Centex Corp. of Dallas has emerged as a force in home equity lending as it takes advantage of the newly opened Texas market.
Though other home equity lenders fell victim to liquidity problems, investor worries, and credit-quality woes, Centex has continued to back Centex Home Equity Corp. because it views this lending category as a hedge against down cycles in the notoriously cyclical home building market.
"Surely it does make our investors and the investment bankers very comfortable to know that Centex Corp. is standing very closely behind us," said Tony Barone, president and chief executive of the specialty lender. "They know Centex Corp. is there if we need any resources, whether it be capital or other."
The home equity lender completed the securitization of $415 million of subprime equity loans last week. This is the seventh consecutive quarter in which it has completed a deal, and it was the largest. To date, Centex Home Equity has securitized $1.77 billion of loans. The AAA-rated certificates were insured by MBIA Insurance Corp.
Mr. Barone said this was the first securitized pool in which the company used a prefunding technique. It only submitted $350 million of loans before closing the deal. The remaining $65 million worth are to be put into the pool as they are originated in the succeeding 30 days.
Centex's newness to the market has worked to its advantage, Mr. Barone said.
"We've had the benefit of watching other companies' portfolio performance and getting a pretty good read on how they should perform," he said. "Frankly, for us, we've been able to use that information and prudently make decisions, and they're holding up."
Mr. Barone said his company's entry into the home equity market was perfectly timed. Because it started securitizing loans less than two years ago, its securities were not as affected as other lenders' by the recent, dramatic rise in interest rates. "We didn't have the anchors that some of these other players had, with originations going back five or six years ago and higher interest rates," he said.
The home equity unit has a key strategic function within Centex Corp., he said, along with a sister company, CTX Mortgage.
Over the long haul, Mr. Barone said, the goal is "for us to build up enough size and strength in Centex Home Equity to help Centex Corp. over those economic cycles where home building isn't booming."
About a year and a half ago, Centex Home Equity bought 10 branches from the now defunct United Companies, which was leaving the Texas market. Mr. Barone said this gave Centex immediate entry into the market after home equity lending was legalized in the state. Though only 12% to 13% of the company's originations are in Texas, he said, Centex's home equity lending there is growing faster than in any other market.
Two years ago, he said, Centex Home Equity was originating $20 million of loans a month. It is originating $120 million per month today.