The home equity loan sector back in the early part of the millennia - along with other segments of the capital markets - grew comfortable with a historically low interest rate environment, structuring their deals accordingly. Fast forward to the present, in the face of rising interest rates, some of those deals might face interest shortfalls that hit their available funds caps thus exposing them to greater basis risk, JPMorgan Securities analysts say.

"For seasoned 2003 and 1H04 subordinates in particular, hitting the AFC is no longer a remote possibility," JPMorgan analysts wrote recently in the bank's ABS Monitor. "Cash flow from excess spread may be insufficient to cover shortfalls due to high losses."

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