Competition remains fierce in the mortgage market these days. Lenders are working much harder for much less business.

But sharp pricing and a tightening rate spread have squeezed the up-front profits out of originations for many lenders, and some have decided to retreat to the sidelines, making fewer but more profitable loans.

Chuck Richmond, executive vice president at Washington Federal Savings and Loan Association, Seattle, said his thrift is "trying hard to get every deal but ... sticking with normal terms and conditions."

He said he believes the business slowdown is only temporary and thus does not justify offering aggressive new products or pricing.

Bill Lawton, vice president at Western Financial Savings Bank, Irvine, Calif., said he agrees with Mr. Richmond. "We are not getting into that feeding frenzy," he said.

Larry Swedroe, an economist and vice chairman at Residential Services Corporation of America, has a somewhat different view. He expects the feeding frenzy to continue this year with creative marketing and "lots of gimmicky products that help the borrower to qualify" for mortgages.

Even in the face of rising rates, he predicted, there will be increased use of low teaser rates, no application fee or closing costs, and no points to woo potential customers.

Lenders interviewed recently, however, tended to be focusing on finding new markets and shying away from price discounting. "Eventually, the institutions that have to come up with special programs to compete will be weeded out," said Mr. Lawton of Western Financial, because "they will go through their assets pretty quickly."

Some lenders are indeed moving to stimulate their business volume, in step with Mr. Swedroe's prediction, but they tend to be focusing on terms rather than pricing.

Vision Mortgage Corp., North Brunswick, N.J., is among them. "The market is so soft," said president Richard A. Rosenberg, "we have to create new products to stimulate sales of mortgages."

His products are aimed at people who may have current credit problems but have a good credit history. Vision Mortgage will lend to customers with delinquencies up to 90 days before the application.

In 1994, Vision started offering no-documentation loans -- sometimes requesting only a name, social security number, and address -- and not verifying the applicant's credit or assets.

Glendale Federal Bank, Glendale, Calif, now accepts "mattress money" for down payments, said Jack C.Light, vice president, in order to lure low- and middle-income customers. They also can now borrow up to 95% of the purchase price.

A Return to Sanity?

Analysts have been predicting that the fierce competition in ARMs would wane soon.

Some signs of a calmer atmosphere:

* Lenders that continue to show monthly profits are seeing less need for creative lending

* Even those with volume problems say they are just trying harder, but not with price discounts

* Prevalent new programs tend to focus on terms rather than price

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