Greenwich Capital entered the ABS primary market last month with a $300 million security backed by originations from Centex Corp. - the first time the Dallas-based home builder has made up the entirety of a principal finance shelf - and it hardly went unnoticed.

Executive Vice President and Chief Financial Officer Jay Bray said that since its inception in 1997, the company has always sold about 10% to 15% of its production in the whole-loan market. The $296.9 million series 2004-1 deal signaled Centex's first large whole-loan sale, and the lender now targets 25% to 30% of its production in whole-loan sales

"[The] plan is over a multiple-year horizon," said Bray. "I don't see it changing in the near future." Centex's dominant funding tactic remains its securitization program, with 60% to 65% of the production earmarked for its own securitization program, down from 75% to 85% of originations.

Whole loans will now be the second largest funding source, with about 5% to 10% of Centex loan product purchased by Government Sponsored Entities, Fannie Mae and Freddie Mac. Although securitization will decrease in Centex's total funding strategy, its absolute ABS volume is not seen decreasing, as the company plans on growing total loan origination, added Bray.

The company previously had a lesser need for whole-loan funding, since there is adequate liquidity in the capital markets, according to Bray. Although this remains the case, the company has plans fairly rapid growth over the next 12 to 18 months, including retail origination expansion. The company also hopes to add 10 to 12 retail branches, bringing its total to 90 to 92 and one more direct-sell center to the two currently in existence. Its long-term strategy - internally funding development - requires Centex to sell loans.

Another strategic reason behind Centex's first large-scale whole-loan sale was to look closer at sub-servicing business channels, said Bray. "We are selling a pool to Greenwich, but we're really sub-servicing or master-servicing it for Greenwich. Granted, it's our own collateral," Bray added. This will enable Centex to move into the business channel of servicing product for other companies, Bray added.

There has been sufficient demand by investment banks for the company's loans in the whole-loan market for some time. Historically, Centex has securitized three to four times a year since 1998. "We are an established program and have been securitizing since 1998. There are a lot of people who are familiar with our program so there is very, very strong demand," he said.

In addition to its home building and financial services operations, Centex operates in the construction and home services industries. In its most recent earnings release, it reported that first-quarter revenues were up 27% to $2.8 billion, and earnings growth per diluted share from continuing operations was up 30% to $1.35 over the same period in 2003, reportedly breaking its previous records for any first quarter in Centex's history.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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