First Union Corp.'s pending acquisition of Money Store Inc. could turn the Charlotte, N.C., banking company into a home equity securitization powerhouse.
The company announced this year that it would pay more than $2 billion for Union, N.J.-based Money Store, the largest issuer of home equity-backed securities in 1997.
First Union plans to handle through its capital markets group all securitizations for home equity, student, and business loans originated by Money Store, said James Maynor, chief executive of First Union Mortgage and former head of the company's home equity division.
The acquisition would bring the bank a bigger than $4 billion home equity origination pipeline, in addition to several billion dollars' worth of other loans. An estimated $62 billion of home equity loans and lines were securitized in 1997, according to Goldman, Sachs & Co.
First Union plans on playing a larger, more constant role in the securitization market in 1998, Mr. Maynor said, with Money Store's originations playing a large part.
Until now, First Union and most other big banks have been marginally involved in the home equity securitization market, said Anthony Thompson, director of asset-backed research at Goldman Sachs.
Banks have been trying to streamline, consolidate, and centralize, Mr. Thompson said, which contrasts with the fragmented, non standardized nature of the home equity securities market.
He said he expects this market to become more uniform in the next three to five years, in part because banks will take a more active role.
"It will resemble the credit card" securitization market, Mr. Thompson said, with a handful of issuers dominating.
First Union dabbled in the home equity securitization market last year, completing two deals with Freddie Mac.
The company cannot trade asset-backed securities unless they are agency- insured, which was one reason for the partnership, noted an outside investment banker.
The partnership with Freddie Mac has other lenders speculating that the mortgage agency will take over securitizations for Money Store, effectively thinning margins industrywide.
Freddie Mac did $1.5 billion of subprime loan securitizations last year, said Sharon McHale, spokeswoman for the government-sponsored enterprise. Most of these were with First Union, she said.
But Freddie Mac has never done a securitization with Money Store, she added, and rumors that Freddie was contacting Money Store executives are overblown.
"We're targeting quality subprime lenders to work with," she said, "but I don't know whether or not the Money Store is on that list."
First Union is planning to work with Freddie Mac on more securitizations but has not determined what the agency's role would be in securitizing Money Store loans.
"I'm sure Freddie Mac will be involved," Mr. Maynor said, "but I'm not sure to what extent."
