Mortgage bankers may have their reservations about "no-fee" mortgages, but consumers clearly like the loans.

In August, nearly one out of every three mortgages closed carried no initial charges - up from just 10% a year earlier, according to the Federal Housing Finance Board. (See table.)

Amid this surge, a growing number of lenders say the products are hurting the industry by boosting refinancings and pre-payments. That, in turn, reduces the value of servicing portfolios.

Some lenders have already begun clamping down on no-fee and los-fee loans.

Charging More

Bank of New York Co.'s mortgage unit, for instance, has said it will start paying less for the loans in purchases from other lenders. And the unit, Arcs Mortgages, plans to charge more for the loans at the retail level.

Countrywide Credit Industries, The No. 1 mortgages banker, is "making very few no-fee mortgages," said Gerald L. Baker, head of production and marketing. "There's more reluctance by the secondary market to buy these loans."

Despite such concerns, the loans seem unlikely to go away anytime soon.

"Maybe we've introduced something that the consumer. . . likes and you just have to live with it," said Eugene Phipps, head of NationsBanc Mortgage, Dallas.

Harry Tomlinson, senior vice president for production in the Northeast district for Sears Mortgage, said he's taking the trend in stride.

"If it's going to help somebody buy a home or get lower payments, fine. The cost to us is the same because of the higher interest rate."

Mr. Tomlinson also said the impact on the secondary market would likely subside because there would be no advantage to refinancing a no-fee mortgage a second time.

Meanwhile, the average offer rate on 30-year fixed mortgages fell five basis points last week, to 6.9%, according a survey by HSH Associates, Butler, N.J. The average starting rate on adjustable mortgages fell one basis point, to 4.2%.

HSH said the drop in the 30-year rate was accompanied by a surge of about 25% in the number of institutions offering "bargain" rates -- those below 6.75%.

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