Household International Inc. plans to rely less on securitization as it expands its subprime auto lending business.

The consumer finance giant, which announced Monday it would buy auto lender ACC Consumer Finance Corp. for $200 million, said it would explore financing options in addition to securitization in funding its subprime lending arm.

"Because of the size of our balance sheet, there isn't the burden to securitize as there was" when ACC was independent, said Craig Streem, vice president for investor relations at Household.

This approach would be a dramatic shift from how most subprime auto financiers have funded their businesses.

Securitization has become "a way of life for subprime lenders," observed Ted Palant, national sales manager at Boston Portfolio Advisers, a Fort Lauderdale, Fla., research and due diligence firm.

Although securitization has proven a cheap and effective way to raise money, it has also contributed to the financial disasters that afflict many lenders.

Small, entrepreneurial lenders were able to grow extremely quickly because Wall Street firms showed them how to package loans into securities, which were sold at attractive yields to investors almost every quarter. The companies then booked the gains from selling the securities right away.

This financial alchemy made it appear as if companies were achieving tremendous growth - though few were actually generating any cash.

Most companies, under pressure to meet aggressive earnings estimates, started doing ever-larger securitizations to book higher profits. Some lenders started securitizing every loan on their books. Fox-Pitt Kelton analyst Reilly Tierney said it's a hopeful sign for the industry that lenders such as AmeriCredit Corp. and Consumer Portfolio Services Inc. are now leaving loans on their books at the end of quarters.

To boost securitization volumes and meet earnings estimates, subprime auto lenders had to make more loans. As a result, many loosened their underwriting standards, offering customers with bad credit histories loans for much more than a car's value. And when customers defaulted and lenders seized their vehicles, they could not resell them for enough to cover the loan losses.

George C. Evans, chief executive at Search Financial Services Inc., a Dallas subprime auto lender, called this scheme "the cocaine addiction of our industry" at a conference in June.

ACC has securitized $446 million of loans since its founding in 1993, including at least one offering every quarter of 1996. Last year the quarterly securitizations, underwritten by Credit Suisse First Boston, grew from $34.5 million at the beginning of the year to $60 million by yearend.

Analysts say Household's plan to securitize less often is wise because keeping loans on its balance sheet longer will increase the amount of money received from the loans and improve the quality of loans available for securitization.

"Household is very experienced at securitization," said Mr. Tierney. "They know they can get better execution if they do fewer and bigger deals. By securitizing better, more seasoned loans with some payment history, they'll get better spreads."

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