Mortgage trading on Wall Street is in a lull as investors ponder whether to seize buying opportunities in non-agency-backed securities or wait for the New Year to jump into the more liquid conventional market.

Spreads against Treasuries for pass-throughs -- the most liquid securities traded on Wall Street -- have tightened since the summer, making them less attractive to investors. Nonagency mortgages offer a higher yield, analysts said.

"As soon as you go down in liquidity, that's where you see spreads widen out tremendously," said Dale Westhoff, senior managing director of mortgage research for Bear, Stearns & Co. Inc. These securities have wider spreads because they are less liquid.

Craig G. Ellinger, director of public structured finance for PPM America Inc., agreed that "the best trade to pursue at this point is a down-in-liquidity-trade" by buying credit-sensitive securities and nonagency securities.

The fourth quarter is historically a conservative time, and with year-2000 computer worries high, investors are even more inclined to stay on the sidelines.

With mortgage rates rising for most of this year and refinancings down significantly, the supply of mortgages and new issuance of mortgage-backed securities have dwindled as well.

Data from last Wednesday might suggest an increasing supply of mortgages. Freddie Mac reported that the average 30-year fixed-rate mortgage fell to 7.67%, from 7.84%, and the Mortgage Bankers Association said refinancings for the week ending Nov. 5 edged up to 23.3% of total applications, from 21.2% the previous week. But analysts said volume is unlikely to surge.

Refinancings will fluctuate "in a narrow band between 20 and 25%" of total originations for the remainder of this year, said Brian Carey, an economist for the Mortgage Bankers Association.

The supply of mortgages is likely to be thin after the new year, Mr. Westhoff predicted, noting that with refinancings off, supply will depend on new home sales.

In winter months, he said, turnover is low, and with higher interest rates, mortgage origination volume is likely to remain thin.

Indeed, new home sales are already declining. Robert D. Barr, senior economist for Fannie Mae, noted that new home sales fell to an annualized rate of 811,000 in September, a big dip from 930,000 in August.

Sales of existing homes are also down, to an annual rate of 5.13 million in September from a 5.63 million rate in June, he said.

"In 2000, originations will be more than one-third below what wedid in 1998," at about $948 billion, he said.

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