Industry Leaders Give Lender Groups Hope For a Strong '96 Finish

Despite the industry's recent slowdown, lenders got some encouraging words from speakers at the regional conference of mortgage bankers associations here.

Two industry leaders said even though the market has been weak, and is expected to remain sluggish for a while longer, the year would finish soundly.

Leland C. Brendsel, chairman of the Federal Home Loan Mortgage Corp., said his company still expected a strong year for loan originations despite the recent run-up in long-term interest rates.

He said Freddie Mac had earlier been forecasting volume of $850 billion for this year. But it has now trimmed this figure to about $800 billion, still a solid figure by historical standards.

John A. Tuccillo, chief economist for the National Association of Realtors, said he thought the recent jump in rates could well be a seasonal event. In general, he said, the yield on the benchmark 30-year Treasury bond - currently about 6.7% - should trend toward the real economic growth rate plus the inflation rate. Today, that combined figure would be about 5.5%.

Mr. Tuccillo predicted a 50-basis-point drop in the long-bond yield in the next few months, and said economic growth would stabilize at about 2% this year. He characterized the relatively slow growth rate as a payback for an unusually high rate in the recent past.

Mr. Brendsel also took the occasion to put in a pitch for Loan Prospector, Freddie Mac's automated underwriting system.

He said use of the system was increasing among Freddie's lenders and that volume had now reached about 3,000 loans a week. He added that he was expecting this figure to triple by the end of the year.

He also gave new details of his country's research into using Loan Prospector to evaluate loans below prime, or A, quality.

He said one lender that made many A-minus and B loans submitted a large batch for review and found that Loan Prospector would have approved half of them as prime and thus eligible for purchase by the agency.

He also gave a live example: a 64-year-old man with an annual income of $26,000 applied for a $56,000 loan. He had a good credit history and had been on the same job for many years. But his extremely high debt ratio - 50% - would have disqualified him with most lenders.

The payoff: Loan Prospector approved the loan and Freddie bought it.

"We are getting better at identifying creditworthy borrowers," Mr. Brendsel said.

Also on the program was George Will, the acerbic syndicated columnist and network commentator known for his conservative opinions.

In discussing the rapidly growing size of federal entitlement programs, he touched on a subject of considerable interest to mortgage marketers: the aging population.

"Since 1960, the U.S. population has grown 30%," he said. "But the population of people 85 or older has grown 230%."

Mr. Will was using the numbers to point out the built-in expansion of the cost of entitlement programs, the bulk of which benefit older people.

But mortgage-industry analysts have also used such numbers to suggest a need for new loan products tailored to changing demographics, including reverse mortgages through which older people can tap the equity in their homes for living expenses.

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