Consumer confidence data released last week show that faith in the economy has reached its lowest point in almost two years, but that hasn't dimmed mortgage lenders' optimism, especially in light of the latest Fed rate cut.

Their optimism is further supported by recent figures from the Mortgage Bankers Association. Despite bad weather and the low confidence level, loan application volume was heartening in the week ended Jan. 26, increasing 31.6% from the week before and 151.5% from the equivalent week of 1995.

But despite personal income that is "chugging along" and stable initial employment claims, consumers remain shaken, Mr. Goldstein said.

The Conference Board reported its consumer confidence index for January dropped 12 points, to 87.0. Mortgage industry observers often look to a combination of the confidence index and unemployment figures to predict originations.

"The real story," said Conference Board economist Ken Goldstein, "is what is spooking the American consumer?"

The shutdown of the federal government brought on by the impasse over a balanced budget, which led to a dearth of economic information, is part of the problem, Mr. Goldstein said. The coupling of high-profile layoffs with a gap in economic indicators caused by the shutdown helped cripple Americans' faith in the economy, he said.

And a hearty dose of blizzard-induced cabin fever combined with post- holiday blues hasn't helped matters, said Chuck Dahlgren, senior vice president and manager of residential products for Winston-Salem, N.C.-based Wachovia Corp. People may have taken on a lot of debt during the holiday season, and right now, gray weather predominates, he said.

Consumer confidence is likely to increase, observers say. "It would take more bad news to keep that number where it is," Mr. Goldstein said.

The Fed's recent quarter-point rate cut is considered sure to boost both consumer confidence and home sales. "It was the right move at the right time," said Jim Coons, chief economist at Huntington Mortgage.

"People that have been sitting on the fence waiting for rates to go down will now put themselves in the market and start looking for a home," Mr. Dahlgren said.

If the Fed reduces rates again in March, as some economists are predicting, Wachovia will revise its origination projections upward. Currently, the company is targeting $1.6 billion of mortgage originations in 1996, a 25% increase over last year.

Any impending volume increase is sure to be skewed toward refinancings, said Mr. Coons. Currently, refinancing makes up about two-thirds of originations at Huntington.

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