KBRA Releases Research – Second Lien Securitizations: HELOC and CES Deals Catch a 2.0 Wind

NEW YORK--(BUSINESS WIRE)--KBRA releases research examining the rapid growth of the second lien residential mortgage-backed securities (RMBS) market, focusing on differences between home equity line of credit (HELOC) and closed-end second lien (CES) collateral, including credit performance, underwriting characteristics, and transaction features. The report also reviews issuance trends and KBRA rating activity. Given the increasingly distinct performance profiles of the two collateral types, KBRA plans to introduce separate HELOC and CES indices in the forthcoming U.S. RMBS Credit Indices report, expected to be published on September 18, alongside the existing combined HELOC/CES index.

Key Takeaways

• Second lien 2.0 RMBS has grown into a recurring private-label securitization (PLS) subsector. KBRA’s HELOC/CES Index expanded from four deals and $375.2 million outstanding in April 2023 to 140 deals and $34.2 billion outstanding as of July 2026.
• Issuance accelerated in 2025, reaching $27.5 billion across 75 deals, including 43 CES, 30 HELOC, and two mixed transactions. Through Q2 2026, issuance had already exceeded $23 billion, including a one-off $6 billion second lien pool of mixed CES/HELOC collateral from a bank sale. CES transactions have generally priced tighter than HELOC transactions and more commonly employ sequential-pay structures, while HELOC transactions more often use pro rata/sequential hybrid structures.
• CES/HELOC index performance has remained stable since 2024. As of July 2026, the weighted average delinquency rates were 2.82% for 30+ days, 1.61% for 60+ days, and 1.26% for 90+ days, with 30+ day performance tracking closer to KBRA’s Prime RMBS Index than its Non-Prime RMBS Index in recent years.
• CES collateral has performed better than HELOC collateral within KBRA’s index, with 90+ day delinquency rates of 1.03% for CES-only collateral versus 1.69% for HELOC-only collateral as of July 2026. This difference is largely consistent with collateral composition, as CES transactions are predominantly second liens behind agency-eligible first mortgages to prime borrowers with full-documentation underwriting, while HELOC transactions more often include collateral with characteristics associated with non-prime or non-qualified mortgage (NQM) lending.
• Headline credit attributes (e.g., FICO, loan balance, combined loan-to-value (CLTV), and coupon) are broadly similar across the two collateral types, but HELOC transactions have lower traditional full-documentation shares than CES transactions across recent vintages.
• KBRA rating activity has been stable for this sector, with 1,318 affirmations, 40 upgrades, and no downgrades across assigned ratings.

Click here to view the report.

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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