Not all home equity securities merit the title.

That's because Wall Street firms have increasingly been putting other, riskier assets into securities that are composed primarily of second liens.

The securities are known among second-mortgage lenders as "kitchen sink" bonds. And they have some credit watchers worried.

The most recent - and controversial - asset making its way into home equity securitizations is mixed-use loans. These loans are made on properties that have both a residence and a business.

One example of a mixed-use property is a deli with an apartment on the second floor. Loans on such properties are considered riskier than those just on residences.

Prudential Securities Inc. has put mixed-use loans into a few securities since the fourth quarter of 1994, said Len Blum, a managing director at the New York-based investment house.

Mr. Blum said using different assets in a security "brings diversification" to the bond. He said it was especially helpful when there is not much history on which investors can base their decisions.

The Money Store Inc., Sacramento, Calif., and Contimortgage, Horsham, Pa., are said to be including novel assets in their securities.

Title One loans, generally home improvement loans backed by the FHA, and mortgages on manufactured homes have also been included in equity securitizations.

Catherine E. Needham, managing director, Moody's Investors Service Inc., New York, is troubled, especially by the mixed-use properties.

"I am concerned about it," she said. "It is a different type of property. The credit quality is different. Selling the property is harder to do. There may be environmental risk" within the property.

Still, the amount of loans with diverse assets is small. Credit watchers said no more than 2% of mixed-use loans have ever been included in a home equity security.

"We do watch out for that," said Joanne M. Scatassa of Fitch Investors Service, New York. "I don't know if it is getting out of control, but it is a concern."

So far this year, $2.1 billion of home equity loan securitizations have come to market, according to Merrill Lynch. Nearly $10 billion of home equity loans were securitized last year, according to Asset Sales Report, an industry newsletter affiliated with the American Banker.

Mr. Blum at Prudential has included Title One loans in the securitization mix. But he seems to be alone. Daniel I. Castro, a Merrill director in New York, for one, said that Title One loans are often separated into tranches and not melded with home equity loans.

Most securities with mixed-use property get a surety bond from an insurer so that the securities are still rated triple-A. But Jennifer E. Schneider, a Duff & Phelps Credit Rating Co. vice president, said that if she were to rate the creditworthiness of a pool with mixed-use property, she would penalize the lender 25 basis points.

"The more you put in, the bigger the penalty would be," she said.

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