Hedging: Fast Rebound May Take the Pressure Off of Portfolio Managers.(mortgage rates, United States)(Brief Article)(Statistical Data Included)

This year began much the way last year ended for lenders. Mortgage rates held steady below the 7% threshold for over a month, and that generated a substantial volume of refinancing activity. The storm of portfolio churning continued for mortgage servicers.

But an increasing number of economists believe that low interest rates, and heavy loan origination activity, may be "front loaded" during the first half of 2002. By the second half of the year, they foresee rising interest rates putting a damper on refinancing volume, though loan purchase activity is expected to remain strong.

And with evidence mounting that the economy may be recovering more quickly, and more strongly, than some had predicted, some economists say that rates may be solidly above 7% by the end of this year.

Few people in the mortgage industry would cheer rising interest rates over the long haul, but servicing managers can be forgiven for wanting to see some rate stabilization, and for breathing a sigh of relief when rates edge above the 7% threshold.

Douglas Duncan, chief economist at the Mortgage Bankers Association of America, now believes that loan production will be tilted toward the first half of this year, with stronger economic growth pushing 30-year mortgage rates up to 7.3% and possibly even 7.5% by the end of the year. That will augur an end to the refinancing boom that, as of mid-March, had already lasted more than a year.

Home price appreciation also has an impact on prepayment speeds, and here again trends may slow down refinancing volume. The MBA predicts homes will ...