While Moody's Investors Service analysts agree with most of the Street that ABS supply will come in flat to slightly higher in 2004, there are underlying stories to watch for throughout the year.
Where will home equity supply come from if, as expected, interest rates rise in the second half? And, what will result from the current consolidation in the retail credit card sector?
Moody's will tackle these questions and more in a series of outlooks due out this week.
Home equity supply, which, for the first time last year, made up half of the market, will maintain the pace for the foreseeable future seen throughout late 2003 and early this year, noted senior credit officer Henry Engelken. Moody's predicts mortgage ABS supply will dip a meager 2% this year, the bulk of the second-half supply coming in the form of second-lien product and home equity lines of credit.
Dealer shelf issuance will continue to be strong, Engelken added, citing an increasing number of bidders for mortgage portfolios in the whole loan market. "Competition in the whole loan market remains intense," Engelken said.
Big gains could be seen in the credit card sector, as lender refinancing needs arise, said associate analyst Camron Ghaffari, who added that issuance could jump by 15%. A more interesting development, however, has been the surge of consolidation in retail and private label sectors.
Two of the potentially largest new entrants into the retail credit card market - Citibank and GE Capital Corp. - have registered new shelves with the Securities and Exchange Commission. Citibank renamed the Sears Credit Card Account Trust Omni-S Master Trust late last year and GECC dubbed its GE Capital Credit Card Master Trust. Near-term plans are uncertain.
Also, the $130 million securitization last year of fully amortizing credit card receivables from the Fingerhut Master Trust - a first for the private label sector - is sure to not be the last. However, Ghaffari adds that similar deals will be seen with general-purpose bank rather than retail cards.
Alternative sources of financing, particularly among the Big Three auto lenders, will keep auto ABS supply down again in 2004, despite the spike in foreign captive issuance last year, according to senior credit officer Kent Becker. The trend among U.S. issuers to tap conduit funding, as well as an emerging whole
loan market for auto collateral, will likely expand into the subprime arena.
"The alternative financing seen in the prime sector has already expanded into sub-prime, but we haven't seen any of that [collateral] securitized yet," Becker added.
While the volume of issuance won't increase much from the record level of 2003, heavy consolidation of loan originations may persist through mid-year, when rates hit the annual reset trigger on July 1. Unlike real estate ABS, student loan consolidation supply is finite, as borrowers can only refinance once. As senior credit officer Sharon Ash notes, "most have already done so." Once the existing pool of potential refinance candidates has been exhausted, the consolidation sector will have to rely on new graduates going forward, Ash added.
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