THE HIGHLY COMPETITIVE mortgage market in California is often the spawning ground for new kinds of lending businesses. One of the latest examples: adjustable-rate mortgages to people with less-than-immaculate credit histories at rates that float high above the London interbank offered rate.

With credit enhancement, such loans can be packaged into triple-A issues that carry market rates to investors but leave the lender with net servicing spreads that can run as high as 5%.

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