Pipeline: Amid Slowdown, Fed Inaction Was Expected

Lenders were hardly on pins and needles Tuesday as the Fed's monetary policy committee met to decide the fate of short-term interest rates.

The general feeling among commentators was that the level of mortgage demand has been pretty much decided for this year and next, and that the Fed would do nothing - partly because the robust housing market is already slowing down.

Stuart G. Hoffman, chief economist for PNC Bank Corp., Pittsburgh, had this to say in his latest forecast:

"Our view is that a Fed tightening has been delayed until after the election but not necessarily eliminated. We expect the fed funds and bank prime rates to move up about 50 basis points over the next six months before heading back down in the latter half of 1997."

He was right on the mark with the first part of the prediction. The Federal Open Market Committee took no action on interest rates Tuesday; it will meet again Sept. 24.

So the outlook for mortgage volume comes out little changed: Originations should continue at the current rate of a little more than $50 billion a month. That would mean a drop of about 14% for 1997 from the 1996 level, which was swollen by an intense but short-lived refinancing boom in the first half.

The impact on industry participants, however, is likely to be uneven. Some prominent companies are gearing up for expansion despite the flat trend, while other refocus on other types of lending. Some straws in the wind:

*Mortgage companies should benefit from the continued favorable environment for fixed-rate mortgages over adjustables, but portfolio lenders will continue to have lean pickings. While rising rates ordinarily favor adjustables, some observers believe the spread between adjustables and fixed-rate loans will narrow, removing some of the incentive to choose an adjustable.

*Countrywide Credit Industries, the Pasadena, Calif., giant, is adding lines of business and employees, and seeking deeper market penetration of existing markets.

*PHH Corp., a leading affinity lender, said it is continuing to see a decline in refinancings but has broadened its marketing strategies to pump up volume with marketing partners.

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