Second Lien Securitizations: HELOC and CES Deals Catch a 2.0 Wind

Issuance of private-label securitizations (PLS) backed by second lien mortgages, both home equity lines of credit (HELOC) and closed-end second lien (CES), has surged over the past three years. The growth has been partly driven by home price appreciation, which has expanded available homeowner equity, as well as the mortgage rate-lock effect, as borrowers seek to access equity while preserving low-rate first lien mortgages. After second lien securitization activity remained essentially nonexistent for years following the global financial crisis (GFC), nonbank originators helped reestablish the market by filling a gap left by banks. More recently, bank-sponsored transactions have also reemerged, further broadening issuance. The sector’s renewed scale reflects a combination of borrower demand for equity extraction and investor acceptance of post-GFC second lien securitizations. While HELOCs and CES loans share exposure to the same borrower equity base, the products differ in ways that…