Lower interest rates are turning the normally slow holiday season into a lending wonderland.

Applications for purchase loans and refinancings are up from coast to coast, spurred by interest rates that began falling last summer and hit a low of 7.44% last week for 30-year fixed-rate loans.

Even smaller banks, with their limited marketing reach, are feeling the benefits. "It's been phenomenal," said Beth Beal, chief residential lender at the Bank of Bloomfield Hills in central Illinois.

Demand "was incredible in November, and December is shaping up even better," Ms. Beal said.

She and other lenders said they could not remember another holiday season that had brought them so much cheer, despite last week's bond market turmoil.

"We're definitely seeing more people come in," said Pat Schubert, senior underwriter at the mortgage arm of Mid State Bank, Arroyo Grande, Calif. "This is usually a slow time of year."

Lower rates are allowing more customers to buy and enabling those that have been shopping awhile to buy more expensive homes, she said. The bank's marketplace is the California coast between Los Angeles and San Francisco.

All corners of the country are seeing an increase in consumer interest, said David Lereah, chief economist at the Mortgage Bankers Association of America.

There is "very, very strong" demand for mortgages, he said.

The activity is solid enough to help end a slide in housing sales that began in August, Mr. Lereah said. "Sales should pick up over the next two months because of the rate environment," he added. In the latest weekly MBA report, loan applications were down because of the Thanksgiving holiday.

The fall in interest rates was too good to pass up for Paul S. Reid, president of American Home Funding. He is refinancing his own home. "I didn't want to miss this opportunity," he said.

Other customers at American Home obviously felt a similar tug. Applications for refinancings are running at twice the clip of a year ago, Mr. Reid said.

Many lenders said they were not waiting for customers to come to them. At Mr. Reid's company, a unit of New York's Rochester Community Savings Bank, branch managers are calling mortgage holders about refinancing opportunities. "We're finding people are very interested," Mr. Reid said.

The good times may well continue through the new year, economists said.

If holiday spending falls, suggesting a slowing economy, mortgage rates could slip to 7%, giving solid impetus to 1997 lending, Mr. Lereah said.

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