WASHINGTON - Where other lending executives see misfortune, Ronald Hermance sees a chance to grab business from the competition.

Hermance's bank, Hudson City Bancorp, a regional savings and loan in Paramus, N.J., with $50 billion in assets, is handling a 25 percent increase in mortgage applications this year, even as investors stay away from nearly all types of home loans.

'For us, it couldn't be a better opportunity,' said Hermance, the bank's chief executive officer.

He said the bank has been able to skirt market turmoil by requiring hefty down payments from borrowers and by keeping mortgages on the bank's books rather than selling them to companies that pool mortgages into securities bought by investors.

Analysts say big and small banks with this more traditional lending approach could grab market share as overextended rivals go under.

'There's still demand for that product, but the suppliers have gone away,' said Friedman Billings Ramsey analyst James Abbott, adding that there are few banks with enough cash to dive into the lending business in a big way.

Recently, each day has brought new evidence of home loan troubles that began in the market for loans issued to borrowers with weaker credit histories but continues to spread to other mortgages.

Big lenders, including Countrywide Financial, Accredited Home Lenders Holding, and First Magnus Financial, have scaled back business and laid off thousands.

Meanwhile, Hudson City chugs along. The bank, which focuses on the affluent New York area, mostly makes jumbo home loans above $417,000 that cannot be packaged into securities sold to investors by government-sponsored mortgage giants Fannie Mae and Freddie Mac.

Granted, the jumbo market has stalled lately because gun-shy investors are leery of anything that is mortgage-related. Big mortgage lender IndyMac Bancorp had stopped issuing jumbo loans but said Wednesday it would resume, deciding to hold the loans in its investment portfolio until the market for those securities picks up.

Most lenders making jumbo loans demand borrowers pay higher interest rates. Last week, the national average jumbo rate rose to 7.4 percent, compared with 6.7 percent for loans that can be sold to Fannie and Freddie, the biggest companies that make and sell mortgage-backed securities, publisher HSH Associates said.

As long as housing and financial market conditions remain unsettled, lenders that keep jumbo mortgages on their books can undercut the competition, said analyst Collyn Bement Gilbert, of Stifel Nicolaus & Co.

'There's considerably more pricing power to a traditional portfolio lender than there's ... been in the last five years,' Gilbert said.

That doesn't mean the housing market is doing well, especially for lenders in what once were the fastest-growing housing markets in California, Florida and Nevada.

Profit at U.S. banks and thrifts fell 3.4 percent to $36.7 billion last quarter, and reserves to cover loan losses soared 75 percent from a year ago, according to Federal Deposit Insurance Corp. data released Wednesday.