David Loeb, chairman of Countrywide Credit Industries, has weathered enough industry cycles to know a trend when he sees one.

In a telephone interview with the American Banker, Mr. Loeb predicted continued refinancings, responsible players taking the lead, and industry consolidation.

Q.: Do you expect a refinance boom in 1996?

LOEB: We are undergoing a miniboom now as far as Countrywide is concerned. Refinances now make up 40% of our total production; the average is around 20%. During the refinance boom (of 1992 and 1993), refinances were 75% to 80%.

Refis are being done mostly by people who took out adjustable-rate loans in the last couple of years. With the yield curve flat, there is no incentive to stay in adjustable loans.

Q.: With refinancings and volume picking up, do you think 1996 will be a competitive year?

LOEB: There will be competition in 1996, but not as kamikaze as it was in 1994.

The competition is in the hands of larger and more responsible parties - responsible, because they have more to lose. The small to medium players have sold their servicing, so nothing is left there but the keel of the ship. Big banks that bought mortgage companies in 1995 are too focused on their bottom line and too regulated.

Q.: Will hedging strategies become more important with the new accounting rule, FAS 122?

LOEB: A hedging strategy is really a necessity now, because a lender has to record an impairment as an expense. If there is a decline in interest rates, you have to hedge. It behooves anyone with a large investment to take a defensive position to protect a servicing asset. But there is no magic strategy. You just have to find financial instruments that move contra to mortgages paying off and get enough of those on board. If you have the luxury of having an option, you can save on hedging costs. Our servicing asset at Countrywide represents too much of our net worth to fool around with it.

Q.: What do you think about Bank of America's new fixed-rate product, with a prepayment penalty in the first three years of the loan? Is this something Countrywide will consider?

LOEB: We've thought about a prepayment penalty, but it is a whole new ball game evaluating impairment (with FAS 122.) The loan would have to be priced well below market to get someone to sign up, because customers love to refinance. So we have not tried it. Various people in the company have thought about it from time to time, including myself. We are not afraid to copy anyone who has done it successfully.

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