In 1993, the home-loan industry generated more than $1 trillion of mortgages. In 1994, the figure was down to $775 billion, and last year volume was an anemic $690 billion.
With volume shrinking at that rapid pace, overstaffed lenders have rushed to prop up volume - and shrinking margins - with a wide variety of new or recycled products and innovative marketing and distribution techniques.
In some cases, the profusion of products - and companies offering them - has been as wild and wooly as the Old West itself, and thus our title for this section, "New Frontiers in Mortgages."
We now have 125% loan-to-value models; reverse mortgages, in which borrowers receive rather than make monthly payments; "grandparent" loans, and an endless array of hybrids between fixed and adjustable rates.
Are the niche markets here to stay - or will they disappear with this year's heavier volume and the ascendancy of standard 30-year fixed-rate loans?
David Lereah, chief economist for the Mortgage Bankers Association, says: "I would suspect that some companies will move away from these niche markets. But for some companies that have found it profitable, they are in to stay."
Mortgage experts generally agree that some niches have already become or are on the way to becoming full-fledged markets, but they disagree on which niches will prove most durable.
Meanwhile, marketing pathways have also been changing rapidly, and the changes have a look of permanence. Even if the information superhighway has not reached Mortgage Town, U.S.A., the Internet shows signs of becoming a busy boulevard for originators.
At the same time, an older part of the electronic highway is thriving: the telephone. The marketing of loans by phone to union and association members is strong, as is the offering of refinancings to lenders' existing customers - a defensive tactic against portfolio runoff.
And lenders are also eager to move up the feeding chain and reach borrowers at the point where they're buying homes. Thus, lenders across the country have stepped up their efforts to establish relationships with builders and real estate agents.
In hot home-construction markets such as Las Vegas, such relationships are crucial. Weyerhaeuser Mortgage Co., for example, is especially well connected with builders and is by far the biggest lender for new-home purchases there.
One of the hottest lending areas has involved subprime or B and C lending - to borrowers with less-than-perfect credit records. Subprime lending has long been the province of a small number of specialists, but its large profit margins have attracted hosts of new players.
The B and C specialists, however, have been undaunted, saying the newcomers don't know what they are getting into and may well run for cover after they get burned by their lack of skills in aggressively servicing subprime loans.
Alan Hardester, marketing manager for Baltimore-based Coastal Mortgage and a consultant, predicted that many new entrants into subprime lending won't make the grade.
"Certainly we have had one good example of a failed effort - Prudential," he said. "It had unlimited money, but could not make it at all. What you are going to see is that subprime lending will become less of a focus for mortgage bankers and perhaps more of a focus for banks and thrifts."
The future of the B and C market seems quite strong. Freddie Mac has begun to offer a B and C underwriting capability as a service to its lenders.
It has also been finding in a pilot project that some loans classified as B and C by lenders actually qualify as A loans when a deeper evaluation is performed.
Fannie Mae has also experimented with credit enhancements to allow it to securitize B and C loans into prime credits.
It's also said to be developing a B and C analysis capability for use by its customers even though it will not buy such loans.
There is yet another new market that many observers believe could be the biggest and hottest of all: people who have the financial capability to get a home loan but don't know it.
Executives at Fannie Mae, for example, are making it a high priority to reach out to such people regardless of their incomes.
And Freddie Mac, the present leader in underwriting technology, has been experimenting with the use of credit scoring to identify prime loans that originators had originally classified as subprime. The further development of this capability could open the door to a huge and virgin market for conventional loans.
Another possible wave of the future is a process called data mining, which attempts to identify prime customers for cross-selling from available information in data bases.
"There are lots of ways to approach it," said Regina Reed, a senior manager at KPMG Peat Marwick in Washington. "Banks know that it is one of their biggest opportunities," she asserted. "They have the data bases and the customers - a lot of them have information on what their buying habits are and are learning what their needs are. They haven't used that information until recently. And if they were using it, they were not doing it to the extent that they could."
Meanwhile, the Internet seems to be getting increasing attention from lenders. "The refi boom will increase the interest in the Internet," said David Lereah, chief economist at the Mortgage Bankers Association. "Borrowers want to get mortgage information quickly and don't have the time or patience to visit lenders, so they want to access the information on- line.
"The real Holy Grail is loan originations, not just 'hits' on your Web site," Mr. Lereah declared, adding: "We are getting a lot of people just browsing. There are still security problems, the Internet is not that secure. When technology figures it out, then we will see the value of this medium. I don't know what to expect. It will have a percentage of the market - who knows?"
