Subprime and second mortgages took off in 1997, passing credit card securitizations for the first time and propelling the overall asset-backed market to its highest issuance ever.

Total issuance of asset-backed securities hit $185.1 billion last year, up from $151.3 billion in 1996, according to Securities Data Co.

In 1997 subprime and second mortgages, collectively known as home equity loans, accounted for $64.9 billion, or more than one-third of overall volume.

Credit cards and auto loans amounted to $70 billion of issuance, with the balance a mixture of asset types, including manufactured housing loans, student loans, and tax liens.

"Investors in 1997 became more comfortable with asset-backed securities in general" and home equity products in particular, said Andy Nybo, vice president and research director at the Bond Market Association.

"Home equity products and their structures were perceived as offering positives to investors," Mr. Nybo said.

The jump in home equity loans reflects the number of lenders that piled into the market last year and consumers' growing comfort with packaging most debt, including that owed on credit cards, into a single loan.

Among other categories of asset-backed securities, the subprime auto sector rose in 1997, to $33.1 billion from $30 billion in 1996.

But volume in the latter part of 1997 slowed as investors recoiled from bad news at some of the auto finance companies that issue the paper.

Manufactured housing securitizations were strong-despite downgradings for industry leader Green Tree Financial-because demand for this type of loan remains strong, said Bonnie Lee Tillen, a director in the structured finance group at Standard & Poor's Corp.

Ms. Tillen also said she sees manufactured housing securities "evolving" to take on many of the features of mortgage-backed securities.

This year industry observers expect increased issuance and acceptance of more exotic, or "synthetic," products, like index-amortizing securities.

These asset-backed securities are linked to the repayment experience of a pool of mortgage-backed securities or to a referenced interest rate.

Overall issuance of asset-backed securities will increase this year but at a slower pace, coming in around $200 billion, industry observers predicted. Home equity loans, this year's lion, will not grow at the same pace as in 1997, analysts said.

In fact, 1998 could prove challenging, with credit and prepayment issues cropping up.

"Deterioration in servicer and portfolio quality among subprime home equity ... lenders could result in unexpected rating changes," said Anthony Thompson, asset-backed analyst at Goldman, Sachs & Co.

Among issuers of asset-backed securities, commercial banks lost ground in 1997. Chase Manhattan Corp. finished 1997 at No. 11, with $8 billion of underwriting, down from No. 6 in 1996, when it underwrote $11.1 billion.

First Chicago NBD Corp. was ranked 19th in 1997, with $500 million, down from 17th in 1996, $1.1 billion.

NationsBank Corp. slipped to 17th, with $1.9 billion, from 12th, $3.4 billion.

J.P. Morgan & Co. held its No. 7 rank, with $12.1 billion of asset- backed securities in 1997, compared with $10.6 billion in 1996.

Citicorp held steady at 16th, with $2 billion of issues last year and $1.2 billion in 1996.

For investors, 1997 was a difficult year because asset-backs were expensive relative to the returns they offered. This year will be different, said fixed-income analyst Paul Jablansky of Salomon Smith Barney. "We expect stronger total-rate-of-return performance."

Risk factors for investors this year include, according to Mr. Jablansky, "yield curve and the quality of issuers' earnings."

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