As recently as the end of February, lenders were expecting an increase of more than 25% in mortgage originations this year, to about $814 billion. The were looking at a dream year, after two years of decline.

Since then, the Mortgage Bankers Association has trimmed its projections twice, to $775 billion and, as of April 10, to $755 billion. The latest number represents an increase of 17% over volume in a sluggish 1995.

But the mortgage giants have been showing even stronger gains over the relatively weak results of early 1995, and appear to have been adding market share. That suggests volume for the rest of the year will be nearly flat, and that smaller lenders could even trail last year's pace.

What's more, the MBA doesn't see much improvement ahead; it is predicting that 1997 volume will be about the same as this year's.

Is the dream turning into a nightmare? Could be. For some segments of the industry, a disaster scenario is no longer remote. Some relatively small movements in interest rates could make it a reality.

Stuart G. Hoffman, chief economist of PNC Bank, Pittsburgh, is optimistic about mortgage rates, expecting them to stabilize for the rest of this year. But he also points out that some inflationary pressure could be building. "We continue to expect a tightening move by the Fed starting shortly after the presidential election (if not before) and lasting into early 1997."

David Lereah, chief economist at the mortgage trade group, sees things a bit differently. He doubts that the Fed will tighten rates this year, largely because the marketplace has already done its own tightening. He expects mortgage rates to trend downward slightly for the rest of this year.

"I would trim my forecast further if rates showed signs of staying flat for the rest of the year," he adds.

Figures from the trade group show that applications for refinancings have been plunging since February and are now at their lowest point in at least a year. And applications for loans to purchase homes have also fallen below last year's pace.

The application figures are an early indicator of mortgage volume. And they are hardly optimistic. Even Fannie Mae is basing its internal forecasts on flat long-term rates.

If mortgage rates remain flat or continue to creep up and lending volume shrinks further, that could leave all nonbank mortgage companies, other than the largest few, starving for volume for yet another year. And if adjustable-rate loans return to favor, rising thrift volume could pinch these lenders even further.

Consolidation in the industry will certainly continue. The only question is how fast the pace will be.


The first-quarter earnings report from Standard Federal Bancorp., Troy, Mich., makes it clear that the thrift is bucking just about every industry trend.

Of the $1.3 billion in home loans in its pipeline at the end of the quarter, 88% were at fixed rates. A year earlier, 68% were at fixed rates. In actual fundings, the 30-year fixed-rate model dominated with 41% of volume, against just 16% a year earlier.

Perhaps even more telling, its assets grew by 8.3% since the period a year earlier, while most of the larger thrifts were growing slowly or shrinking assets. None of the assets are in consumer finance, a business that has become a favorite with other thrifts.

The thrift has been selling almost all of its fixed-rate loans and even some of its adjustables, according to Joseph Krul, chief financial officer. It led all thrifts in sales of long-term loans to Fannie Mae and to Freddie Mac in the first quarter, and was No. 7 among all lenders at both agencies.

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