NationsBank Corp.'s automobile finance unit has agreed to refer subprime loan applicants to Houston-based First Investors Financial Services.

Under terms of the alliance, announced this week, a car dealer would fax a loan application to NationsBank Dealer Financial Services. If the applicant fails to meet the bank's credit standards, the document would be sent to First Investors, which would pay NationsBank a referral fee.

"We would like to be a one-stop shop for our better dealers," said NationsBank vice president Paul G. Neal. "If we provide them with this capability and they don't have to shop the loan to one of our competitors, we feel we have accomplished that."

Banks have generally avoided the subprime auto market.

Making car loans to people with good credit has proven profitable for banks, so they have not been drawn to the intensive servicing required to control credit risk in the subprime arena, said Mark Morgan, an analyst at Dain Rauscher, Minneapolis.

"That is the whole reason consumer finance companies in general have been able to exist-they have developed expertise around servicing a client that more than likely will miss a few payments," Mr. Morgan said.

The alliance with First Investors lets Charlotte, N.C.-based NationsBank, which plans to merge with San Francisco's BankAmerica Corp., offer subprime auto loans while avoiding the risk inherent in directly lending to people with tarnished credit.

"These are customers that want financing but can't get it from the bank," Mr. Morgan said. "This allows the bank to make money off of what would otherwise be seen as spillage."

In fact, the arrangement lets the bank recoup some of what it costs to investigate the credit record of a person who eventually turns out to be too risky.

"You could describe this as a method of defraying some of our expenses," Mr. Neal said.

First Investors, for its part, gains a strong new source of loan originations. Given the recent problems in the subprime credit market, a partnership with a top-tier banking company offers "instant credibility," said Tommy A. Moore Jr., First Investors president and chief executive officer.

"The bank is not only marketing my program, but also we can go into dealerships under the wings of some very large institutions," Mr. Moore said.

First Investors, which has about $140 million of assets, began a similar arrangement in April with National City Corp., Cleveland, he said, and is talking with three other major banking companies.

The NationsBank link will be used in car dealerships in Oklahoma and Missouri, Mr. Moore said, and there are plans to expand it to other states. First Investors now offers subprime credit through more than 1,300 car dealers in 19 states.

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