Great Western in ARM Deal With Prudential

Great Western Financial Corp. and Prudential Insurance Co. of America, two big players in the financial-services field, on Monday announced a joint effort to sell adjustable-rate mortgage loans through Prudential’s nationwide network of insurance agents.

Officials at both companies called the pact a unique arrangement that should result in at least $1 billion in new mortgages in the first 12 months of operation.

Prudential Home Mortgage Co., a lending subsidiary, will originate the mortgage loans by relying primarily on referrals from Prudential’s 23,000 individual insurance agents. Customers will apply for the mortgage loans by dialing a toll-free number in Gaithersburg, Md., where Prudential Home Mortgage is based.

Boost Lending

Prudential Home Mortgage will keep the fixed-rate loans that it makes but will sell the adjustable-rate mortgages to Great Western Financial, the Beverly Hills-based parent of Great Western Savings.

The agreement is eventually expected to give a sharp boost to Great Western Financial’s residential lending operations, which are now largely confined to California. Great Western Savings made $5.7 billion in real estate loans last year.

“We’ve told them we’ll buy whatever (loans) they make,” James Montgomery, chairman of Great Western Financial, said in a phone interview. “If they can generate $2 billion to $3 billion a year, fine. We’ll absorb what we can and sell the rest in the secondary market.”

Jerome Baron, financial analyst for First Boston Corp. in New York, said the agreement should benefit both companies.

Aggressive Promotion

“Prudential gets to keep the fixed-rate loans, which they like as an insurance company, and Great Western gets a big boost to its adjustable-rate loan portfolio without (spending) a lot of money up front,” Baron said.

Great Western Financial has aggressively promoted adjustable-rate mortgage loans as the best means to protect a financial institution from sharp rises in interest rates. Almost all of its real estate loans now have payments that adjust up or down periodically depending on what is happening to interest rates in general.

Although Prudential, based in Newark, N.J., is best known as the country’s largest insurance concern, it has also been diversifying. It now has its own brokerage operations, Prudential-Bache Securities, and it began making making residential mortgage loans again last year for the first time in nearly 20 years.