Countrywide Prices HEL Deal
August 30, 1999
Countrywide Home Loans priced an $847 million, 10-class securitization of home equity loans last week - its largest to date, the company said.
The deal, lead managed by Lehman Brothers, comes at a time when asset-backed issuance has been on the rise. Issuance this quarter has been bolstered by investor concerns over Y2K implications and unpleasant memories of the credit crunch last October, said Martin Harding, managing director and co-head of the asset-backed securities group at Lehman.
Countrywide s transaction, which featured a combination of floating- and fixed-rate classes was "opportunistic and very well received in the face of all these issues that are out there and all the issuance," Mr. Harding said. "Most of the classes in the deal were oversubscribed."
Analysts point to a dramatic change in the lineup of companies now issuing securities backed by home equity and manufactured-housing loans.
Recently, Green Tree Financial Corp., part of Conseco, also came to market with $2 billion of manufactured-housing bonds in a deal also lead managed by Lehman.
Green Tree is among the new top players with sources of funding other than securitization, said Peter Rubinstein, senior vice president for asset-backed research with Prudential Securities Inc.
The top ranks, especially the bank players, "have the ability, if they choose, to defer issuance" by holding loans in portfolio if spreads widen rather than funding them at high costs, he added.
The volume of home equity and manufactured-housing securitizations is usually greatest toward the end of the quarter, Rubinstein said. But this quarter, "the lion's share of production has already occurred," he said. More than $9 billion was issued in the beginning of the third quarter representing "a reversal of the traditional pattern," he added.
While there may still be up to $7 billion of securities to be issued, "the bulge in supply that has kept investors at the sidelines I think has already occurred," Rubinstein said.
Expectations on Wall Street are that issuance of corporate, asset-backed, and mortgage-backed securities will be way down in October. Mortgage analysts are predicting a boom for mortgage-backed securities towards year-end, when investors once again start to put cash back into the market.
"Most accounts are injecting liquidity into their portfolios in preparation for 2000. There is this growing contingent of cash on the sidelines that's going to have to be deployed at some point," said Dale Westhoff, senior managing director for mortgage research with Bear, Stearns & Co.
Stability in prepayments is one of the positive factors. "We haven't been in this stable an environment since 1996 or early 1997 - over two years," Westhoff said. "I think that is going to be a real positive for this sector because month after month, people are going to see very stable prepayments."
Westhoff said the nonagency or private-label market, mainly of jumbo and alternative-A mortgages, was particularly attractive now because spreads in this market were now 20% wider than in the agency sector.