Vanderbilt Mortgage & Finance Inc., a top-tier company in the manufactured housing asset-backed securities market, may be breaking into the home-equity sector down the line.

Currently, Tennessee-based Vanderbilt only securitizes manufactured housing loans. David Jordan, vice president at the company, said it deals "almost exclusively with manufactured housing," although the company has some other products that aren't really material.

"That is all we've ever securitized," said Jordan. "As a small alternative we may do home-equities; it's possible, but that is a little ways off, maybe later this year."

Most recently, Vanderbilt priced a $270 million deal, managed by Prudential Securities. The next deal, which Vanderbilt plans to bring in May, will be managed by Prudential as well.

"The pricing [on our recent deal] went very well," said Jordan. "We were happy and excited about that. We were able to sell all of our bonds all the way down to the corporate guaranty."

Jordan said the next deal will be in the $250 million to $300 million range, maybe a little more than that.

"I don't know who the co-manager will be," he said. "We tend to rotate co-managers."

A Brief History

Vanderbilt, a wholly owned finance subsidiary of Clayton Homes Inc., was incorporated in 1974. Clayton has been a retailer since the mid-1960s, later venturing off into manufacturing and then finance. Clayton integrated further into communities in the mid-1980s.

Currently, Vanderbilt has an issuance pattern of one deal per quarter. "Right now with our current volume levels, that is what makes sense for us," Jordan said.

Vanderbilt s largest deal of last year was the $519 million 1999-B transaction, brought to market in April.

The company was able to securitize the assets acquired from Access Financial along with one-half the loans acquired from the United Co., which accounted for the unusually large size.

"We had acquired virtually all of the manufactured housing loans from Access," explained Jordan. "They were a financial subsidiary of Cargill Financial Services Corp. that exited the business in 1998. We were able to securitize that paper, so that was a big plus. That, along with a similar, but smaller, acquisition from United Companies was a big boost to the 1999-B transaction."

Overall, Jordan describes 1999 as a relatively good year for the company.

"I think that we're the premier name in our industry for ABS," said Jordan. "Clayton is a premier name in the manufactured housing business. If you look at our performance history of earnings and growth, there's not a match in the industry. So that helps our ABS issuance quite a bit."

Generally, Vanderbilt doesn't set targets in terms of deal volume but expects that every deal will be somewhere in the $250 to $300 million range.

"Our business is somewhat seasonal," he said. "We obviously try to securitize everything that we can at that point."

When asked about his speculations for the year, Jordan replied that it will "probably be flat" with the company's issuance being a bit smaller than last year, "due to the presence of acquired paper" in its securitizations last year.

As for the manufactured housing market: "There might be a little growth," he said. "A couple of the big players have exited the industry in the last year or so. A lot of it depends on what Conseco Capital Management does. It just depends on their timing because they are so big; they are such a big part of the business."

The Emergence of Vanderbilt

Since its formation in 1974, the company has emerged from being a Ginnie Mae issuer and moved its assets from the private placement market to the banks and into the ABS market in 1992.

"That's basically where we are now," said Jordan "We're an ABS issuer. That's almost exclusively how we fund the business."

Clayton went public in 1983 and it has had a 23% annual growth rate. Clayton provides a corporate guarantee bond on Vanderbilt s securitizations, which is the guarantee of the parent company.

"[The guarantee's] marketability is tied to the performance and the strength of the parent," Jordan said. "That is one of the big changes - the liquidity of our paper due to our company's performance from way back then to now."

Jordan credits the company's uniqueness to several things, one of them being the structure of the company.

"We're part of the Clayton Corp. so it is an open vertical integration and we have synergies between our groups," said Jordan. "We have a partnership with our retail group, which is our biggest customer and where we get most of our loans that go into these securitizations."

The partnership ensures the performance of the collateral, Jordan said, as they have a vested interest in it.

Additionally, because of the partnership, the retail end is motivated to adhere to stringent underwriting standards. "None of our underwriters are compensated on volume," said Jordan.

Significantly, the retail businesses are also responsible for the collection of what they put on the books. "With a lot of companies, the underwriters make the loans and that's it, that is the last they see of them," Jordan said. "They're bonused on volume - ours aren't."

The company also has what Jordan called the "Vanderbilt structure." It includes using the same senior/subordinate structure that the company has maintained for quite some time as well as trying to minimize costs.

"We couple that with what we feel is the most marketable; what our investors want," he said. "It seems to work really well for us; it's very efficient. We always view other alternatives, but we probably would do that unless it made a huge material difference in the cost of funds."

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