Zandi Expects Credit Quality to Deteriorate.

A prominent economist told investors in mortgage-backed securities recently that even though the economy is improving, he expects mortgage delinquencies to keep rising.

In fact, between now and the end of 2005, Mark Zandi of Economy.com believes the overall trend could be negative.

"There is still more pain to come. I do anticipate mortgage credit quality to continue to erode right through next year and into 2005," Mr. Zandi said during a Web conference sponsored by Fitch Ratings.

He believes the economic recovery remains fragile, but he expects it to become more sustained over time. Both consumer confidence and business confidence have improved, according to recent surveys. And better expectations should help to bolster investment and spending. In addition, the monetary stimulus provided by large increases in federal government spending and lower taxes also is helping to generate economic growth, though the benefit has abated somewhat because of the increase in interest rates, he said.

"The key to continued improvement in the economy now lies in the job market," he said. "I think we are on the cusp of a pickup in jobs."

But while the labor market may be developing a "slightly brighter hue," as Mr. Zandi puts it, that may be too little help too late for some of the currently unemployed. Moreover, slower home price appreciation will make it more difficult for troubled borrowers to ...