An established player in the U.S. market, Accredited Home Lenders, has been actively promoting its wares across the pond. The subprime mortgage lender travelled to last month's Barcelona Global ABS conference to answer questions from the growing ranks of potential European investors.
"We have a strong interest in growing our portfolio because we feel it plays into one of our strengths - that is our understanding of the credit culture," said Joseph Lydon president and chief operating officer of Accredited. "More recently, we did a tour of Asia. We really do look at it as being important to cultivate all markets to identify parties that may be interested in purchasing our bonds. In addition, we sent two of our players to Barcelona. We go to these conferences to speak to bond buyers that are interested in our collateral, the kind of product that will support the bonds that they buy."
Accredited has a quarterly securitization program and over the last six quarters the product has grown. Lydon said that the program size started at $500 million and expanded to $1 billion in the last two quarters of 2004. Issuance volumes in the first two quarters of 2005 reached around $950 million and $1 billion respectively. "[In] the second quarter securitization we did we had 50 different bond investors; a fair number of those are European," said Richard Howe, the company's communications executive. "In our experience the appetite for U.S. ABS bonds is very strong."
Charlie Ryan, securitization coordinator at Accredited, was one of representatives for the company at Barcelona this year. He said that during the conference the company held meetings with 11 potential investors and they were all very interested in Accredited's ABS program. It was the first time the group attended Barcelona, but Ryan said they had met previously with European interest at similar conferences in the U.S. Still, European investor participation was more limited in those earlier meetings.
"These potential buyers' questions focused primarily on business operations, particularly servicing and loan originations, " he said. "The U.K. market is similar to what we have in the U.S., except in Europe, they don't have FICO scores to look at."
Lydon said that although Accredited is happy to attract global investor interest for its U.S. deals, the company has no plans to establish any immediate ventures on European soil. "In the US market, the appetite for our loans is very strong, which has tightened spreads on our securitizations," said Lydon. "From our perspective, it's been a very healthy environment to operate in."
But he noted that the current competitive environment in the U.S. has driven the gain on sale numbers (the price loans are sold at) down. That, coupled with rising short-term interest rates that began in the latter part of 2004, could have added negative pressure on gain on sales numbers. Lydon said many of his competitors were slow to react and did not jack up their interest rates, even though their cost of funding was going up. "It took the industry four months or so to react - they moved up coupon on loans they were producing, but during that time it was good that the ABS appetite was so strong," he said. "There is a fair amount of talk in terms of what is driving interest rates the way they are being driven, including Fed Chairman Greenspan making mention that there are a lot of foreign buyers, which would suggest that foreign buyers on all fronts are interested in U.S. collateral."
The European investor base is growing and it is important to Accredited to develop the relationships as they go forward, added Ryan. "We'll continue to go over to Europe and meet with investors," he said.
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