Gateway Funding Diversified Mortgage Services L.P., Horsham, bought the assets of Arlington Capital Mortgage Corp., Bensalem, Gateway's chief executive Bruno P. Pasceri said today.

The deal gives privately-held Gateway, which had previously taken the housing slowdown as a chance to expand through the purchase of mortgage offices in Massachussets, Arizona and Seattle, more than 1,000 employees.

Pasceri would not say how much Gateway paid.

Including Arlington, Gateway is expected to originate $3.5 billion in mortgages this year, still far less than the company did during the housing boom. When the housing market collapsed last year in many parts of the country, Gateway revised its 2007 expectations from $5 billion to just shy of $3 billion.

Pasceri said Arlington's offerings of jumbo loans - those that were too big to be sold to Fannie Mae or Freddie Mac - made it attractive.

"They had a lot of relationships with little local banks who keep their loans in portfolio and have better pricing," Pasceri said.

In April, those Fannie Mae and Freddie Mac loan limits were temporarily raised above the usual $417,000, but Gateway and some other lenders found those bigger loans too expensive because investors were wary of buying them. "We haven't done a lot of business based on that," Pasceri said.

Phil Russo, chief executive Arlington Capital, became president at Gateway, which was founded in 1994 and has 68 offices in 42 states.

In Pennsylvania and New Jersey, Gateway made 7,989 mortgages for $1.52 billion in 2006, making it one of the largest privately-held lenders in the region. Arlington, founded in 1989 and licensed in 10 states, made 3,104 mortgages in the two states worth $800.91 million.

The biggest lenders were Wells Fargo with $10.25 billion and Countrywide Home Loans with $9.83 billion, according to federal data.

Despite the continuing downturn in the housing market and the shaky economy, Pasceri said he was optimistic. "The rest of the year looks great. We had a very good first quarter, profitable."

Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.