WASHINGTON - Fannie Mae says the first quarter will prove to be the bottom of the mortgage market this year. David Berson, its chief economist, says that even though the economy is slowing, homebuying and mortgage lending will rally for the rest of the year.

That's because fixed mortgage rates are falling, consumers remain confident, and employment is relatively strong, Mr. Berson said.

Also, the first quarter is usually the weakest quarter, with homebuying picking up in the spring.

Some key points in Fannie Mae's forecast for the rest of the year:

*Rates on 30-year fixed-rate mortgages will continue to fall slightly through the third quarter and climb back in the fourth quarter.

*Rates on these loans will average 8.25% in the second quarter, 8.05% in the third quarter, and 8.20% in the fourth quarter.

*Adjustable rates linked to the one-year Treasury bill will follow the same pattern, averaging 6.37% in the second quarter, 6.33% in the third quarter, and 6.51% in the fourth quarter.

*The market share of adjustable-rate mortgages will fall throughout the year, and may be as low as 25% of all originations by yearend. ARM loans made up 59% of the market in January but slid to 53% in February. This idea is supported by the continuing narrow spread between 30-year fixed and one- year Treasury ARM rates, which is expected to stay below two percentage points.

*Mortgage originations will total $613 billion, down from $752 billion last year.

*Refinancings will climb from 10% of originations to about 16% by yearend. The increase will be fueled as consumers with ARM loans that have adjusted to a relatively high rate switch to fixed-rate loans, Fannie Mae said.

Mr. Berson said that his forecast was contingent upon a "soft landing" for the economy, to a growth rate of 2% to 2.5%. He said there was a 70% chance that the economy would achieve this growth rate.

Other housing economists supported the broad outlines of Fannie's forecast.

Gary Cimenero, chief economist at Fleet Financial Group, said he too believes the lending market has hit bottom.

But he pointed out that new home sales are likely to be flat, judging by the level of inventories.

Mr. Cimenero added that a good portion of the pent-up demand for homes was satisfied last year.

He disagreed with Fannie Mae's estimate of the ARM share. Fixed-rate and ARM mortgages are likely to split the market down the middle, Mr. Cimenero said.

Mark Zandi, chief economist at Regional Financial Associates, said there was a growing consensus that the housing market would improve later in the year.

Donna Callejon, senior vice president for marketing at Fannie Mae, said her agency's business was headed on an upward trajectory for the rest of the year.

She said the market continued to show an overcapacity of lenders. But that is good news for consumers, because it translates into more choices and lower rates.

She said Fannie Mae expected to securitize large packages of ARMs at the big California thrifts that are looking for ways to manage their portfolio growth. This growth, fed by the strong consumer preference for adjustables during the past year, left them overstuffed with mortgage investments.

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