According to a Standard and Poor’s report released today, securitization volume for both closed-end second mortgages and home equity lines of credit dropped considerably in the second quarter of 2007.
“Several key issuers cut back on their level of activity during the quarter,” S&P credit analyst Justin Hansen wrote.
The report cited tougher underwriting standards, such as reduced combined loan-to-value limits and tighter credit requirements for the decline.
The S&P noted that Countrywide, Deutsche Bank, IndyMac, and The Winter Group issued multiple CES (closed-end second-lien) securitizations during the first quarter of this year, but none during the second quarter.
Bear Stearns Capital Markets Inc issued only two CES securitizations during the second quarter, compared with five during the first quarter.
Home equity line of credit volume was also down, with only seven HELOC transactions rated by the S&P in the second quarter, down from 10 the prior quarter.
Per a recent Moody’s report, CES securitization has nearly quadrupled since 2004, but the quality of such loans has been “extremely poor”, forcing many lenders to exit the second mortgage market entirely, or drastically reduce their exposure.
Last month, IndyMac tightened underwriting guidelines, doing away with piggyback financing entirely, while National City said it would no longer accept second mortgages.
The main problem with second mortgages is that they’re typically accompanied by minimal down payments, and when a homeowner defaults, the second mortgage is the last to be repaid.
David Stevens, head of a home-lending venture for Fairfax, Virginia-based realty firm Long & Foster Cos. said, “There’s just no market for the loans, second mortgages used in lieu of down payments or mortgage insurance. “Nobody’s taking them. They’re radioactive.”
According to SMR Research Corp., a New Jersey-based research firm, roughly 40% of new mortgage debt used to buy homes last year involved the use of a combo loan.