With banks becoming smarter about handling their Community Reinvestment Act responsibilities, the market for securitizing these loans continues to blossom.

More CRA loans conform to the requirements of the government-sponsored enterprises that buy loans on the secondary market, said Ned Brown, president of Financial Modeling Concepts Inc. And rating agencies are changing their models to accommodate the loans, he said.

Mr. Brown, whose Jersey City firm specializes in CRA-loan pool analysis, said those models put more emphasis on the credit side of loans, instead of the loan-to-value ratio. What's more, slow prepayment rates on CRA loans are leading some investors in interest-only bonds to pay a premium for CRA- backed securities. And since last year, the market for lower-rated, or first-loss, bonds has strengthened, he said.

"Banks are becoming more sophisticated in stretching out their CRA purchases" to get better pricing, said Richard A. Ruffer Jr., an associate director at Bear, Stearns & Co., the leading securitizer of CRA loans.

"There is more competition among sellers," Mr. Ruffer said, with a larger supply available to investors who want to buy loans for CRA credit. And these investors are showing "renewed interest," he added.

Since November 1997, about $2 billion of securitizations of seasoned loans have been completed, Mr. Ruffer said, and all the senior bonds have AAA or AA ratings guaranteed by Fannie Mae or Freddie Mac.

The two experts spoke at the Mortgage Bankers Association national secondary-market conference recently in New York.

Other speakers included Patti Ednie Parsons, senior business manager for new markets at Fannie Mae; Janneke Ratcliffe, who does secondary marketing for Self Help-a community development financial institution in Durham, N.C.; and Michael Kohler, vice president of Fleet National Bank in Boston.

Fleet is the issuer of the largest securitization of seasoned CRA loans to date, valued at $749 million.

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