The shape of the home equity industry continues to evolve as its overall reorganization proceeds. One principal change is a greater reliance on Wall Street firms as securitizers of whole loan collateral. This builds on a pattern of many years, in which Street firms have purchased whole loans from originators and securitized those loans using their own shelves. It is frequently cost-effective for originators to sell product to others, rather than to issue securities directly under their own name. However, several recent developments increased the attractiveness of the Wall Street distribution channel, and we expect that avenue to continue to grow in importance.

Home equities created by Street firms can be more attractive in some respects than those from traditional issuers. For example, the extra level of due diligence often produces collateral which should perform better than collateral in a typical sub-prime deal. Additionally, Wall Street deals often offer wider spreads. Investors not familiar with this segment of the market should consider the investment opportunities it provides.

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