attention for much of 1996, an industry analyst said. One more drop in interest rates should significantly boost refinance activity, said Mark Zandi, chief economist with Regional Financial Associates, West Chester, Pa. "We're right at a point where 20 or 30 basis points will make a big difference," Mr. Zandi said. But he said the refinancings won't hit mortgage bankers like the tidal wave that struck a couple of years ago, when prepayments soared and then plummeted, leaving mortgage bankers reeling. This time around, Mr. Zandi said he expects a much more manageable stream. The activity will be "very positive" for both lenders and homeowners, Mr. Zandi said. "This will help some people that got into debt trouble" by giving borrowers the ability to consolidate loans. Mr. Zandi also said homeowners who refinanced during the refi boom of 1992 and 1993, when interest rates were the lowest in about 20 years, are now thinking about a second go-round. And he expects purchases to continue at a healthy pace. "It's a good time to buy or refinance." Mr. Zandi presented his commentary to top executives from PMI Group, a San Francisco-based mortgage insurance company, which had invited him to discuss the industry and the economy. Mr. Zandi peppered his presentation of charts and other graphics with anecdotes that point to the improved health of the national economy. For instance, Mr. Zandi said Los Angeles was about to get a "spec" office building - meaning the lender was comfortable enough with the economy to finance construction without commitments from tenants. Endeavors of this type "give you a good idea of how things are going," he said. But Mr. Zandi's presentation also contained some warnings. For one thing, he said, credit standards will probably remain "pretty lax," leading to difficulties by 1997 or 1998. "We should be very concerned about deterioration in credit quality and be cognizant (that) consumers have increased debt levels and will increase them in the future," he said. The situation may produce significant problems down the road, he added. Mr. Zandi also sees problems stemming from overcapacity in the mortgage industry. There are too many commercial banks, savings and loans, and mortgage banks chasing after too few borrowers, he said. "There won't be the level of originations long term to support that capacity," he said. Industry observers say lenders are already feeling squeezed and are turning to products like home equity loans and reverse mortgages to build business. Executives at PMI agreed with Mr. Zandi's assessment about a robust economy in the short term and uncertainties in the future. "We're watching closely to see how long the bull economy will continue," said Tony Porter, vice president in charge of marketing. High consumer debt levels are of particular concern for the mortgage industry, Mr. Porter said. "If people hit financial bumps in the road early on, their ability to repay a mortgage is hampered." At the moment, the industry is enjoying "a nice firmness," Mr. Porter said. "You don't have any boom areas that can lead to bust, and we don't have any bust areas."

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