Because of a transcription error, Sears, Roebuck & Co. Chairman Edward A. Brennan was incorrectly referred to as "Brown" in portions of a story in yesterday's Business section.

Sears, Roebuck & Co., further expanding its diversification efforts, today announced the creation of a new subsidiary -- Sears Mortgage Corp. -- to provide complete mortgage-loan services to both consumers and the investment community.

The subsidiary -- a consolidation of a variety of functions already being done by other subsidiaries -- will market mortgages that include FHA, VA, fixed and variable-rate and assumable loans, primarily through the company's real estate brokerage subsidiary, Coldwell Banker.

The mortgage-banking subsidiary will package these mortgages and others purchased from other lending institutions for investors. Sears' financial services subsidiary, Dean Witter, will then pool these mortgages and market securities backed by these mortgages to investors. Meanwhile, the new subsidiary will continue to service these mortgages -- collecting the monthly fees and passing them on to investors -- for its own portfolio.

Today, at its inception, the company's portfolio includes 123,158 mortgages and is worth $6.5 billion, making it the nation's 18th-largest mortgage banking concern.

But as Coldwell Banker moves to expand its mortgage service nationwide, Sears predicts that by the end of the year the new company's portfolio will grow to 150,000 mortgages, worth $8 billion, to make it the 15th-largest mortgage bank in the country.

The mortgage company will operate in 66 locations in 19 states, including Vienna, Annandale and Baltimore.

"The mortgage chain offers another significant opportunity for growth in the years ahead," Sears Chairman Edward A. Brennan said in a speech before financial analysts.

"The combination of these mortgage resources will enable us to produce greater volume and different sources of income -- from the initial home sale by Coldwell Banker to mortgage initiation by Sears Home Mortgage and on through the sales to the ultimate sale" of mortgage-backed securities, said Robert M. Gardiner, chairman of Dean Witter.

Gardiner said the company expects to issue $3 billion of new mortgages this year, a number he expects will grow to $15 billion over the next five years.

Sears' announcement "is significant because it is symbolic of what's going on elsewhere in the mortgage market," commented Warren Lasko, executive vice president of the Mortgage Bankers Association of America. Lasko noted that many other mortgage banks and retail companies were similarly trying to provide customers with one-stop shopping service to offer a wide variety of loans to consumers, and at the earliest possible point in the sale of a house. K mart Corp., for example, is providing mortgage loan applications in some of its stores, and General Motors Corp. is offering mortgages as well as car loans to its customers.

Nonetheless, Lasko said, Sears' size and its 100-year history will make it a very tough competitor. "I don't think anybody has quite the family that Sears has," said Lasko. "It is positioned to offer the fullest possible menu. Given its name recognition and reputation for reliability, it will have a leg up on its competitors."

Sears' newest subsidiary was unveiled the day after the company reported disappointing earnings for the first three months of this year. Its profits dropped by 12.5 percent to $195.3 million from $223.3 million posted for the first three months of 1985.

Despite this decline and a similar decrease for 1985 earnings, Brown said he foresaw possible growth in the years ahead. "I feel we have a very, very bright future in front of us in the not-too-distant future."

The diversification program begun five years ago "should begin to produce a satisfactory return on capital invested . . . we cannot give an income projection. But we are confident there are business groups poised to advance profitably in each of the markets we serve."

One of the latest diversification efforts -- the launching of the "Discover" credit card -- is ahead of projections, Brown said. Although he still expected that the card would lead to $115 million in losses in 1986, he said "we anticipate that the card will be in the black in 1988."

Meanwhile, the nation's largest retailer said it was revamping its recent modernization campaign for its retail stores. Acknowledging that the chains "Store of the Future" may have pushed the price of the company's merchandise, particularly apparel, beyond the range of its traditional customers, William I. Bass, chairman of Sears' Merchandise Group, said the stores are beginning to offer more moderate-priced merchandise.