Countrywide Credit Industries is likely to start offering mortgages with prepayment penalties, with or without the support of Fannie Mae and Freddie Mac, a senior executive said.

If the agencies decline to make a Market in the loans, the giant mortgage bank would securitize them through its Countrywide Mortgage Conduit, said Kevin Bartlett, executive vice president at the parent company.

Lenders have focused increasingly on mortgages with prepayment penalities - known as "call-protected" loans - as the rate of refinancing has skyrocketed over the past year.

Secondary-Market Lacking

Though some banks and thrifts have been writing and holding call-protected mortgages, mortgage banking companies have been restrained by the lack of a ready secondary market for the loans.

It is into this vacuum California-based Countrywide would step. Though details have not been worked out, the company would offer some type of call-protected mortgage alongside its other products.

Countrywide's subsidiary would then securitize these mortgages as well as any produced by other lenders interested in offering the product.

One difficulty could be pricing the mortgages and the mortgage-backed securities. "There are no existing bonds to track, and so it's hard to come up with a price," Mr. Bartlett said.

The price will have to be low, if Countrywide hopes to attract mortgagees. Such a loan may have a coupon of about 20 to 25 basis points less than traditional mortgages, Mr. Bartlett said.

Concerns for Consumers

Despite Countrywide's willingness to go it alone, it hasn't given up hope that the Federal National Mortgage Association or the Federal Home Loan Mortgage Corp. eventually will agree to securitize mortgages with prepayment penalties.

Both agencies have voiced concerns about the effects on consumers. But neither has flatly ruled out the loans.

"I think both of them would do it if someone would present a Program and could produce enough product to make it worth while," Mr. Bartlett said.

If Countrywide starts buying call-protected mortgages from other lenders, it may find substantial interest from other mortgage banks.

"I think it's a fine idea, and I would be willing to use the conduit," said Howard Levine, President of Bank of New York Co.'s ARCS Mortgage.

Some mortgage bankers, however feel that a call-protected mortgage is a product that has already missed its time.

"Rates probably won't fall enough to make this worthwhile anytime soon," said William Moffat, executive vice president of Plaza Home Mortgage, Santa Ana, Calif.

The Pros and Cons

of Call-Protected



Get a reduced interest rate but must pay a penalty if they refinance early

Mortgage bankers

Get a servicing right on which payment is less likely but which may suffer a slowdown in refi volume

Mortgage securities investors

Get an investment product with a more predictable duration

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