American Banker asked industry leaders last week to predict the most positive surprise of 1998 for the mortgage sector - and the most negative. Here is what they said:

Positive: The biggest surprise next year is going to be the amount of activity generated by the change in tax law that allows people to generate $250,000 in capital gains on the sale of a house without paying taxes. Prices of smaller homes will appreciate.

Negative: The biggest negative will be, in some markets, some downward pressure on prices of larger homes.

Positive: The most pleasant surprise would be closure brought to the Respa debate, so that all parties understand what the new procedure is and the consumer benefits.

Negative: I'd say the depth and seriousness of the year-2000 issues: will our industry be ready to throw that switch? (The problems) will be 1) money, 2) can't do it, and 3) time constraints.Positive: The big positive surprise will be that mortgage rates fall below the 1993 levels. I think they could drop another 40 to 50 basis points. It's certainly going to be a positive in supporting the housing market, but it'll be a stalemate with consumers being less comfortable about income growth and security of their jobs.

I don't think we'll have the overall volume of refinancing we had in 1993, 1994 and 1995, but I think we'll see considerably more. It will relieve some of the pressure on some of the people who've put too much on credit cards and take out a home equity loans or refinance.

Negative: The deteriorating willingness to make purchases, reflecting a weaker economy and losses in the stock market.

How the stock market behaves-whether we just tread water or have a real bear market-will have a large impact on both the housing market and the economy at large.

This is the first time in a number of years where people are going to say, "Gee! I'm significantly worse off than I was six months ago."

In the New York area, because we're so affected by the (stock) market, real estate has been particularly pumped and therefore vulnerable to a bear market.Positive: The 10-year long bond breaking 5.50%. In other words, that the problems in southeast Asia continue to deflate the inflationary balloon, keeping interest rates low at a time when the economy is still strong.

It would result in exceedingly strong mortgage originations and home sales-both new and existing units.

Negative: Mainland China devalues and we descend into a competitive devaluation/deflationary cycle. That puts the economy on hold, even though it results in lower rates. U.S. exports become so overpriced that the U.S. economy tumbles into recession-stagnating home sales and home building and raising the ugly specter of rising credit problems.

Positive: The Asian flu turns out to be a 24-hour bug-it lets some steam out of the system without really bursting the bubble.

Negative: The Asian problem spreading to Europe. Or the Asian crisis blows over really quickly and the economy boils, causing the Fed to jump in with higher interest rates.

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