The home equity and manufactured housing securitization markets came roaring back in the last two weeks, with transactions totaling nearly $5 billion.
Securitizations of such loans dropped off drastically during the third quarter of last year, when rising prepayment rates and difficulties at hedge funds spooked investors. Many issuers were crippled.
February may have been a turning point for the market.
Equicredit, the former Barnett home equity lender now owned by BankAmerica, priced its largest deal ever, a $780 million securitization, on Feb. 22.
"For us, it was a big win," said Jay Bray, Equicredit's senior vice president of portfolio acquisitions, citing the deal's narrow spread and "healthy" investor appetite.
Investors' fear of home equity-backed securities in late 1998 was "an overreaction," Mr. Bray said. "The market has come back," in part because investors have realized that the underlying collateral is still strong, he said.
Advanta Corp., Spring House, Pa., priced an $800 million securitization on Feb. 25, to "terrific" investor demand, said Michael Coco, the company's director of structured finance. "There was a lot of investor demand for our bonds, especially considering the $4 billion supply that came out this week."
The "dramatic" tightening in spreads for home equity securitizations this month reflected investors' newfound comprehension of the collateral, Mr. Coco said.
"Other asset-backed sectors have been rallying a lot stronger and quicker than home equity," and investors recently began looking at the relative value of these deals, he said.
Conseco Inc. priced a $1.2 billion home equity deal on Feb. 23. The company was "very pleased" with investor demand, a spokesman said.
The recent deals also can be attributed to issuers' desire to beat the quarter-end rush, said Gail McDermott, a Standard & Poor's, director. "We're seeing players doing deals now to avoid competition" later, she said.
"The fallout is still continuing" from last quarter's market softness, Ms. McDermott said, with some issuers discontinuing securitizations. Surviving issuers are focusing on retail originations and often wrapping deals with bond insurance, she said.
Though the size and frequency of deals has increased in the past few weeks, this quarter's total issuance will not near 1998's second- or third- quarter totals, Ms. McDermott said.
