Asset-Backed Securities Issuance Drops 19%, amid Credit Quality Concerns

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Credit quality concerns are causing a drop in the issuance of asset backed securities generally, and a change in the way subprime mortgage loans are being packaged for investors.

Through May 21, asset-backed issuance was off 19% from a year earlier, at $43.7 billion, according to Securities Data Co., and well below the pace analysts expected at the start of 1997.

"It's been much slower than most of us anticipated," said Jeffrey P. Salmon, head of asset-backed securities research at UBS Securities. The asset-backed market for subprime mortgages and home equity loans remains strong in terms of total issuance, analysts say. About $11.1 billion has been issued to date, compared with $8.9 billion a year ago. But the kinds of loans contained in these securitizations are changing, Mr. Salmon said.

Rising interest rates mean people with troubled credit are refinancing and borrowing less often against the equity in their homes. So to keep up with market demand for the securities, Wall Street is packaging better quality loans into the deals.

"Home equity securitizations are starting to more closely resemble pools of first mortgage loans," Mr. Salmon said.

While there is plenty of time for asset-backeds to pick up steam-much issuance occurs near the end of quarters-the slowdowns so far have been large enough to raise eyebrows.

The major reason for the change in the market, analysts say, is concern over credit quality. …