Demand for home loans remains strong despite an economic slowdown, Fannie Mae says in its summer report.

Fannie projected 1998 mortgage originations will reach an all-time high of $1.2 trillion, fueled by record home sales and strong refinancing activity.

The midyear economic report focused on consumer spending habits and the impact of Asia. It attributed the economy's second-quarter cooling to slower inventory accumulation and trade deterioration.

Asia has the potential to drag down interest rates, said David Berson, vice president and chief economist at Fannie Mae. A slowdown in corporate profits may hurt equity markets and business investment spending. The report concluded, however, that there is only a slight risk that the Asian economic slump would lead to a 1999 recession here.

If the consumer "stays bullish and continues to spend rapidly, then the economy will grow quickly, but interest rates will move up as well," Mr. Berson said.

Fannie Mae said it expects no change in the Federal Reserve Board's monetary policy this year.

"The Fed is trapped between low unemployment, strong economic growth, and rising wages" and the other scenario of "weakness, recession, and possibly worse in Southeast Asia" that would make it risky to cut rates, Mr. Berson said.

Long-term interest rates are expected to remain within a narrow range, with the yield on the 30-year Treasury bond fluctuating between 5.7% and 6.1%.

Fannie predicted refinancings will account for about 43% of all mortgages - a high level but well shy of the 53% refi wave of 1993.

The agency said refinancings probably would slow through yearend, provided interest rates don't tumble.

Fannie Mae also predicted the share of adjustable-rate mortgages will be about 14% for the year, in line with a flat yield curve.

Home sales in 1998 are expected to climb to a third consecutive record, with new-home sales up nearly 3%, to 824,000 units, and resales of existing homes up 4%, to 4.39 million units, Fannie Mae said.

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