Demand for home equity loans will help swell the asset- backed securities market to a record $130 billion this year, for a 20% rise, a research analyst said.
Wall Street will securitize $18 billion of home equity loans in 1996, compared with $15 billion in 1995, said Nichol Bakalar, a senior analyst of asset-backed securities with J.P. Morgan Securities.
"Home equity loans will offer a lot of potential for growth," Ms. Bakalar said during a symposium this week sponsored by the Strategic Research Institute.
Ms. Bakalar, speaking to 400 Wall Street executives, said her definition of home equity loans includes first mortgages to borrowers with tarnished credit records along with second mortgages. She said borrower demand has translated into more assets for Wall Street to securitize.
While credit-card receivables remain the largest group among securitizing assets, home equity and manufactured housing loans are clearly making inroads, Ms. Bakalar said.
Home equity and manufactured housing loans could top expectations if the Federal Reserve Board continues to ease rates, she said. In fact, a number of sectors in the asset-backed securities market are shining, speakers said.
The securities they described are issued on a variety of collateral ranging from home equity loans to student loans. The categories do not include mortgage-backed securities, which are looked at as a separate type of transaction.
Asset-backed securities have allowed companies to raise capital on favorable economic terms. "This is a revolution that has changed the way financing is done," said Dennis M. Cantwell, vice president for corporate finance at Chrysler Finance Corp.
"We're in the middle of it," Mr. Cantwell said.
Indeed 1995 "was a banner year for asset-backed securities" with a record $108 billion of the securities issued, said James D. August, an economist for the Federal Reserve Board.
Mr. August did, however, inject a measure of caution into the upbeat atmosphere. He pointed to the growing amount of consumer debt and recommended that it and the asset-backed securities market be carefully monitored.
"What happens if things get worse?" Mr. August asked. "It is very important that we keep our eyes wide open."