A decline in mortgage origination volume has already begun, and while a shrinkage of 30 to 35% is expected for the industry in the second half, the effects on individual lenders are likely to be scattered all over the chart.

The Mortgage Bankers Association is predicting a drop of 32% in the second half from the enormous figure in the second half of 1998. But the course of interest rates is fairly stable, and the boom in the housing market is proving to be surprisingly durable, so purchase loans should continue strong while refinancings continue to shrink.

At Fannie Mae, the chief economist, David Berson, is predicting $555 billion of originations in the second half, bringing the total for the year to $1.3 trillion, the second-highest on record. But the second-half figure will be down by about 31% from the $806 billion in originations in 1998's second half.

Mr. Berson said his projection looked pretty solid. "Homebuying decisions for October through December have already been made," he said, so the course of interest rates is not crucial. He is expecting a small tightening by the Fed in November, but sees little impact on home lending since refinancings are already down to about 20% of total originations.

For 2000, Mr. Berson is expecting originations to reach $945 billion, the fourth-best year on record but a drop of about 25% from the 1999 level. The Mortgage Bankers Association has a similar forecast: originations to reach $952 billion for 2000.

A key to the MBA forecast is the expectation that housing starts will remain high, dropping less than 10% from the record that is being set this year. It also sees interest rates on 30-year fixed-rate loans little changed, rising to an average of 7.6%, from 7.4% this year. The association expects price inflation to be mild, with prices of existing homes rising just 4.2% next year and new homes climbing just 3.5%.

Countrywide Credit Industries, the biggest independent lender and No. 3 among all lenders in the second half, serves as a kind of bellwether. It reports production figures monthly, providing an early look at trends. And the trend is decidedly downward.

Its originations volume peaked last December at $9.4 billion and had fallen to $5.7 billion by August. And its pipeline, which provides a preview of future volume, sank from $16.2 billion last November to $10.9 billion in August, suggesting Countrywide's loan volume could soon be below $5 billion a month.

Since the company's monthly volume averaged more than $8 billion in the second half of 1998, a decline in this year's second half of 35% or more is indicated.

Meanwhile, some other Top 10 lenders have already reported declines in volume. In the second quarter, Norwest Mortgage's loans fell 13%, dropping it to second place nationally behind Chase Manhattan Mortgage, which had a whopping gain of 44%. Bank of America Mortgage showed a drop of 10%, and Washington Mutual, 1%.

Overall, however, the industry made a strong showing in the first half, increasing originations by about 15.5%. Some of the larger gains: Chase, 60.2%; Fleet, 51.8%; PNC, 53.6%; and GMAC Mortgage, 61.6%. It may take a little longer for these lenders' results to turn negative.

Chase attributed its big gain partly to its ability to switch to originating adjustable-rate loans for its portfolio as rising interest rates dented the demand for fixed-rate loans. The industry as a whole has been increasing the percentage of ARMs originated. They were just 12% of all loans last year, against about 21% this year. And the MBA is predicting they will account for 25% next year.

To be sure, most of the industry is already preparing for shrinkage in volume. The employee head count dropped in July or the first time in 22 months, according to the U.S. Department of Labor. Historically, the industry has been slow to cut staff in the face of declining volume. In this cycle, though, it seems to be getting an earlier start.

Employment in the industry, however, has a perpetual upward bias because total loans outstanding continue to grow, and the need to add servicing personnel is relentless. Countrywide's servicing staff, for example, climbed by almost 2,000 from August 1998 to August 1999, even as total employment climbed by only about 1,200. So the gain in servicing was masking a decline of some 800 employees in production and other jobs.

The July decline in industry employment simply means that shrinkage of production personnel has finally caught up with rising servicing employment.

The impact of the Internet was not apparent in the originations rankings, but one Internet lender did appear for the first time. Mortgage.com, based in Plantation, Fla., jumped to No. 62 with originations of $1.5 billion.

The figure was up 112% over the level a year earlier, the largest gain for any mortgage finance company, but less than half of the loans were originated on-line.

Another Internet lender, E-Loan of Dublin, Calif., was in the top 100 in the second quarter, ranking No. 74 with $313 million in loans, but it did not make the top 100 for the first half.

Commercial banks continued to dominate home lending with their mix of mortgage banking and portfolio loans. They accounted for 44% of the market in the first half. Finance companies were second with 24.8%, while the once- formidable thrifts had just 11.5%

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