Overall mortgage rates fell and applications rose last month, according to Moshe Orenbuch, a Credit Suisse Securities USA LLC analyst in New York, but investors should "expect some bumps" this year.

In a research note issued Thursday, Mr. Orenbuch said that in terms of credit quality, "winds of change are blowing." Credit quality will decline this year, and cumulative losses on subprime loans could reach $10 billion over the next two years, he said.

This year borrowers probably will have less access to accumulated equity in the form of second-lien loans to help with mortgage payments, he said. "With home price appreciation slowing significantly in 2005 and 2006, and even declining in some regions, borrowers may not possess that ability this time around."

Mr. Orenbuch also said that he does not expect Fannie Mae to return to "timely financial reporting" until 2009, and that Freddie Mac is unlikely to do so this year.

Nonetheless, he forecast that the stock price for both government-sponsored enterprises would rise $7 this year, to $62 a share for Fannie and $71 for Freddie. GSE reform legislation likely will focus on affordable housing initiatives and "quell calls for strict portfolio limits."

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