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Home-Loan Juggernaut Keeps Market Rolling
Asset Backed Alert, Harrison Scott Publications Inc. (April 7, 2006)

Market players are already going back on predictions that 2006 would be the year when worldwide structured-product issuance finally stopped growing.

Heading into January, the prevailing opinion among securitization professionals was that the supply of asset-backed bonds, residential and commercial mortgage securities, and collateralized debt obligations around the world was ready to drop off after years of unremitting growth. After tallying up first-quarter activity, however, they're not so sure.

Issuers completed a whopping 742 structured-finance transactions totaling $521 billion worldwide during the January-March stretch. That's up $96 billion, or 23%, from the same period in 2005, according to Asset-Backed Alert's ABS Database. "There is just plenty of supply. There are deals coming out everywhere," said Dan Castro, a managing director at buyside shop GSC Partners.

The main reason why so many Wall Street professionals missed the mark: Their expectations for mortgage-related issues were too bearish. For example, most of them predicted at yearend that the volume of home-equity loan deals would fall by 15-25% in the following 12 months. But the supply of such transactions actually jumped by 40% during the first quarter.

"I don't see any way it will be down 20%, like people were predicting," Castro said.

All told, various types of home-loan securitizations combined to account for $378 billion, or 73%, of overall first-quarter issuance.

Many recent deals in that sector involve underlying borrowers who are refinancing floating-rate credits they took out two or three years ago. As their low introductory rates expire, the homeowners go for new loans to avoid higher monthly payments, said Peter DiMartino, RBS Greenwich Capital's head of asset-backed research.

"There's still a large, untapped deep well [of borrowers] out there," he said.

Nonetheless, industry participants figure that stagnant home prices and rising interest rates will cause mortgage-related securitizations to taper off after midyear. "Issuance probably won't fall off a cliff, but it will start going down," another researcher said, adding that the year-to-date supply should still push the full-year count ahead of 2005's totals.

Outside the home-loan sector, credit-card lenders contributed heavily to the first-quarter deluge. Some $22.1 billion of card-backed bonds priced by the end of March, which was more than triple the amount completed a year ago.

Issuers of collateralized debt obligations also priced $74 billion of deals, up 81% from the first three months of 2005. Perennial market leader Merrill Lynch is once again atop the field of underwriters in that market, which has been feeding on structured products and related credit derivatives (see table on Page 17).

In the broader structured-finance arena, Deutsche Bank has been the most active underwriter so far this year, with $44.5 billion of bookrunning assignments. Credit Suisse and last year's overall winner, Lehman Brothers, are close on its heels, with more than $40 billion apiece (see table on Page 11).

Asset-Backed Alert's primary structured-finance league table accounts for all securitizations worldwide. It excludes securities sold through commercial-paper conduits and the derivative portions of synthetic deals.



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