Calling All Hedge Managers: Don't Let Your Guard Down.

This could be the year. 2004 may mark the end of the refinancing boom. Economists predict that economic growth will accelerate and mortgage rates will edge upward over the course of the year. That means mortgage servicing portfolios will rise in value. Portfolio runoff will ease. And impairment and amortization-related writedowns will become yesterday's news.

Hopefully.

You see, the problem is that the outlook for this year is similar to the outlook for last year at this time. Instead, the industry saw rates edge downward to new record lows last year, sparking a continuation of the three-year-old refinancing boom that has left lenders scrambling to manage portfolio runoff and explain amortization and impairment charges to senior management.

The outlook suggests that is going to change this year. And once again, mortgage servicing should become a source that adds profitability to the bottom line rather than a business segment that slows down the huge gains associated with strong loan production. But if there's one lesson to be learned from the mortgage environment in recent years it is that even when it seems inevitable that the refinancing boom has finally come to a close, the fun may not be over.

Sure, the economy grew at an 8.2% annual rate in the third quarter of last year - the fastest rate of growth recorded in several decades. But that was boosted by tax refunds to consumers, continued improvement in consumer balance sheets due to refinancing, and a continuation of the robust housing market.

To be sure, as MBA chief economist Douglas Duncan has pointed out, the economic growth seen late last year appears to be more widespread and robust than it was earlier in the recovery. ...