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Home equity loans securitisation

[This page is a series of focused write-ups on applications in securitisation. For other applications, see the Securitisation Applications section .]

More on Home Equity Loan securitization

  • See article Riding the HEL ABS Rollercoaster into the New Millennium [pdf file] click here

 

Meaning of home equity loans:

Home equity is basically a second loan against the mortgage of a house. The possibility of such a loan arises when the value of a house is more than the outstanding value of a mortgage - quite likely situation after the first mortgage has been partly amortized. The second lender takes a second mortgage over the house, normally secondary in priority over the rights of the first lender, and provides funding. Normally, the home equity loans does not find its application in the same house: application of the money borrowed is normally not controlled.

A home equity loan could either be a close-end loan: meaning the loan is paid off over a stated period, or it may be a line of credit, that is, one where the borrower pays regular interest but continues to enjoy the line of credit as an overdraft against the value of the house.

In the US securitization market, home equity loans forms a significant portion of non-RMBS transactions.

Data for year 2000 reveals home equity loan securitisation forms approximately 25% of the total ABS market. In contrast subprime mortgage loans form less than 10%, some estimates say only 6%, of the European mortgage-backed market.

 

 

 

 

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