American Banker asked executives at various mortgage-related companies to talk about the outlook this year for their own business and the industry at large.

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Paul S. Reid

President, American Home Funding

Richmond, Va.

This should be a good year for volume, although the industry will do a bit less than it did in 1996. We'll probably do $700 billion, compared with $800 billion. There is some difference of opinion if rates will go up or down, but either way we will see a narrow range.

It truly has become a commodity business. That's why people have been trying so hard to find niches. The competition continues to be very keen. Consolidation will continue.

Our next challenge as an industry is to take technology investments and harness them to become more efficient and creative lenders. People have been spending a lot on technology, but have yet to see the return. There was a sense lenders could use fewer people, but we haven't really seen that yet. It's because old habits die hard; people have gotten used to underwriting manually.

In many shops, people are still trying to get comfortable with converting to artificial intelligence. It's only when we get to the point of sale - when originations are routinely done on laptops - that we will realize savings that automation can bring.

Another challenge we face is valuing servicing. In many respects we've abandoned the fundamentals of the business and let ourselves get too optimistic about loans being there for a certain period of time. In other words, people are paying a lot for servicing, but we continue to see the half-life of loans being of short duration. You can make a case some people are paying at the top end for servicing.

- Karen Talley

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David Berson

Chief economist, Fannie Mae Washington

Clearly, 1996 was a very strong year. My forecast was for $800 billion in originations, and we'll actually get maybe $790 billion. Part of this volume is from the record level of home sales. This year will be good but not as good as 1996. We expect originations to drop to about $720 billion, which is down about 9%.

Berson

It's unlikely we'll have another record for home sales this year. We expect unit sales to be down 6 or 7%. This will be offset by home prices that will rise by about 4%.

We have the Fed doing nothing all year. Overall growth should be about 2%. Starting in March, we will be in our sixth year of economic expansion. If you grow above trend this far out, you'll go below it the next year, or slip back to trend.

Unemployment should edge up and take pressure off demands for wage increases, so there should be little reason to expect a change by the Fed.

A survey by Chicago Title shows a strong share of the market is first- timer homebuyers. Also, our homeowner fairs have been well-attended. You can infer from this that immigrants are having an increasing impact on the market.

- Edward Kulkosky

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Terrance G. Hodel

President, chief operating officer, North American Mortgage Santa Rosa, Calif.

I think it is going to be a year when we see a lot more emphasis placed on B and C loans and other products that are not your straight 15- or 30- year agency type of product. The profitability issue will also remain a serious issue throughout 1997.

We're looking for a period of an active refinance market based on what I hear about interest rates going down.

We're not looking for great changes on the servicing side although there may be more attention paid by outside accounting firms to the valuation of originated mortgage servicing rights.

North American expects to be a much more stronger B and C player by the end of the year. We are really kind of starting out but we're putting a major push on it.

We expect to remain one of the top 10 or 11 producers in the country and will probably continue to sell servicing."

- Paul La Monica

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Gary Judis

President, Aames Financial Corp. Los Angeles

We're still in a very highly charged expansion mode. The economy is in good shape, and real estate equities are moving at a nice rate across the country. ... We're very bullish around here.

I believe we can improve our margins through a combination of technology and budgetary prudence. We're already seeing tangible results from our outbound telemarketing system, which produces a far less expensive closed- loan package than electronic media or direct mail. There's no question we'll be directing more resources toward that.

Industrywide, dollar volume will still probably come from bulk purchases, but the horizon for bulk will reach a critical mass in a couple more years. The retail horizon is unlimited - it's like the tortoise and the hare.

The (B and C) industry is growing up. In a surprisingly short time, it went from a toddler to an adolescent. It still needs to be careful how it architects itself; the public still needs to understand more about this business.

Accounting and regulatory changes should not significantly impact Aames' profit margins in the upcoming year.

- Heather Timmons

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Stanford L. Kurland

President, chief operating officer, Countrywide Home Loans Pasadena, Calif.

I think, industrywide, consolidation will continue and that will look much like 1996. We will continue to see some of the larger mortgage banks consolidating.

The interest rate environment is going to be pretty cooperative. Interest rates are at very affordable levels, which should lead to good purchase activity.

For Countrywide, we're continuing our major pushes toward vertical integration, both on the origination side, by increasing revenues for related services, such as appraisals and credit reporting; and on the servicing side, looking for other income opportunities in terms of marketing other products to customers in the portfolio.

At the same time, we're continuing our constant effort to reduce costs.

The only other thing we may see more of in 1997 is larger subservicing arrangements, both for Countrywide and perhaps for other efficient servicers that can provide economies of scale to smaller participants.

When you're dealing with levels of administration and servicing that we have, with a portfolio of over $150 billion, we can pass on value to entities that are servicing at the $20 billion or $30 billion level. We'll see more of that exchange taking place and that's very similar to consolidation.

- Paul La Monica

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James Moore

Chief executive, Contifinancial Corp. New York

There was more capital raised last year (by B and C mortgage lenders) than in the history of the industry. I've seen estimates of 20 to 25% increases in securitization volume in 1996, and I would expect it to grow that much this year. The driving factor is the total level of consumer debt.

Bulk margins have declined this year as we've seen a number of traditional banking companies playing a role in nonconforming lending. These margins will continue to be under pricing pressure.

Competitive pressures are pushing players to move to higher loan-to- value ratios, which concerns me. ... There isn't an unlimited ability to increase loan-to-value and decrease credit quality without paying for it. In 1997, we'll see rating agencies and securitizers come to a level of equilibrium in terms of what makes economic sense, and there will be a restraining effect on the industry through rating agencies and credit enhancers.

Overlaps in Respa and Truth-in-Lending legislation have created confusion. This year the Fed, HUD, and Congress have a mind to try to address this confusion.

Overall, 1997 is going to be a 10: With the economy in the shape that it's in and high levels of consumer debt, it's almost a perfect environment for home equity lending.

- Heather Timmons

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Arthur D. Ringwald

Chief executive, BankAmerica Mortgage San Francisco

In an interview, Mr. Ringwald said Bank of America wants to take a bigger bite of the mortgage pie in 1997.

To do that, the bank may enter new midwestern markets and the Washington, D.C., area through acquisitions or de novo, he said.

If the price is right, Bank of America could buy a mortgage company in these markets, he said. But more likely, he suggested, the bank would set up its mortgage offices from scratch - "hiring the right people and building the business."

Bank of America's mortgage company is already employing that strategy in Chicago, Mr. Ringwald said. It recently opened its first three mortgage offices there.

For the industry as a whole, Mr. Ringwald predicted a "solid year," with loan volumes down about 10% from the strong level of 1996.

He said he expected Congress to take interest in rewriting the Real Estate Settlement Practices Act this year. The act governs the payment of referral fees during the sale of a home and the making of home loans. It has created a regulatory morass and is "ripe for a complete rewrite," Mr. Ringwald said.

- Snigdha Prakash

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