Advanta Mortgage is improving the credit quality of its loans by taking more control over underwriting of subprime mortgages, Moody's Investors Service said in a recent report.

Advanta's loan pools "have performed better than average for the subprime mortgage sector," said Yaron Ernst, vice president and senior analyst at the New York rating agency. And the credit quality of the Spring House, Pa., lender's future securitizations is likely to be "even better," Mr. Ernst wrote, because of its recent efforts to focus more on retail and direct originations, and become less reliant on third-party loan sources such as brokers and correspondents.

Aside from its regular correspondents, Advanta has a unique third-party channel, called Corporate Finance Services, that buys pools of loans from other lenders, with the stipulation that those lenders will retain some of the risk. In the past, the company relied heavily on this channel; it accounted for a third of its 1997 originations.

"Although conventional wisdom suggests that the residual interest retained by the Corporate Finance originators would motivate them to produce better loans ... these loans turned out to be the worst performers," Mr. Ernst said.

Why? Advanta delegated some of the underwriting to these correspondents, which used their own lending guidelines -- which "naturally tends to be less restrictive than internal underwriting practices."

Late last year Advanta decided to increase the share of originations that come through its 56 branches, direct mail, and marketing -- which now account for 56% of its production, compared to 23% in early 1998.

Fannie Mae recently announced it will reserve a portion of its largest, most high-profile debt offerings -- benchmark notes and bonds -- for minority- and women-owned securities firms.

The move is part of Fannie's seven-year-old Access program, which aims to increase women- and minority-owned firms' participation in the market for its debt.

From now on, the selling group for each benchmark deal will include five to seven minority- or women-owned firms. The allocation applies only to noncallable benchmark issues. Access members will also be eligible for consideration as co-managers for benchmark offerings.

Benchmark securities offerings are usually $2 billion to $5 billion. The government-sponsored enterprise announces how much of the securities it plans to sell each month. Because of the issues' size and consistency, they are considered highly liquid, or easy to trade, and have been touted as a surrogate for Treasury bonds. Since early 1998, Fannie has sold $88.6 billion of benchmark bonds and notes.

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