A newly formed company is banking on an increase in the number of nonperforming loans.

First Madison National Inc., a spinoff of the Clayton Group, a New York- based consultancy, is dedicating itself to pulling profits from pools of mortgage loans that have stopped producing regular monthly payments.

"We think there is a tremendous opportunity out there for a very big default servicer," said John W. Anderson, general counsel, who will oversee all foreclosures and bankruptcies for the new company. He previously was a lawyer for PHH Asset Management, a rival default specialist.

Buying nonperforming loan portfolios is more popular than ever with investment banks, Mr. Anderson said. In addition, he said, the current high level of personal bankruptcies, combined with increased mortgage lending to borrowers with poor credit histories, can only signal more bad loans.

First Madison will offer due diligence, portfolio analysis, collections, workouts, foreclosure management, servicing, and asset management.

The company has four asset managers and will be headed by Stephen M. Lamando, who also is president of Clayton Group, which he founded after leaving Goldman, Sachs & Co.

First Madison may be welcomed with open arms, market observers said.

"Chances are, this will be a really good market that could bear a few more" companies specializing in the type of hard-core servicing and workout operations that First Madison proposes, said John Bailey, an analyst at Freedman, Billings, Ramsey & Co.

Ocwen Financial, West Palm Beach, Fla.; Imperial Thrift and Loan Association, Glendale, Calif.; and Wilshire Financial Services Group, Portland, Ore., are established workout specialists with which First Madison will be competing.

The high cost of servicing nonperforming loan pools is driving more banks to outsource their workout departments, Mr. Bailey added.

"When servicing a loan that is not paying," he said, "time is of the essence. You can lose your shirt if you don't get them paid soon."

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