Newspaper article THE JOURNAL RECORD

Low-Income Mortgages Provide New Market for Home Lenders

Newspaper article THE JOURNAL RECORD

Low-Income Mortgages Provide New Market for Home Lenders

Article excerpt

For a profitable mortgage-lending business, consumers with low incomes and checkered credit records marred by delinquent payments are not the usual prospects. But they are the bread and butter for United Companies Financial Corp., of Baton Rouge, La., and some other finance companies, which have found that low-income homeowners will mortgage their houses at relatively high interest rates to obtain loans unavailable from other sources.

While the traditional mortgage-lending business is slumping as interest rates rise and middle-class homeowners have stopped refinancing, home lenders in low-income areas are expanding rapidly.

With the help of Wall Street and bond insurance companies, these "B" and "C" loans issued to borrowers with credit blemishes are now routinely packaged into securities that can be sold readily in the financial markets.

That business of making high-interest-rate loans, selling them as securities and then making more loans has transformed United from a sleepy consumer loan and annuity company into a fast-growing mortgage company. United first caught the eye of analysts in mid-1993, when it sold its original bundle of mortgage securities. Since then, it has packaged $1.1 billion in mortgages and its stock has more than tripled in value.

But it still may be a good buy. After starting at less than $10 in mid-1993, United rose in over-the-counter trading to a peak of $48 in March. Affected by the general weakness in mortgage company stocks, however, it has fallen and traded at $33.50, unchanged, on Nasdaq Tuesday. That is less than six times next year's expected earnings.

"This is one cheap growth stock," said Stephen Eisman, an analyst at Oppenheimer Co. He noted that demand for United's loans was little affected by rising interest rates and said the company could earn $5.75 a share next year, up 26 percent from this year.

Making small mortgage loans that average about $40,000, United encourages low-income families to take out new long-term mortgages to consolidate other debts or pay for home improvements. …

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