The pace of mortgage originations should get a much-needed boost from the recent drop in rates, but industry observers and bank officials say further declines are still needed to spur a sustained boom in refinancing.

Thirty-year fixed rates have declined by more than 20 basis points in recent weeks, hitting 7.6% in the latest weekly survey.

"Every time rates drop, we can hope it kicks up a little activity," said Stuart Feldstein, president of SMR Research, Budd Lake, N.J. "For a really huge impact, we need mortgage coupon rates to go to 7.5% or lower. But we're not too far away."

Executives at mortgage banks around the country are closely watching the trend.

"In the last six to eight weeks, there has been significant interest in refinancing, especially for people with adjustable-rate mortgages," said Rick Cossano, executive vice president for consumer markets at Countrywide Funding Corp., Pasadena, Calif.

What's more, the decline could spur first-time home sales, Mr. Cossano said. "Each quarter-percent drop in interest rates allows a new group of first-time home buyers to enter the market."

Mortgage rates did come down during the early months of the year, but "none of us envisioned they would drop again, and this will help sustain strong homebuilding activity," said David Lereah, chief economist for the Mortgage Bankers Association.

"We thought rates would hover and go back up a bit," said Mr. Lereah, describing how rates peaked last December but began to climb during the summer from the June rate of 7.57 %.

Mr. Lereah said demand for adjustable-rate mortgages has been impeded over the past couple of months, "but this will deliver another blow to the market."

He estimates that the adjustable portion of the market will sink to 25% in the current quarter, down from 52% in the first quarter. By next year, Mr. Lereah predicted, that figure could drop to 22%.

Countrywide's Mr. Cossano isn't the only mortgage banker finding new signs of life in the business. At Commerce Security Bank in Sacramento, Calif., originations last month were up 15% from the same period a year ago, said Gary Clark, executive vice president. This month, Mr. Clark estimates fundings will be up by about 25%.

"I clearly think the lower rates are going to help mortgage volume, no doubt about it," Mr. Clark said. He added the drop should benefit the California market, which has been somewhat weak. Other states the bank serves, like Oregon and Arizona, are stronger.

Mr. Clark predicted that rates have bottomed out, at least for the time being. "I thing we're going to hold here, at least for a little bit," he said. "But another drop of 10 or 20 basis points would really spark sales."

On the opposite coast, lenders said they are still looking for added volume. "We're getting through the summer doldrums and I think we will see an increase this fall," said Anthony F. Panza, executive vice president of Residential First Inc., Hauppauge, N.Y. "Because of the flatness of the yield curve, we will see some refinancings from ARMs into 15- to 30-year mortgages."

Ed Furash, chairman of Furash & Co., agreed that refinancing could increase but warned that any gains will be slight if rates don't continue to ease. "There is a big refinancing market waiting for a bigger drop," he said.

Dan Duggan, senior vice president at Marine Midland Mortgage Corp., said that rates would have to ease by another 25 basis points to bring about a sharp increase in refinancing.

Although many mortgage bankers are still hoping for a further drop in rates to boost their business, Mr. Duggan said he feels "the mortgage market is strong and will remain so. Whenever we go below 8%, we see a little more activity."

"We're always happy to see interest rates decline," Mr. Cossano added. "There is significant interest on the part of borrowers right now, and anything below 8 % is a tremendous bargain."

New homebuyers are particularly sensitive to any unexpected jump in costs, Mr. Cossano said, and will be especially interested in the now cheaper fixed rate loans.

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