Joe K. Pickett, president of the Mortgage Bankers Association, said in a televison interview from its senior executives' conference in New York last month that he expects the 30-year fixed-rate mortgage to break the 10% threshold later this year.

Specifically, he said he expected the 30-year rate to top 10% by the end of the third quarter but then move back down.

If we should see fixed-rate mortgages over 10%, does that mean that we will see mortgage activity, already slow for many lenders, come to a screeching halt?

Probably not, for two reasons: It should only be a temporary condition, and the economy is strong and consumer confidence is high.

But two positive, if short-lived, things could happen if rates do breach the double-digit threshold.

The first is that borrowers may rush out to buy, trying to lock in a 10% rate before it goes to 11%.

The second is that with fixed-mortgage rates over 10%, borrowers appetite for adjustables could increase significantly, maybe pushing the ARM share of the market to 60% or more.

That assumes that the yield curve remains fairly close to where it is now and does not invert - with short-term rates higher than long-term - since that might preclude the one-year Treasury adjustable from being more attractive than a fixed-rate loan.

However, even with a narrow spread between the one-year adjustable rate and the fixed rate, emphasis might shift toward the 11th district COFI adjustable because of its tendency to lag behind other indexes as rates change.

This might mean a windfall of new loans for portfolio lenders that specialize in COFI adjustables, or for anyone else offering an ARM tied to the index of cost of funds in California and Nevada, the 11th Home Loan bank district.

Most likely, though, any originations done at 10% or above for 30-year fixed-rate loans should be limited and short-lived because of the forthcoming economic slowdown, which should put downward pressure on rates.

Having said all that, I must note that the consensus is that the economy will slow enough before mortgage rates would get that high, so most economists are not predicting 10% mortgage rates. But if there is the slightest possibility that rates could get that high, it pays to consider such a probability in any strategic planning.

Regardless of whether rates break 10% or not, most economic forecasts call for declining yields at the long end of the curve as the economy slows, so it is possible that we might see a small window of opportunity for refinancing for those borrowers who catch the high point in the cycle.

Even if rates dip a point, or even half a point, some borrowers might be tempted to ratchet their rates down by offering a no-points refinancing in a bid to build volume. Again, there are a lot of ifs in the equation.

While 10% fixed-rate mortgages is not a consensus viewpoint, it should be taken seriously. The fear is that once the 10% threshold has been crossed, mortgage activity might come to a standstill because of the public's aversion to double-digit mortgage rates.

I do not believe that there should be anything to worry about unless the higher mortgage rates are accompanied by extremely strong economic growth, so much so that the Fed must forcefully restrict economy expansion by continuing to tighten credit in the banking system.

That would temporarily push mortgage rates much higher, but the ensuing slowdown would probably be much greater than expected and cause rates to fall just as quickly. However, few analysts expect this scenario.

Next: What happened to mortgage lending in three earlier periods when interest rates topped 10%.

Mr. Holm is editor of Holm Mortgage Finance Report, Milwaukee

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