Countrywide Mortgage Conduit, a subsidiary of mortgage giant Countrywide Credit Industries, has started a conduit to securitize loans made to homeowners who have suffered declines in property values.

The program is designed to reach consumers who have been trapped in high-coupon mortgages because refinancing would take them over the normally acceptable loan-to-value ratios.

A $500 Million Market

Mike Perry, president of Countrywide Mortgage Conduit, believes that there are perhaps $500 million of these mortgages, mostly originated from 1987 to 1991 and largely concentrated in California.

Consumers who bought during the late 1980s and early 1990s often were hit with the double whammy of a high-coupon mortgage and a deteriorating real estate market.

"There are a lot of people out there, people with good credit histories, who are stuck with 10% mortgages," said Mr. Perry.

The underlying belief is that such mortgagees will be better credit risks with lower rates.

A typical candidate who wants a 100% loan-to-value mortgage will be able to get about 7.75% 30-year, fixed rate mmortgages, according to Brenda Usher, chief operating officer of American Liberty Bank, a Oakland, Calif-based mortgage bank that is offering the program.

Countrywide hopes to eventually to bring rates down to 75 or 100 basis points over par.

Up to 100% of Home Value

Homeowners with strong payment records will be able to borrow up to 100% of the value of the home, provided the original loan-to-value did not exceed 80%. The original loan must have been Fannie Mae, Freddie Mac, or bought by a conduit which buys |A' paper.

Despite the high loan-to-value ratios, private mortgage insurance will not be required, "We'll build a senior/subordinated structure into the securities," said Mr. Perry.

Countrywide Mortgage Conduit will make the product available to all of its seller/servicers. Countrywide Funding will also offer the product on a limited basis.

$25 Million a Month Foreseen

Though Countrywide Mortgage Conduit does not expect to issue any securities for 30 to 60 days, it expects to be able to eventually do at least $25 million a month, according to Mr. Perry.

Investors may like the paper based on the assumption that such borrowers, having less options, are less likely to prepay, though Mr. Perry cautions that such a situation could be fleeting if similar programs proliferate.

Countrywide does think it has found a profitable niche in the current interest rate environment.

"Obviously it's a short term program," Mr. Perry said. "If rates rise it goes away."

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