More than 200 savings and loan and community bank executives gathered here, beside the harbor, to plan strategies for increasing their market share and profit margins.

Attendees at the National Secondary Mortgage Market Conference sponsored by America's Community Bankers remarked that the event was occurring during interesting times.

Borrowing from Dickens, Timothy J. O'Neill, senior vice president at First Indiana Banks, called it "the best of times and the worst of times.

"Loan volume is up, but margins are shrinking," Mr. O'Neill said. "Rates are declining, but pipeline fallout is increasing."

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Paul H. Schieber urged attendees to consider regulations in a new light.

"We normally look at regulations as a pain," said Mr. Schieber, a partner with the law firm of Blank, Rome, Comisky & McCauley, in Philadelphia. "There is another way of looking at them."

By "reading deeply" into regulations like the Fair Lending and Real Estate Settlement Procedures acts, bankers can find guidelines for new products, Mr. Schieber said.

For instance, Regulation B of the Equal Credit Opportunity Act, rules out certain types of counteroffers to mortgage applicants. But it also offers guidance about what kind of counteroffers are acceptable, Mr. Schieber said.

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One bright spot in the year ahead: Mortgage-backed securities will fare better than in 1995, said Anthony Lembke, director of mortgage strategy at Salomon Brothers.

Last year's market was hit when insurance companies went from big buyers of mortgage-backed securities to large sellers.

S&P cautioned companies that they risked downgrades for holding too many risky mortgage backed securities - and the selling began.

Now "a lot of that shrinkage is over," Mr. Lembke said.

This year, he predicted, insurance companies "will reinvest their prepayments plus a bit more" in mortgage-backed securities.

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In other innovations, look for Freddie Mac to add jumbo, VA, and FHA loans to the Loan Prospector system that evaluates loans. The system already analyzes A-quality loans, and - with help from Standard & Poor's Corp. - B and C-quality loans.

Leland C. Brendsel, chairman of Freddie Mac, said the guidelines for additional loan types could help bankers better evaluate their originations.

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While Fannie Mae was talking up its new reverse mortgage in one room, a veteran industry consultant was critiquing the product in another.

"It's an innovation that makes a lot of sense," said David Olson, president of David Olson Research Co.

But, Mr. Olson added, "It's a very difficult sell" that takes 30 to 60 days to close.

Because of the additional time, the product is more expensive to sell than conventional loans, Mr. Olson said.

"If the sell takes too long, maybe it's not worth it," he said.

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Bankers are unconvinced that mortgages can live up to their billing as door-openers to other selling opportunities. "I've heard cross-sell, cross- sell, cross-sell," said one banker at a session on servicing. "It's the biggest hoax related to mortgage servicing that ever existed."

Jonathan Crowley, vice president at People's Bank, Bridgeport, Conn., said cross-selling "isn't effective unless someone is given incentive to do it."

Even then, Mr. Crowley said, there is no guarantee of success.

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