Mortgage delinquencies have been rising in recent quarters despite five years of growth in disposable personal income and gross domestic product.

How does one account for this anomaly? Maybe, just maybe, it's because the trend of casual-dress on Fridays is sweeping the country, leading people to put off monthly mortgage payments in favor of buying new wardrobes.

AEW Research, Boston, points out that casual Fridays is one of the few factors causing people to spend more these days. "Office workers now have three wardrobes: Monday-Thursday business attire, Friday business casual, and real life," says an AEW study.

But the impact is only temporary. "The clothes are generally simpler and cheaper than standard business wear, so in a steady state, the casual workplace will yield lower dollar volume," the study says.

But a more likely reason for the increase in delinquencies, AEW says, does lie in the workplace.

There is a growing dichotomy in wage growth, it says, that has seen inflation-adjusted hourly wages for all workers fall by more than 16% since 1962. Incomes of workers in some economic sectors, however, have risen sharply, especially in information-intensive industries.

AEW sees the trend leading to gains for those able to adapt to growing information needs and losses for everybody else.

But A.T. Kearney, the Chicago-based consulting arm of Electronic Data Systems, says the reasons behind growing delinquencies are not external economic factors at all.

Instead, it says, the fault lies with lenders themselves, specifically with "the decisions of certain lenders to lower credit standards in the hope of building market share and increasing profit from less creditworthy, higher-risk customers."

The report continues: "Conventional wisdom in the mortgage industry is that delinquency and chargeoffs peak in three to five years after origination; so lowered credit standards in 1994-96 will show up in lenders' income statements from 1997-2001 even if credit standards are returned immediately to where they were in 1985."

This could mean a delinquency of 10% and chargeoffs of about 50 basis points a year - enough to make a major dent in the profits of most banks.

What's a poor lender to do? The Kearney study suggests these steps:

*Decide what kind of lender you want to be. Do you want to deal in subprime loans? If so, do you have the skills to succeed?

*Price all consumer products according to risk.

*Sell subprime loans while you still can.

*Sell any mortgage-backed securities that have B and C loans as collateral.


Nobody has more experience in securitizing the mortgage assets of failed institutions than U.S. investment banking houses. So it should come as no surprise that some big Wall Street names are interested in exercising their skills on the home loans of Japan's failed jusen, or mortgage companies, which will soon be liquidated.

A report by AP-Dow Jones says a number of U.S. firms have expressed to Japan's finance ministry an interest in assisting in securitization of the assets of the jusen. Some names mentioned include Paine Webber Inc., Salomon Brothers, and Goldman Sachs.

The pot is a big one, about $220 billion in good and bad assets.

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