Second-lien loans, especially in the subprime market, have always been a more questionable investment as of result of their layered risk and second priority payouts. But with the lack of homeowner equity and less home price appreciation, especially in the 2006 vintage, market participants are even more pessimistic about the value that will be extracted from the collateral.

Presently, second-lien issuance has dropped amid tighter lending standards and investor hesitation, with not much in the way of performance pickup. The housing and mortgage market will remain under pressure, at least for the next six to 12 months, said Tom Zimmerman, managing director and head of ABS and mortgage credit research at UBS. "I don't think it is going to snap back quickly."

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