From: Reuters
Published February 5, 2008 11:09 AM

Subprime lender Accredited plans comeback

By Al Yoon

LAS VEGAS (Reuters) - Accredited Home Lenders, a top subprime mortgage loan company in 2007 whose risky practices forced it to stop lending and slash its staff, is again reaching out to borrowers with sketchy credit even as the housing downturn deepens.

Accredited has originated about $86 million in non-prime loans since November, with $50 million of that in January, Accredited founder Jim Konrath said on Monday.

The company, which produced as much as $2 billion a month during the housing boom, is also eyeing a return to the asset-backed securities market that remains frozen in the aftermath of soaring defaults on risky U.S. loans, he said.

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"We want to build a portfolio to test the market," Konrath told investors at the American Securitization Forum's meeting in Las Vegas. "Is there an ability to sell bonds without a deep discount (in the future)?" he asked.

To be sure, Konrath said he has not heard anything at the meeting of some 6,000 Wall Street dealers, financiers and investors that suggests he will be able to tap the market anytime soon. Traders and investors in other panels decried the lack of trading in mortgage assets, noting that few buyers can be found because rising delinquencies and falling U.S. home prices make accurate pricing extremely difficult.

Wall Street banks are unable to provide financing for new mortgage loans since they are saddled with inventories from their own portfolios, from investors and structured investment funds being unwound, investors said at a panel discussion at the meeting.

Dealers have realized more than $100 billion in losses due to risky mortgage assets in recent months, and some analysts expect that number to at least double this year.

Accredited resumed operating as a shell of its former self after its acquisition by private equity firm Lone Star Funds in October for $296 million. But the company has escaped the fates of bigger competitors such as New Century Financial Corp and Fremont Investment and Loan, which closed their doors just months after reassuring investors of their viability at the same conference a year ago.

Accredited in August stopped making loans, said Konrath, who founded the San Diego-based company 17 years ago. The company in September slashed 1,600 of 2,600 jobs to help it survive the turbulent market.

Accredited's new subprime loans are mostly in California, New York and Florida, and were made under standards tighter than those seen before increased competition led the company to ease guidelines, it said.

The company still makes the "stated income" loans that were heavily abused by lenders and borrowers but has restricted them to self-employed people with three years in business and higher credit scores, executives said.

"From a non-prime standpoint, it's back to the basics," Konrath said.

Accredited expects it can expand even with a "narrow product menu" and a backdrop of a dour U.S. housing market faced with falling home prices, soaring foreclosures, and burgeoning inventories, he said.

It is competing against large financial institutions that can fund lending with customer deposits, but none of those banks are "aggressive go-getters," he added.

In the long-term, there will be a market for the loans made by specialized lenders, he said.

"We all know what (falling) home values do to production," he said. But "we're encouraged by the fact that there are some loans out there that meet this (tighter) criteria."

Accredited may try to tap the bond market by retaining the riskier parts of the issue, and selling only the portion that is well-insulated from default, he said.

(Editing by Jonathan Oatis)

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