The Federal Reserve's decision last week to cut interest rates is expected to produce the second-best mortgage production year ever.

Mortgage rates, after peaking last May, fell through the fall and sparked a refinancing boom. The recent Fed cut - and more that are likely to come - are expected to keep volume high.

"If we have a soft landing" of the economy, and the Fed "continues to lower interest rates, this is extraordinarily positive for the industry," said Angelo R. Mozilo, chairman and founder of Countrywide Credit Industries Inc. of Calabasas, Calif.

The average 30-year fixed rate was 7.07% last week, its lowest in almost 18 months, accord-ing to Freddie Mac's weekly survey.

Fannie Mae chief economist David Berson said three economic scenarios are possible this year: a soft landing guided by two more Fed cuts, a seriously declining economy that produces three or more cuts, or a rebounding economy with no further cuts.

The first scenario is the most probable, Mr. Berson said - and the one most sought by the mortgage industry.

"Right now, another two Fed easings are already built into rates, and so we are probably going to see mortgage rates around 7%," he said. If one of the latter two scenarios plays out, "the mortgage industry is going to be amazed. We're looking for about $1.4 trillion, the second-highest ever, after 1998," when $1.57 trillion of loans were originated.

Buck Bibb, executive vice president for retail production at the Miamisburg, Ohio, mortgage subsidiary of National City Corp. in Cleveland, said refinancings are rising sharply. In December 26% of National City's applications were refinancing requests, though as recently as October the proportion was 12% to 14%, he said.

Countrywide reported on Tuesday that its refinancing activity last month soared 91% from a year earlier.

Jim Jandrisevits, executive vice president of third-party originations at Fleet Mortgage Group of Columbia, S.C., said the FleetBoston Financial Corp. unit posted its three highest monthly production numbers last year in October, November, and December. Originations rose in each of those months from the one before, he said.

"We ended the year doing about twice as much volume in December than we did in January," Mr. Jandrisevits said. "If I took our last three-months' run-rate and annualized it, it's going to be a lot bigger origination market for us than it was in 2000."

Offering an even more bullish outlook, Morgan Stanley Dean Witter & Co. on Tuesday predicted that originations could top $1.5 trillion this year if mortgage rates drop another 50 basis points and that originations could even top 1998's performance.

If rates drop that much, 80% of the market could be vulnerable to refinancing, said Alec Crawford, Morgan Stanley's mortgage asset-backed securities analyst.

Several executives cautioned that, though a slowing economy bodes well for rates and the mortgage industry by fueling the refinancing market, fewer people will be able to buy homes if the economy slows too much.

"The real issue is, is this going to be a recession?" Mr. Mozilo said.

Mr. Jandrisevits agreed: "That's the wild card. If the economy really slows down, then that hurts volume."

"It's January - a lot can go wrong," Mr. Bibb added.

Nonetheless, if mortgage rates hold steady and the economy slows without stalling, the industry will have a good year, they said.

Mr. Mozilo said that the mortgage industry enjoyed a banner year in 1993 when volume climbed above $1 trillion for the first time, despite the 1990-91 recession whose effects lingered in California. Home prices fell that year, but refinancing activity more than made up for any shortfall in purchase activity, he said.

"You have now $5 trillion worth of mortgages outstanding; that's a lot of opportunity for refinancing," Mr. Mozilo said. "We think this will be a terrific year for us."

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