A new housing study suggests the mortgage loan market will shrink markedly once the refinancing wave passes because much of the next generation of first-time buyers lacks the cash to meet the down payment.

Even when money isn't a problem, future first-timers are more likely to face prejudiced lenders than in the past because minorities will make up a much bigger proportion of the newcomers, according to the report* by Harvard University's Joint Center for Housing Studies.

Those already in the market likely will take up part of that slack as these people - particularly baby boomers - swap homes or mortgage terms to fit their changing lifestyles. Changing migration patterns also will create lands of feast or famine, particularly if rates stay fairly low. New single-family home construction set 10-year highs last year in 19 states.

But for renters seeking to buy, conditions are pitiful.

"With a median net wealth of only $2,096, only 25% of all young renter households could cover the 10% down27 payment and closing costs required to purchase the representative home," the study said. "Among young minority households, only 13.6% have the upfront cash."

Some innovative private programs, such as G.E. Capital Mortgage Insurance Corp.'s new way to slash private insurance costs at closing (see page 4), will alleviate that problem. The study's authors, however, believe a more activist federal government is needed. One suggested target: discriminatory lending.

Immigration has given the U.S. its highest proportion of foreign-born residents in 50 years, and importance of foreign-born and minority populations will keep growing, the study said. But studies also show that immigrants tend to be poorer than native U.S. citizens and "it is unclear... whether poor immigrants win be able to lift themselves out of poverty as so many of their predecessors have done."

For David Lereah, chief economist of the Mortgage Bankers Association of America, an improving economy is probably the best way to avoid some of the problems that the Harvard study foresees.

"The best thing the government can do is to keep housing affordable, and that's by keeping incomes up and rates low." he said.

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