Bank One Corp. and GMAC said last week that they have a deal designed to give the banking company the benefits of the General Motors unit's considerable muscle in the commercial mortgage business.

Beginning in January, GMAC Commercial Mortgage, based in Horsham, Pa., is to station loan officers in several Bank One offices in the Midwest, West, and Southwest. Clients of the bank who ask for long-term, fixed-rate real estate loans of $1 million and up will be directed to GMAC's specialists.

"The idea is, we'll be able to have a new customer base when our loan inquiry would come in," said Charles E. Dunleavy, Jr., president of GMAC's commercial mortgage division. "Our loan officer would come in and process it the same way he would in any GMAC office. It would then go to our conduit people, and they would underwrite it, once the loan was closed. Then we would hedge it and include it in the other collateral for securitization."

GMAC will process, fund, and close the loans. In some cases it will pool them into commercial mortgage-backed securities, which it sells in the capital markets. It will also take over servicing of a $250 million portfolio of commercial real estate loans that the banking company originated and serviced for other investors.

The deal's term is five years. Other terms were not disclosed, but John E. Neal, head of commercial real estate at Bank One, acknowledged that his company would get a cut of the origination fees.

Bank One is a much smaller player than GMAC, ranking 27th among securitizers in the first six months of 1999 with less than 1% market share, having packaged only $159 million of loans in securities. It used to originate real estate loans through a joint venture with Orix USA, but this year Orix bought out the bank's 55% stake.

The joint venture was strictly a conduit, making loans only for securitization, which gave the bank's customers "only one option for long-term financing," Neal said.

GMAC, on the other hand, places some of its loans directly with insurance companies and pension funds. That enables it to give Bank One customers "the best execution in the marketplace," Neal said.

Bank One has about a dozen commercial mortgage specialists in four states, Neal said. These loan officers will become GMAC employees, and GMAC will dispatch originators to Bank One offices in the other five states where the bank does commercial real estate business.

Observers said the deal makes sense, given that margins in the conduit business have shrunk, giving an advantage to large originators with economies of scale. "This is a business that has to end up going to the lowest-cost producer," said Stephen R. Blank, senior fellow for real estate finance at the Urban Land Institute.

"The commercial mortgage banking business has been consolidating for several years now," Neal said. "It takes size to compete, and we don't think it's a business we're particularly good at. Why try to grow something when we can team up with someone else?"

GMAC isn't just sparing Bank One the overhead. It will take on the risks associated with securitization. During last year's liquidity crisis the spreads between commercial mortgage-backed securities and Treasury bonds widened unexpectedly, and many conduit lenders, including Nomura, found themselves saddled with huge inventories of underwater loans that they could not securitize profitably.

In that sense, Bank One's deal with GMAC mirrors arrangements that its Indianapolis residential loan unit has with other companies. Banc One Mortgage originates home mortgages but services them for only a few months, then sells the servicing rights in bulk to two gigantic servicers, HomeSide Lending of Jacksonville, Fla., and First Nationwide Mortgage of Fredrick, Md. The arrangement lets the bank offer home financing without taking on the interest rate risk inherent in servicing.

The latest deal should enable GMAC to grab an even bigger share of the commercial mortgage market, said Dunleavy. "We would now have access to customers of Bank One, who we may or may not have seen when they were looking for a commercial loan in the past."

From GMAC's standpoint, the new deal would hopefully bring more product to the table, because one of the challenges of securitization is aggregation risk: the longer it takes to aggregate a sufficient number of loans, the longer you are exposed to the risk of the market.

"So, the quicker you can take a loan in the front door and out the back door as a security, the shorter the time frame you have to deal with it in terms of that kind of risk," Dunleavy said.

GMAC may look for similar partnerships with other banking companies but has agreed not to team up with banks that compete with Bank One, and it will check with the bank before proceeding with any deal, Dunleavy added. Though he would not give an exact amount, he said that GMAC "hopes to maintain the type of volume we've done in the past - in the billions of dollars."

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