Magazine article American Banker

MBA Economists See Economic Gloom

Magazine article American Banker

MBA Economists See Economic Gloom

Article excerpt

The economic forecast for mortgage lenders is gloomy at best, according economists at the Mortgage Bankers Association.

The interest rate on 30-year mortgages "will approach double digits by the end of 1995," said David Lereah, the group's chief economist. "I expect the 30-year rate to top out at 9.8% by the end of next year."

In remarks at the industry's annual conference in Boston, he added that the rise in rates would be coming soon.

Lyle E. Gramley, a consulting economist for the MBA and a former Federal Reserve Board governor, expects the Fed to tighten its federal funds rate by 50 basis points on or before Nov. 15, with the possibility of another similar hike in December.

"It's a pretty lousy housing and lending outlook for the next 12 months," said Mr. Lereah. The rise in rates will stanch demand for mortgages, he said. The MBA is looking for a $605 billion home loan market in 1995. That's a 20% drop from the $760 billion projection for 1994 and more than 40% off the trillion-plus market lenders enjoyed last year.

Originations were stronger in the first half and 1995 looks to be a continuation of the weaker second half of 1994.

As has been the case this year, mortgage bankers will bear the brunt of the carnage in 1995. The rise in rates should continue to feed consumers' predilection for adjustable-rate mortgages. Adjustables will account for 45% of home lending next year, according to Mr. Lereah, up from 32% in 1994.

Since portfolio lenders have been able to offer adjustables at lower rates than Fannie Mae and Freddie Mac, that trend will put them at an increasing disadvantage. …

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