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Investments

Bond investors demand more second lien and HELOC deals

Supply too thin in secondary market

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Capital markets advisory group MountainView Capital is reporting that investors want more secondary deals involving home equity lines of credit and other second lien mortgages.

And they say they have the stats to prove it.

An analysis of secondary activity in 2013 noted fewer HELOCs packed into bonds. This is in spite of heightened investor  demand and growth in second-lien originations.

"Second lien trading activity during 2013 was light and down from 2012 levels, both in total unpaid principal balance and number of transactions,” said Jonas Roth, a managing director at MountainView Capital Group and report author. "This was primarily due to a finite number of sellers, and 2014 looks like more of the same."

And Roth should know.

MountainView advised 10 second-lien deals, involving $604.5 million of UPB, during 2013.

In 2012, the company was an advisor on 13 deals, involving $619.3 million of UPB.

Despite the drift downward, investor risk appetite is still strong. Non-performing second liens had higher demand than performing second liens.

Secured, non-performing second lien loans trade between 1% and 5% of current UPB.

Unsecured, non-performing seconds trade in the 10 to 50 basis point range.

The overall dwindling supply of second-lien loans has some investors starting to model non-performing first liens, based on the fear that they cannot invest the capital they raised, according to MountainView.

“Bright spots for 2014 are that there are more niche buyers with state-specific inquiries, significantly more capital on the sidelines looking for product, and stronger pricing versus what we have seen in the past,” said Roth.

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