National City Exploring Sale of Mortgage Units

National City Corp. said Monday that it was exploring the sale of its First Franklin mortgage unit after home loan applications and profit plunged in the first quarter amid rising interest rates.

Alternatives might include selling First Franklin, based in San Jose, along with its Pittsburgh-based National City Home Loan Services processing unit, the bank said. National City might also sell its NationPoint subsidiary, based in Lake Forest, which makes home loans to borrowers with lower credit ratings.

National City, based in Cleveland, said in April that rising borrowing costs led to fewer applications at First Franklin. Profit from mortgage lending in the first quarter, which included its National City mortgage arm, fell 77% to $56 million.

Gary Townsend, an analyst at Friedman Billings Ramsey & Co., said that companies that buy mortgage loans from lenders and repackage them for sale as securities might be interested in acquiring First Franklin.

Merrill Lynch & Co. and Lehman Bros. Holdings Inc. are among investment banks that “might be most attracted” to National City’s mortgage businesses, Townsend said.

He estimated that First Franklin could fetch $800 million to $1.2 billion.

National City bought First Franklin in 1999 from Bank of America Corp. Terms of that transaction weren’t disclosed.

National City said it couldn’t offer any assurances that a sale would take place.

A spokesman said the bank hoped to have a decision by the end of the summer.

Shares of National City rose 32 cents to $36.78.