Has the mortgage origination and refinancing boom started to sputter?

The Mortgage Bankers Association reported an 8% drop in mortgage applications for the week that ended Nov. 6, including a 20% drop in refis.

Though that indicator could rebound when new numbers are released today, the association has already forecast a slowdown in mortgage originations for one- through four-family houses, to $1.194 trillion in 1999 from a projected $1.440 trillion this year. It also predicts refinancing will account for only 44% of origination volume next year, down from 50%.

Ana Adum, the association economist responsible for the data, said the drop in refis was unusually sharp for the week's 14-basis-point increase in 30-year fixed-rate mortgages compared with 10-year Treasuries.

"On the week ending Oct. 23 we had a 21-point increase and the drop in refi activity was just 10%," she said, "so I guess this is just making up for it."

The last time a refinancing boom ended, many lenders were left overstaffed, and the decline in volume forced some out of business.

Whether or not the latest weekly indicators are the first sign of a weaker market, it is already clear that lenders are going to have to deal with a great variability in the market, said Richard Beidl, senior analyst at Tower Group of Newton, Mass.

"Mortgage banking is a tremendously cyclical industry, and whether or not they'll be burned with high staff rates depends on how they staffed," Mr. Beidl said. He said most lenders underuse low-cost Internet lending, which could enable them to process as many loans with fewer employees.

Brenda Hourihan White, managing director at Warburg Dillon Read in New York, said rates are not falling enough for people to refinance loans that were originated this year.

"There's only so much there to refinance," Ms. White said. "People who were going to refi have already done it."

She said servicers should be glad that rates are not dropping very drastically. Were they falling faster, she said, the value of servicers' portfolios would suffer from loan runoff.

Mark Springer, president of M.H. Springer and Associates of Woodland Hills, Calif., said, "I think the housing boom is softening up a whole bunch. I could save a half point on a refi, but it's not enough to go through the hassle or the cost.

"A huge chunk of the '99 refis will be in the first quarter, because people have locked in their deals and lenders will have to fund," Mr. Springer said. "But we'll have more of a traditional year for the rest of the year."

Though many economists say the boom may be faltering, some are not convinced the numbers represent a long-term trend.

"I think rates can still go down enough to make a difference," Mr. Springer said.

Theodore H. Tung, senior economist at National City Corp. of Cleveland, said people have hesitated to refinance since the Federal Reserve's second cut in the fed funds rate in October.

"In fact the market is very healthy, given the demographics of the country," he said.

He predicted that the current housing trend will sustain itself at an average of 1.5 million starts a year.

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