Mortgage companies are helping Wall Street do its job better.
GE Capital Mortgage Corp. is doing its part with a new system that evaluates jumbo loans. Using a scoring formula, the system will let traders know how solid a loan is. The information is deemed valuable since knowledge of the likely performance of pools of securities created from these loans would give traders a leg up.
GE Capital Mortgage developed the system with plenty of comment from Wall Street. An executive of the mortgage company visited major investment banks to see what they would want. The result: a process that will give "a better picture of how a loan will season" than has been available, said a trader at a large investment bank.
Indeed, until now, researchers at Wall Street firms had to rely on a lot of anecdotal evidence - including how pools of similar types of loans had performed - to get a sense of how new securities would fare.
So far, investment firms including Bear, Stearns & Co., Goldman, Sachs & Co., and Lehman Brothers have said they would buy loans that are scored with the system.
In the derby to securitize home equity loans, Lehman Brothers led the pack for the first half of this year. The investment bank underwrote $4 billion of home equity securities, snagging 26% of the market through 11 deals, according to Asset-Backed Alert, an industry newsletter.
The second-largest securitizer, Prudential Securities, produced $2.9 billion of public issues backed by home equity loans to capture 19% of the market.
And rounding out the top five, Morgan Stanley & Co. underwrote $2.6 billion of the issues; Bear Stearns, $1.6 billion; and CS First Boston, $1.1 billion.
Last year's first half saw Prudential Securities on top, with $1.8 billion of issues, followed by Merrill Lynch & Co. and CS First Boston, each with about $1.2 billion.
Expecting the boom in home equity lending to continue, Aames Financial Corp. has filed to issue $1.5 billion of mortgage securities. The Los Angeles-based company's offering, disclosed in a filing with the Securities and Exchange Commission, will be backed by fixed and adjustable-rate home equity loans.
The registration is for almost double the $791 million of securitizations that Aames did last year. The company's own retail expansion, as well as greater volume through a correspondent program, accounts for the growth, a spokesman said.
