Paul Mullings, president of First Interstate Residential Mortgage Corp., likes the two-month-old ARM his company is offering.

Since August, Mr. Mullings and his Pasadena, Calif-based company have offered borrowers an adjustable-rate mortgage with a penalty for prepayment, known as a call-protected mortgage.

In exchange for a lower interest rate, homebuyers may not refinance for a designated period without paying a penalty.

A Nationwide Trend

"So far, no major resistance," Mr. Mullings said.

That's good news to other lenders.

From New Jersey to California, bankers are considering call-protected mortgages, following the lead of San Francisco's Bank of America and others that have already instituted prepayment penalties.

With loans churning at a record pace, lenders are looking for ways to slow refinancing.

Freddie, Fannie Not Receptive

Still, First Interstate is an exception. Most lenders will not, offer call-protected Mortgages until Fannie Mae or Freddie Mac agrees to buy the loans. And so far the agencies say no.

Instead, First Interstate holds call-protected mortgages in portfolio.

Cristopher J. Sumner, president of Crossland Savings Corp., would like that option. He had thought about instituting call-protected mortgages, but backed away because he could not hold them in portfolio and Fannie and Freddie were not buying them.

He thinks the time for call-protected mortgages was at the beginning of the refinancing boom.

Loss Cuts Anticipated

"The cow's already out of the barn now," he said from Salt Lake City.

For Lee Lannoye, executive vice president of residential real estate lending at Washington Mutual Savings Bank, now is the right time.

The Seattle, Wash.-based bank will be introducing a call-protected mortgage this week.

Mr. Lannoye said that call protection would cut some of the losses lenders experience when mortgages prepay quickly.

Washington Mutual will keep the mortgages in portfolio. "It's the only way you can offer that without losing money," he said.

He believes others will react to wholesalers' offering no-fee loans and follow suit.

But there should be other considerations, said Ross Walker, senior vice president for residential lending at Huntington Mortgage Co., Columbus, Ohio.

He said many lenders would have to adopt the new mortgage in order for Fannie and Freddie to act on it.

And he said that the Clinton administration, with its focus on consumerism, did not seem likely to favor the new product.

Warnings Are Issued

Consumers might not either. John Robbins, chief executive officer, president and chairman of American Residential Mortgage Corp., based in LaJolla, California, warned that buyers are aware of call protection's dangers.

"I think consumers are pretty smart people," Mr. Robbins said.

One loan salesperson at First Interstate recommended that a buyer "stay away from those types of loans."

Some bankers agree. Anchor Mortgage Services does "plainvanilla mortgage stuff," said Charles W. Sewright, the Wayne, N.J., company's president and chief executive officer.

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