Despite a recent rise in interest rates, refinance mania shows no signs of letting up.

"For the last 45 to 60 days, we've been very strong - as strong as last fall," said Dennis Meroney, director of mortgage banking at First National Bank of Gainesville, Ga.

Last week, rates on 30-year fixed mortgages climbed 11 basis points, to 7.3 1 %, marking the first significant rise since mid-May, according to HSH Associates, Butler, N.J.

Rate Decline Expected

But lenders say the rise barely affected loan demand. And many observers, citing a rally in the bond market late last week, say they expect mortgage rates to fall this week.

"I think the next interest rate reading we see will be flat or down a bit," said Warren Lasko, executive vice president of the Mortgage Bankers Association of America.

Meanwhile, the trade group's index of refinancing has reached the highest level since March. The index now stands at 1,406, after rising 15% during the week ended July 23, the last week for which it was calculated. An index value of 100 corresponds with the level of March 1990.

The refinance boom has kept mortgage originations at or near record levels for more than 18 months.

Boom Seen Continuing

Mark Lynch, vice president for retail loan production at Centerbank Mortgage Corp. in Waterbury, Conn., said he expects strong production for the remainder of the year.

"I think we're in for a relatively flat interest rate environment," he said.

Though lenders have been raking in origination fees, the refinancing boom carries clear pitfalls. As homeowners pay off their loans to take out new ones, mortgage bankers can suffer serious declines in their servicing portfolios.

City Leading in Refinancings

The American city with the highest prepayments is Milwaukee, according to data provided by the Mortgage Information Corp. In that city, the firm found, 34.13% of all mortgages are prepaying annually, based on trends of the past six months. New York City posted the lowest prepayment rate, an annualized 14.38%.

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