GMAC-Residential Funding Corp. plans to securitize $1 billion to $1.2 billion in high loan-to-value collateral, with a deal in the third quarter followed by another in the fourth quarter, breathing new life into an asset class once written off as dead.

So far this year, the Minneapolis-based mortgage originator has issued $865 million securities in two deals backed by high LTV collateral, defined as mortgages worth more than the value of a home.

The high-LTV sector has undergone "a tremendous transition," said Jeffrey Detwiler, an RFC managing director. He added that though RFC was not active in this market last year, this year the company plans to securitize $2 billion in high-LTV collateral, and even more next year.

The company's most recent deals used a hybrid structure that featured both a monoline insurance wrap, as well as subordinate tranches. Around 50% or 60% of this year's collateral carries prepayment penalties.

Detwiler said RFC is "vested like everyone else because we keep the residuals, which can be significant in size, and we manage them to assure a [good] return, and that's in sync with what investors want."

He said the high-LTV market, estimated at $10 billion a year, offers a tremendous opportunity and that "managed growth" would be balanced with RFC's servicing capability and credit quality.

Among RFC's originators are mortgage bankers, small banks and some mortgage brokers. Detwiler said the loans being securitized are being underwritten to RFC standards.

"We believe in this product based on our high credit standards, strict underwriting and unique servicing ability," he said.

Detwiler said he sees no Y2K problems with the fourth-quarter deal. - ES

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