CHICAGO -- As the mortgage banking industry gathered here this week, executives got the word that 1994 would be a bad year for their business. Or maybe a good one.

On the negative side, David Lereah, chief economist for the Mortgage Bankers Association, said he expected loan originations to drop to about $850 billion, from about $1.1 trillion this year.

Refinancings are expected to drop to about $300 billion, from about $570 billion. That would result in the biggest drop ever in total originations and could be very damaging to companies that rely on origination volume for profits.

But Mr. Lereah, speaking Wednesday at the trade group's annual convention, also said originations stemming from home purchases are likely to rise by about 20%, to a record $550 billion. Thus, purchases alone would be larger than total originations in any year before the present refi boom.

And the combination of rising purchase mortgages and declining refis will probably put a halt to the problems many companies have been having with prepayment drains on servicing portfolios.

"It also appears that companies are in better shape to cope with declining volume," said Mr. Lereah. He said staffing has risen by only about 11% a year during the present boom, against 22% a year during the boom of the late 1980s.

Not everybody agrees that the MBA's scenario is a mixture of good and bad news. Walter Klein, chairman of Sears Mortgage Corp., Vernon Hills, Mich., says: "Everybody thinks it's going to happen to the other guy. I think we're all going to suffer miserably."

Angelo Mozilo, vice chairman of Countrywide Credit Industries, Pasadena, Calif., noted that 1,600 people attended his company's party on the Naval Pier in Lake Michigan, and that the mood of the industry was "frighteningly" upbeat.

"Whenever people get this euphoric, it's generally a sign that we're at" a cyclical high.

He said he thinks the conventioneers were more worried about a greater compliance burden because of the possible imposition of CRA-like rules than about the end of the refi boom.

Joseph Pickett, chief executive of BancBoston Mortgage, said his son has been in the mortgage business only 18 months.

Mr. Pickett says he keeps warning him that things won't always be this good. His son's standard reply: "Sure, daddy."

That attitude may be fairly typical of the view of many convention attendees. Veteran MBA-goers said they had never seen so many new faces at the convention. A look at the registration list also suggested that a lot of midlevel people had been sent to Chicago for a quick education into the business.

And indeed there were a lot of happy faces at the Hyatt Regency, the convention site on the edge of the Chicago River. But there were plenty of somber ones as well. That may have been because the National Funeral Directors Association was holding its convention at the Hyatt as well.

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