline in second mortgage receivables as a percentage of total receivables has been the surge in auto financing by finance companies over the past three years.

Other Survey Findings

* For the second year in a row, Heller Financial Inc., Chicago, the 18th largest finance company in capital funds, sustained the highest losses in the industry. It lost $32.1 million last year, after losing $181.9 million in 1984. Heller, which was acquired by Fuji Bank Ltd., Tokyo, in January 1984 for $425 million, has had substantial problems with its commercial loan portfolio. According to The Wall Street Journal, Fuji, the world's second largest bank, has infused an additional $725 million in capital and loans over the past two years to keep the company afloat. …

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