Abridged from Market TABS by Rod Dubitsky and Neil McPherson, of the securitized assets research group at Credit Suisse First Boston
In the first quarter of 1997 ContiMortgage ushered in a new era in the subprime home equity market by issuing the first senior/sub deal backed by subprime home equity loans. Most subprime home equity deals issued before Conti 1997-1 were insured and did not have any rated subordinated classes. Furthermore, the structure of Conti 1997-1 largely served as the template for many future subprime deals to come. One of the key features of Conti 1997-1 as well as most other senior/sub subprime deals is that credit enhancement may be reduced or "step down" if certain tests are satisfied. The ability of a deal to step down depends on the satisfaction of certain performance tests or triggers. Stepdown rules can have a significant impact on the average lives of subprime home equity bonds.