First Franklin is merging with a small mortgage company that will allow it to expand its lending to borrowers with poor credit histories.

The San Jose, Calif.-based mortgage bank is combining forces with Trillium Mortgage Corp., Portland, Ore., a company that specializes in originating so-called B- and C-quality loans.

Many mortgage banks are paying increasing attention to the "B" and "C" loan market, viewing it as a potential area of new business in an otherwise hostile market.

Trillium is on track to originate $150 million of home loans through its 10-state wholesale network this year.

First Franklin will soon begin to offer Trillium's loan products through its own wholesale network.

Demand for "alternative financing" products may increase in coming months, said John Ferebee, new president of Trillium. "Rising interest rates are forcing many consumers to look beyond traditional A paper options in an effort to simply qualify for a loan."

First Franklin is owned by management and DLJ Merchant Banking, A subsidiary of Donaldson, Lufkin & Jenrette.

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