RBS shops Kondaur bonds backed by sour US mortgages

NEW YORK, July 9 (Reuters) - RBS Securities is seeking bids for a mortgage bond deal backed by distressed U.S. home loans, the second such deal this year, reflecting increasing appetite for riskier debt.

RBS will price $79.1 million in bonds backed by $264 million in delinquent mortgages held by Kondaur Capital Corp, one of the largest buyers of U.S. non-performing loans, according to a term sheet obtained by Reuters.

Most of the loans are already in foreclosure, but the liquidation value of the homes supports the bonds.

The offering follows a sale by Citigroup for private equity firm Lone Star Funds and signals more to come as dealers seek to satisfy investor demand and keep their securitization mills greased. Even so, these are mostly niche deals, and dealers say they are feverishly trying to rebuild a market that will support new lending,

The loans in RBS deal, Kondaur Mortgage Asset Trust 2010-NPL1 were originated by HSBC Bank.

Wall Street dealers are finding fresh ways to create new business in residential mortgage-backed securities even as the market's traditional purpose of expanding credit for U.S. homeowners remains nearly non-existent.

The packaging of delinquent loans is the latest focus of the private mortgage bond market. Demand for the yield of risky mortgage assets has grown as investors have become more comfortable estimating losses associated with the loans. (Editing by Dan Grebler)