Home equity specialists at an asset-backed securities conference here insisted that last week's sudden bankruptcy filing by Southern Pacific Funding Corp. was not a sign of things to come for their industry.

But there was a sense of caution among loan buyers, and speakers urged home equity companies to take a more conservative approach to the business. Like many home equity lenders, Southern Pacific of Lake Oswego, Ore., relied on a combination of equity investors, bank loans, and securitizations to fund its business.

But the fast-growing home equity company "violated the No. 1 rule of mortgage banking" by putting earnings first and liquidity second, said John Doyamis, president of Helios Asset Management Corp. of New York.

When negotiations with warehouse lenders broke down last week, the company was forced to file for protection under Chapter 11 of U.S. bankruptcy law.

But the subprime mortgage market is not expected to mimic the subprime auto market, which imploded in 1997 after Mercury Finance Co., a leading lender in that sector, discovered accounting irregularities and had to restate earnings.

The two markets have "totally different dynamics," said Len Blum, managing director of Prudential Securities Inc.

The subprime auto market suffered from poor credit quality and little collateral; assets in the home equity market have some credit problems but are backed by "real collateral," Mr. Blum said. In fact, "at least four" companies are still eyeing home equity acquisitions, Mr. Blum said, "and three seriously."

Companies that are not purchased should make "only profitable loans," Mr. Blum said, and "stress cost control."

Companies that "played one Wall Street firm off another" when times were good will find it harder to get financing, Mr. Blum said.

Many investors say they have not stopped buying; they are just taking a closer look at where they buy loans. "Investors should visit subprime companies" so that they understand how business is done, said Craig Platt, senior vice president at KeyCorp, Cleveland.

KeyCorp bought both a subprime auto and home equity company in recent years. "We pulled back in 1997. Now we are getting the benefit of it in 1998," Mr. Platt said.

Jay Meyerson, the KeyCorp executive who orchestrated the purchase of Champion Mortgage and Auto Finance Group at prices some said were too high, quietly left the banking company last year.

Some companies say they are not troubled by the capital crunch that was brought on as equity investors shied from the sector. Delta Financial Corp. of Woodbury, N.Y., has "more than enough cash to weather this storm," said Richard Blass, senior vice president. "For us to sell now would make no sense," he said.

Investors, though, continue to lump all specialized home lenders together, and their stocks have fallen about 50% across the board in recent months.

Mr. Blum said lenders shouldn't expect an influx of equity capital soon. "I asked investors why they don't differentiate," he said, "and they say, 'We don't have to, the market isn't going to rally.'"

Banks that have been active home equity lenders are welcoming the nonbanks' downturn. "I'm pleased to see the liquidity crunch," said Stephen Cobain, vice president of Mellon Bank. Mellon securitizes home equity loans, he said, and found it had to cut prices and change products to compete with "people who were charging too little."

The shakeout is going to slow the industry's growth and prepayment speeds, said Henry McCall 3d, senior vice president of United Companies Financial Corp. of Baton Rouge, La. "We're going to go back to mom-and-pop broker relationships," he said, but the business isn't going to go away. "It's not like the Edsel; it's not going to become obsolete."

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