Wall St. analyst PEGS 2001 originations at $1.9 trillion. (Business Alert).

ACCORDING TO JONATHAN E. GRAY, VICE president and senior research analyst at Sanford C. Bernstein & Co. LLC, New York, residential originations for 2001 will reach $1.9 trillion, with purchase-money originations comprising $894 billion and refinancings $1.038 trillion (or 54.6 percent) of the total volume. At the America's Community Bankers (ACB) and Community Bankers Association of New York State's National Winter Management Conference in New York City in December, Gray predicted that production will be strong again in 2002--reaching $1.8 trillion in volume, with purchase originations of $840 billion and refis of $976 billion (54 percent). The total could go even higher if interest rates remain around 6.5 percent for the year, Gray said. At that level, "you'll have a monster refi cycle. But if it backs up to 7 [percent], it shuts off a lot of that refinancing," he said. As a result of this unknown, Gray said it is "conceivable that next year [2002] total originations could range from $1.4 trillion to $2.3 tr illion, depending on rates. Stay tuned--the market is exceptionally volatile," he said.

Gray also touted the worthiness of adjustable-rate mortgages. Residential and commercial ARM loans represent a $1.6 trillion (dollar volume outstanding) sector of the mortgage market, he said--"They are big enough to be an exciting place to make a living." In 2001, ARMs represented 19 percent of originations, below the average of 25 percent, according to Gray. "It's depressed now," he said, predicting a midyear rebound in 2002. In the next five years, according to Gray, ARMs will grow more rapidly than the fixed-rate mortgage sector. "In fact, in six months ARM loan demand should come back powerfully, because ARM interest rates will be percent and that will compare favorably with fixed-rate mortgages at 65/8. At 150 to 175 basis points below fixed-rate, that's your opportunity," he said.