In the midst of a housing boom, the Mortgage Bankers Association is warning its members to prepare for tougher times.

In an interview last week, David Lereah, the group's chief economist, said the new markets lenders have lately tapped-125% loan-to-value, low- down-payment, and subprime mortgages-could turn treacherous if the economy slows and job losses mount.

He said he is telling lenders to plan conservatively for 1998: "Run through the worst-case scenario and see if your company can withstand it."

The substance of Mr. Lereah's warning is not new, but its timing is noteworthy.

Record home sales and strong housing starts have continued to power economic growth this year. Though activity is expected to slow next year, it will remain at healthy levels, forecasters agree.

But Mr. Lereah said he's worried that the long spell of economic health has made lenders "complacent." Borrowers, particularly low-income households, are overstretched, he said, and credit problems are "a time bomb" waiting to go off.

"I don't know when," he said."It could be five years from now. I'm trying to warn companies that they should be positioned at all times."

The warning echoes the concerns expressed lately by some bank regulators that mortgage and home equity lenders have loosened credit standards, even as credit card lenders tightened.

At the association's annual convention in New York last week, credit problems weren't a big topic of conversation, participants said.

But at least one industry veteran, Walter C. Klein Jr., CEO of First Nationwide Mortgage Corp., Frederick, Md., is thinking along those lines.

"I want to avoid preaching at the industry," he said in an interview, but "it's been a while since we've had a recession."

He said lenders who don't pay attention to credit quality do so at their own risk.

Lenders have made lots of new loans to refinancing homeowners, Mr. Klein noted. Many of these homeowners have cashed out some of their equity.

As long as borrowers don't turn around and run up credit cards irresponsibly, these are good loans, Mr. Klein said. The key, he said, is prudent underwriting.

Focusing on the rise in low-down-payment lending, Mr. Lereah is telling lenders: "Make sure they have a down payment, make sure they have some stake in these homes."

The problems mortgage bankers potentially face are rooted in a mix of factors-a demographic slump in the first-time buyer market, thinning profit margins, and paradoxically, the long-running economic boom.

Emboldened by the strong economy, mortgage bankers have increasingly turned to riskier markets over the past few years. The new borrowers have lower incomes and more banged-up credit histories than their traditional borrowers, and often have dealt mostly with finance companies before.

Thus, lending to so-called subprime borrowers-with credit problems ranging from frequent late payments to bankruptcies-has soared in the past three years. In 1994, $35 billion of home loans were made to these borrowers. By 1996, $97 billion were lent, according to Inside Mortgage Finance, an industry newsletter.

Subprime home loans are projected to exceed $100 billion by yearend, and the Federal Home Loan Mortgage Corp., Freddie Mac, has announced it is entering the subprime market next year.

Meanwhile loans with small down payments-less than 10% of the home's value-have been growing as a share of the mortgage business for many years. That has been, in part, as a result of government-driven initiatives to clean up discriminatory lending practices and increase homeownership among minority Americans.

About a quarter of all loans made this year have loan-to-value ratios that exceed 90%, according to the Federal Housing Finance Board. In 1990, only 8% of loans had such low down payments.

Though mortgage delinquencies are near cyclical lows, many, including Mr. Lereah, worry that delinquencies are disproportionately high for such a strong economy.

In the second quarter, 4.24% of home loans were late-paying, according to the Mortgage Bankers Association's seasonally adjusted data.

A weakening economy is sure to push up delinquencies much higher, experts agree. "Will lenders be able to cope with a substantial rise in delinquency rates?" Mr. Lereah wondered last week. "This is a scenario I want them to consider."

He said he is particularly concerned about loans made to low-income households, because they have more debt per dollar of income than other groups.

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