More Mergers Forecast in Home Equity Industry

Consolidation will continue in the home equity industry as companies have trouble accessing the capital markets and low price/earnings ratios for small companies make them tempting acquisition targets, according to David Olson Research, Columbia, Md. "Many economists are projecting falling interest rates, which in turn will cause prepayments to remain high and make it increasingly difficult for home equity lenders to meet earnings targets," the company said.In the latest edition of its Home Equity Industry Quarterly Report, the company found that the 10 largest public home equity firms have an average trailing P/E ratio of 14.8, nearly double that of all 35 home equity companies analyzed. Despite the industry problems, David Olson Research estimated that home equity asset-backed security volume grew to $23.3 billion in the second quarter from $18.6 billion in the first quarter. It said it stands by its earlier estimate that $80 billion of new home equity ABS will be issued this year. The company's website address is http://www.wholesaleaccess.com.