Home Equity Line of Credit Securitization

Abstract

With interest rates near their historic lows and with real estate prices continuing to climb, homeowners seem increasingly eager for home equity lines of credit (HELOC) to borrow a portion of the increasing equity in their homes. HELOC production is filling a larger portion of lenders' balance sheets. As a result, lenders are increasingly looking to the securitization markets to provide financing for these loans and to reduce their exposure to these first and second trust deeds. In this article, the author looks at the HELOC market and discusses some issues securitizers have faced along with how they have addressed these issues. In particular, issuers that securitize convert loans primarily into cash along with the following typical retained interests: transferors' interest (sellers' interest), subordinated bonds/over-collateralization (OC), spread accounts (if any), interest only (IO) securities, and mortgage servicing rights (MSR). The author discusses account and servicing issues for each of those retained interests.