Magazine article American Banker

Sales of Whole Home Equity Loans Rising

Magazine article American Banker

Sales of Whole Home Equity Loans Rising

Article excerpt

Lenders are increasingly shunning the securitization of home equity loans in favor of selling them whole, according to market sources.

Loans to borrowers with blemished credit are also being sold whole.

The change is a result of a voracious appetite by banks and thrifts for whole equity loans, spurred in part by recent changes in accounting rules, observers said.

"There is an active trade going on out there for whole loans," said Daniel I. Castro, director of asset-backed securitization research at Merrill Lynch.

So far this year, $2.1 billion of home equity loans have been securitized, according to Merrill Lynch. That's off last year's pace, when $10 billion of loans were securitized, according to Asset Sales Report, an American Banker newsletter.

Part of that drop is likely to be a result of an increase in whole loan sales, experts said.

Credit watchers are getting the most evidence of private whole loan sales. Nearly every credit-control firm has seen securitization deals that were presented for analysis only to be pulled before completion. The reason, they said: The loans are sold whole.

"There seems to be developing a market for B and C whole loans where there previously wasn't a market for them," said Jennifer E. Schneider, a vice president at Duff & Phelps Credit Rating Co., New York.

"I do know that there have been deals that I was looking at that went whole-loan," she added.

Second mortgages to first-quality borrowers are also being sold whole, observers said.

"If it continues, there may be as much business in the primary market as in the securities," said one Wall Street executive.

Investors have always bought whole loans, but that volume has changed little.

Banks and thrifts are providing newfound demand for the whole loans. Observers say it's Financial Accounting Standards Board rule 115, implemented last year by bank and thrift regulators, that is pushing banks to buy whole loans. …

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