The National Home Equity Mortgage Association welcomed members to its 22d annual conference here last week with a junior ROTC drill team, an inspirational speech by Apollo 13 astronaut James Lovell, and encouraging words for the year ahead.

"We're like a diamond in the rough," conference chairman Denny Hanysak said in his opening remarks. "This year, we'll work at polishing our skills."

In fact, the $400 billion home equity industry can look for steady growth in 1996, said David Olson, president of a Columbia, Md., research firm that bears his name.

One key factor is the increase in a secondary market for these loans. Securitizations, which have helped to legitimize the industry and cut down on risk for lenders, should grow from $14 billion to $20 billion this year, he said.

Unpredictable results from Fannie Mae and Freddie Mac pools have helped spur interest in securitizing home equity loans, Mr. Olson said. "Investors are mad at Fannie and Freddie, because their loans prepay too quickly."

The smaller home equity market behaves much better, he added. "Now the home equity industry is the darling of Wall Street. Firms are climbing all over each other to do these transactions."

Stock prices for some home equity companies have seen phenomenal growth in the last year. In the 12 months that ended March 13, the biggest gainer, Cityscape Corp., Elmsford, N.Y., saw its stock skyrocket 1,492%. Cityscape also saw the biggest increase - 443% - in earnings per share over the past year.

And, although the threat of high delinquencies has been on lenders' minds, there is no reason to worry in the near future, Mr. Olson said. "You need to be vigilant about delinquencies, but it's not a matter of real concern. There's no evidence of a problem in 1996."

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