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NEW YORK – Mortgage experts have been predicting the end to the mortgage boom for awhile, but the Mortgage Bankers Association’s chief economist isn’t making such a dire forecast. Speaking to attendees of the spring annual meeting of the American Credit Union Mortgage Association (ACUMA), MBA VP and Chief Economist Douglas Duncan, PhD said he rejects the probability of a widespread housing market collapse. Instead the MBA executive who keynoted ACUMA’s spring annual meeting, said the housing market can expect a slight rebalancing but no major upheavals in the foreseeable future. Duncan said the MBA expects home sales to fall 5% in 2005 and he described that as “a reasonable cooling.” Rejecting the probability of a widespread housing market collapse, Duncan said he is still concerned about the growing popularity of interest-only and hybrid adjustable-rate mortgages, especially among subprime and alt-A borrowers (a level between subprime and prime). Duncan stated he believes IOs are building artificial support into home prices in hot markets like California, Nevada and Florida, where 25% of borrowers have chosen these products. He’s also concerned that 37% of purchases are currently investor-owned. Despite anticipated changes in the mortgage landscape, Duncan advised credit union lending executives not to worry needlessly about rising interest rates because they won’t necessarily lower home prices. Interest rates peaked at 18% in 1981 when inflation ran to 12%, yet housing prices still rose 6% then, he told attendees. “Every loan product is a good product for someone,” he reminded attendees. He added that the advantage among lenders will shift to those who are good at matching loan types to consumers. In addition, as housing volumes fall, competition among lenders will increase. Credit unions, he said, are well-positioned to compete in this environment because members consider them trusted advisors and they’re cost-efficient lenders. He also told them that they should not be concerned with residential loan delinquencies – the 4.23% in fourth quarter 2004 was still lower than averages of the past two decades. Lastly, Duncan reminded ACUMA attendees that the Federal Reserve Bank cares about housing and its concern translates into political policy. “The Fed spent the last 25 years eliminating inflationary pressures. They think carefully about the impact on housing whenever they act,” he told them. – [email protected]

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