According to market reports, over 50% of total European securitization issuance in 2002 was consumer risk-related. The big question this year is how the consumer will behave, and research conducted in the Netherlands seems to provide some preliminary answers.

According to Dresdner Klienwort Wasserstein, the Netherlands is one of the four countries that dominate consumer issuance. Between 1995 and 2001, consumer indebtedness has risen to 190% from 100% in the Netherlands; the U.K. and Germany recorded a more stable increase at 110%. No figures were available for Spain. "The rise in indebtedness in the Netherlands can be strongly attributed to investment in the housing market to maximize tax benefits, and to the rise in house prices, particularly between 1995 and 2001," explained analysts.

The current situation leaves the Dutch consumer particularly vulnerable to even the smallest rise in interest and unemployment rates as well as a fall in house prices. Research reports conducted by the Dutch Central Bank show that household exposure to the equity markets has risen to 27% in 2002 from 11% in 1995, and research also indicates that levels of mortgage equity withdrawal were augmented during that period.

What exposure the Dutch household might have to deteriorating conditions is investigated in a separate report. It concludes that in a worst-case scenario, where unemployment reaches 450,000 and interest rates rise by 3%, and housing prices falling by 10% over a period of four years, the number of homes suffering payment problems would rise to 100,000.

"In terms of Dutch consumer risk-related paper, which in 2002 was solely RMBS, we expect more seasoned deals to be cushioned by the strong growth in house prices," said Dresdner. "However, we see new deals coming under more scrutiny in terms of underlying collateral and structure going forward."

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