Can the mortgage market prevent the nation from falling into a recession?

Possibly, says David Berson, the chief economist at Fannie Mae. And if a recession hits, he believes the mortgage market could lead the way out.

Historically, it's usually housing that brings the economy back from negative growth. But this time, Berson says, it will be the mortgage market.

By Fannie Mae's count, some $50 billion will be pumped into the economy this year as a result of refinancing, which he projects will account for 44 percent of all originations in 2001.

"That's a substantial stimulus, maybe enough to keep us out of a recession," he said. And it will start being felt much sooner than any tax cut approved by Congress, "perhaps as soon as the end of the first quarter."

Berson said home owners are well aware of their refi opportunities, so they are pulling the trigger more quickly -- and sometimes more often.

In addition, the time it takes to complete the refi process has fallen substantially, from an average of eight weeks from application to closing to just three weeks, start-to-finish, in some cases. And as a result, people are getting their money sooner.

Most people who refinance walk away from the closing table with cash in their pockets, according to the economist. And 80 percent of what they take is spent, mostly on the underlying property but some on personal consumption.

Folks who refi to cut their month housing costs spend only half of what they save, but they spend something, nonetheless. And together, their outlays add up to "a fairly good size stimulus."

Berson said he doesn't believe mortgage rates will retreat much further unless the Federal Reserve Board cuts the rate banks charge one another for overnight loans by another 75 basis points. But even if it does, he sees rates falling only to about the 6.5 percent level.

If the economy falls into a recession, though, the Fed would ease even further, which the economist said could bring mortgage rates down to 6 percent or less.

At that point, he went on, "nearly every loan out there would be eligible for refinancing and we could see an incredible refi boom. Originations could climb to the $2 trillion level. And as a result, if there is a recession, it's likely to be short and mild."

David Wyss of Standard & Poor's DRI is "a little more pessimistic" than the Fannie Mae economist.

While 2001 will "still be a good year" for loan volumes by historic standards, Wyss said, he's worried about what might occur if consumers lose too much confidence in the economy. "When consumers get scared, they curl up in a ball and do nothing," he said.

Though consumer confidence is still high, the economist said, it has dropped sharply in recent months. And if it keeps falling, the economy could falter further and faster, Wyss warned.

"Economics has always been a confidence game," he said.

For more articles by Lew Sichelman, please press here.

Published: February 19, 2001

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.