The waters may be calmer this year in the market for securities based on home equity and manufactured-housing loans, according to Moody's Investors Services.
Issuance of asset-backed securities has more than tripled since 1993, driven by the home equity and manufactured-housing sectors.
But last year, rising competition prompted lenders to lower underwriting standards. Prepayments rose, and investors balked at the securities. Many of the large players changed hands, rearranged strategy, and even stopped securitizing loans.
Moody's predicts more "rationality" in the market this year, reflecting the conservatism of companies that have taken over from the mavericks that got into trouble last year. And the agency noted that some well-capitalized companies stepped up investment in the securities late last year, helping to stabilize the market.
The top ranks of issuers are sure to change this year.
IMC Mortgage Corp., third-largest home equity securitizer in 1998, was almost entirely acquired by a fund affiliated with Citigroup Inc. Green Tree, the fifth-largest home equity securitizer and No. 1 in securitizing manufactured-home loans, was purchased by Conseco. And Money Store, the eighth-largest, was bought by First Union Corp.
And further concentration can be expected in the home equity sector, said a Moody's report titled "Home Equity Asset Backed Securities: To HEL in a Handbasket."
Some issuers may disappear, and others will merge, said David L. Teicher, a Moody's senior analyst. After several years of rapid growth, home equity securitization volume should level off in 1999 at about $85 billion, Moody's said.
The volatile market provided buying opportunities for some investors, Moody's noted.
Hedge funds, which traditionally bought up the riskiest pieces of these securities, made an exit after suffering their own financial troubles.
But some well-capitalized investors, notably Freddie Mac and Fannie Mae, saw a buying opportunity in the third and fourth quarters.
"The agencies are buying a lot more now than they used to," Mr. Teicher said. He credits the government agencies with helping to stabilize the market, but said there is "still a lot of credit concern."
Manufactured-home lenders experienced a similarly volatile 1998, notes a Moody's report on the sector titled "Manufactured Housing: The Year of Living Dangerously."
"Everything changed," said Pramila Gupta, senior vice president at Moody's. "The major players changed, the issues changed," and last year's liquidity crunch "hit lenders square in the face."
Lenders made some risky decisions in 1998 in response to an increase in competition, Ms. Gupta noted. She said a reduction in quality resulted from aggressive underwriting programs, such as low-down payment programs, cash- out refinances, and loans to marginal borrowers. "People were focused on volume," she said.