Subprime Mortgage Lenders Form Their Own Trade Group

By Timmons, Heather | American Banker, November 29, 1995 | Go to article overview
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Subprime Mortgage Lenders Form Their Own Trade Group


Timmons, Heather, American Banker


Companies that specialize in mortgage loans with lower credit quality are forming a trade association - a sign that the once borderline business is coming of age.

Subprime lending, as it is called, has delivered surging profits to the specialists in the last few years, and their success has attracted large numbers of conventional lenders to the niche in the past year.

But the veteran subprime lenders see their interests as diverging from those of conventional mortgage companies with broad product lines. Most are members of the Mortgage Bankers Association and the National Home Equity Lending Association.

In a meeting last week, several of the companies discussed the direction they want to take, said acting chairman Gary Judis, who is also president of Aames Financial Corp., a Los Angeles-based subprime lender.

The organization, which is operating tentatively as the Home Equity Lenders Leadership Organization, or Hello, will focus on the special needs of the largest subprime loan originators.

Some of the largest MBA members also formed a separate lobbying group earlier this year because they saw their interests as separate from those of the general MBA membership.

Money Store and United Companies Lending Corp. of Baton Rouge, La., are among lenders involved in the new B and C group, Mr. Judis said, as well as several companies from the Wall Street side of the subprime lending equation. Oppenheimer & Co., Prudential Securities, and Bear, Stearns & Co. are among those interested, he said.

Prospective members said Hello's formation is a direct result of the Home Ownership and Equity Protection Act, which increased the Truth-in Lending disclosure requirements for B and C lenders.

The legislation's approval in the fall of 1994 was a "reality check" for B and C lenders, said J. Terrell Brown, chairman and chief executive officer of United Companies, because of the lack of support these lenders received from either the Mortgage Bankers Association of America or the National Home Equity Mortgage Association.

The legislation, introduced by Rep. Joseph P. Kennedy 2d, D. Mass., defines certain loans as "high cost" depending on a ratio of fees and interest rates to total loan value.

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