In the United States, they are "subprime." In the United Kingdom, they are "non-status." It boils down to the same thing-they are borrowers whose credit is too bad to get a loan from a traditional bank.

And no matter which country they live in, they will be solicited by some of the same companies to take out a loan.

U.S. subprime lenders have flooded the U.K. market in the past three years, lured by what appeared to be an untapped and virtually unregulated environment.

At least eight specialty finance firms have moved into U.K. lending, including FirstPlus Financial Corp., IMC Mortgage Corp., and GMAC, the consumer finance arm of General Motors.

Even the pioneer of subprime home lending, Money Store Inc., started advertising on British television in early June, albeit without its U.S. spokesman, former Orioles pitcher Jim Palmer.

Conventional mortgage lenders like Countrywide Credit Corp. and Banc One Mortgage are even said to be looking at the U.K. mortgage market. "Any prudent mortgage lender needs to be looking internationally for expansion," said Steven Alonso, president of Banc One Consumer Finance.

But implementing American lending practices in Britain has touched off unexpected cultural and legal issues, and some say the notion that the United Kingdom could be a springboard to Europe is misguided. Naysayers are predicting that any softening of the hot housing market would send these newcomers running home.

"We've had a great economy, property values have been increasing, and interest rates have been stable for the past two years," said one U.K. lender. "During the next two years, these guys are going to have a much tougher row to hoe."

New entrants refused to be swayed. "We're trying to build a brand awareness similar to the U.S.," said Gavin Brady, managing director of Money Store's U.K. operations. "To be American, with a different approach, isn't bad."

In fact, the company's new television campaign is being well received, he said. Detractors have said that the British population would shy away from a brash brand name like Money Store.

Nonetheless, the British are far less casual about bad credit than Americans, despite the fact that it plagues about one quarter of both populations.

The U.S. citizenry's propensity for racking up credit card debt and the rising bankruptcy rate here are appalling to British bankers. "If I went bankrupt, I would never tell you unless I was drunk," said one investment banker, adding that he was shocked by Americans' blase attitude about filing for bankruptcy protection and by lenders' willingness to lend more than a home's value.

The U.K.'s estimated 14 million subprime borrowers owe their "non- status" not to immoderate spending habits, Britons would say, but to an economic downturn in the early 1990s.

In the late eighties, the housing market was "really booming," said Sue Anderson, head of external affairs for the Council of Mortgage Lenders, which is headquartered in a serene office just a few feet from the chaotic traffic of Piccadilly Circus.

Interest rates were "benign," Ms. Anderson notes, and young couples jumped into the housing market to take advantage of a tax break from April to August of 1988. Lenders began extending loans to "less than perfect" credits, expecting to be covered by rapidly increasing property values. "Then everything started to go wrong," Ms. Anderson said.

In August 1988, interest rates started to rise, companies shut down, and unemployment went up. By 1990, interest rates were 15% and new homeowners were having difficulties paying their mortgages. "The youngest, the lowest on the employment chain, were losing their jobs, and there was a very rapid increase in arrears and defaults," she said.

"We were left with a raft of people who suffered financial difficulties," she said. The backlog had a "psychological" impact on lenders, although the actual volume of losses was not huge, she said.

At the same time, building societies-the counterpart to U.S. thrifts- were forced by regulators to merge, bringing the number of lenders down from 400 to about 70. And these lenders decided to lay low, making loans to only those with perfect credit and stable jobs.

Regulation was limited to general credit guidelines, and mortgage lenders were expected to follow a voluntary "mortgage code," created by the Council of Mortgage Lenders.

Perhaps the first American lender to sense an opportunity was Cityscape Financial Corp., a fast-growing subprime lender based in Elsmford, N.Y. In May 1995, it formed a joint venture with three British mortgage bankers, eventually becoming the first company to securitize subprime loans in the United Kingdom.

The joint venture, City Mortgage Corp., proceeded to ramp up volume and profits by securing exclusive broker agreements and taking advantage of the country's liberal mortgage regulation.

But the company's policy of doubling interest rates on late payments and charging high prepayment fees-while not illegal-attracted the attention of the local press, and then the Office of Fair Trade.

In July of 1997, the fair trade office issued guidelines that eliminated the loopholes City Mortgage was using. Later the office forced the company to refund what were deemed to be overcharges, putting a stranglehold on Cityscape's operation in the United Kingdom and at home.

"Their mistake was thinking that they could get away with it on a grand scale," said Gavin Lumsden, a navy-blazered Times of London reporter, who was interviewed at the Babe Ruth Bar on the banks of the Thames-an establishment dedicated to American baseball, with bronze baseball mitt door handles and Budweiser in bottles at the bar.

Some lenders, in fact, credit the British press-which they say is much more critical of business than the press here-with keeping the industry clean. Others are not so pleased. "They're (Rupert) Murdoch-like papers," complained one lender, who did not want to be named. "Take the New York Post, make a lot of them, and make them nastier," he said.

Mr. Lumsden penned a series of critical stories about City Mortgage, under the banner "The Lender of Last Resort."

"Tory links of British loan firm tied to proven U.S. fraudsters," read the headline of one story, that referred to a Cityscape consultant who had done business deals with a developer convicted of fraud.

Kensington High Street, a cafe-littered shopping avenue, houses headquarters for two U.S.-based subprime companies, along with The Gap, a Pizza Hut, and even a Safeway supermarket.

There, Southern Pacific Funding Corp., Lake Oswego, Ore., recently opened its expanded U.K. headquarters in vast open room that still smells like new carpet.

William Cherry, head of operations there, jokes that he is "easily the oldest person in the room." He is also the only American and argues that it is critical to have a staff of natives to properly make loans in another country.

"All of our directors here have longstanding relationships" with the brokers and packagers that Southern Pacific gets loans from, he said.

Companies have tried in the past to go overseas by shipping out domestic experts, and failed, he noted.

Mainstream American financial institutions like Citibank and Lehman Brothers were tapping into the U.K. mortgage market before the early '90s housing crisis and have since pulled out.

U.K. citizens "wonder how long American companies are going to be here," he said.

Southern Pacific did $80 million in loans in 1997 and $100 million in its first twelve months of operations, and is expecting originations to grow significantly this year. The company is looking next toward Spain.

Still, there are hurdles to overcome. "Subprime lending is still deemed to be a dirty business," he said. "It's like the States 10 years ago."

And the country's secondary market for the loans is in the infant stages. Money Store and Southern Pacific have completed securitizations, but it has been slow going, Mr. Cherry said. "It's like reinventing the wheel," he said.

Competition is stiffer than in the States, Mr. Cherry said. "People really go after each other-it's a little more gloves-off."

Some of Mr. Cherry's competition is headquartered across the street. Kensington Mortgage Corp. still has the largest subprime market share in the United Kingdom. Established in 1995 by former Goldman Sachs managing director Martin Finegold, along with U.K. partners, Kensington was making loans before the City Mortgage joint venture began.

Mr. Finegold is not thrilled by the competition that the past few years have brought. "Everyone read easy money after seeing City Mortgage and formed partnerships and bought companies," he said. "Then City blew up, and they're all just too stubborn to leave."

Most of the new entrants to the market are going to break even or show losses this year, he predicts.

The notion of using England as a jumping-off point to enter other markets in Europe is "complete American naivete," said Mr. Finegold. "This isn't like World War II. ... That works for bombing, not lending," he said.

There are no large non-French banks in France, he pointed out. "You can't just parachute in."

Although U.S. companies may have suffered a loss in reputation because of City Mortgage, U.K. borrowers may ultimately be benefiting from the company's high profile, Mr. Lumsden said.

More competition can be found from local banks and building societies that have begun to enter the non-status market, Mr. Lumsden said, offering loans at lower rates than most U.S. lenders.

"It's taken U.S. specialty finance companies to force them into doing it," Mr. Lumsden added. Mortgage lending in the United Kingdom had been stagnant for years, he said. "They saw all these Yanks making money, and said 'Why can't we do this too?'" he said.

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