Credit quality is slipping as a result of heavy competition in the mortgage industry, according to a research firm.

Home loans originated in 1994 are performing three times worse than 1993 loans performed at the same age, according to Mortgage Information Corp., San Francisco.

Some 0.09% of the 1994 loans were seriously delinquent at the end of the year, versus 0.03% of the 1993 loans at the end of that year.

The research firm blamed the decline in quality on a sharp rise in loans with low down payments, which is partially related to the much heavier proportion of purchase loans last year. Lenders have been offering more high-LTV loans over the past year in efforts to lift origination volumes.

With demand for home loans down sharply, lenders will have to make some tough decisions on how to get volume up without sacrificing loan quality, said Dan Feshbach, president of Mortgage Information.

"The industry is in a real dilemma," he said.

But some lenders say the increase in competition has not changed their underwriting standards.

Thomas J. Finnegan 3d, executive vice president at Integra Mortgage Co., Pittsburgh, said that he has not seen a decline in credit quality or an increase in serious delinquencies.

"I think it is a function of underwriting," Mr. Finnegan said. While Integra probably does a higher volume in high loan-to-value loans than other lenders, he said, there were no more serious delinquencies of Integra's originations in 1994 than in other years.

Industrywide, one-third of new loans at the end of 1994 had loan-to- value ratios of 80% or more - up from 20% of originations a year earlier, according to Mortgage Information.

And the 1994 loans of this type appeared more prone to serious delinquency, defined as past due by at least 90 days or in foreclosure.

High loan-to-value loans originated in 1994 are showing a serious delinquency rate of 0.17% after one year. Only 0.08% of high-LTV loans originated in 1993 were seriously delinquent after the same time period, the research firm said.

Mr. Feshbach said he predicts that the performance of loans originated in 1994 will continue to decline.

Loans that have a high delinquency at the end of 12 months usually continue to have performance trouble for the life of the loan, Mr. Feshbach said. At the end of 12 months, loans originated in both 1991 and early in 1994 had a seriously delinquent rate of 0.09%.

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Thirty-year, fixed-rate mortgages were offered last week at an average rate of 8.45%, down one basis point from the previous week, according to HSH Associates, Butler, N.J.

The rates, however, could fall by as much as a quarter of a point following a powerful rally in the bond market, HSH said.

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