Yet another American subprime mortgage lender has set up shop in the United Kingdom, illustrating the appeal of the fledgling market.

Southern Pacific Funding Corp. announced that it has formed a subsidiary to provide nonconforming home loans in England.

Southern Pacific Mortgage Ltd., London, has already originated $45 million in home loans and is holding them for future sale or securitization, the parent company announced.

Southern Pacific Funding, headquartered in Lake Oswego, Ore., opted to go overseas because the nonconforming market there is underserved but laws are similar to the United States, explained Robert W. Howard, chief executive officer.

Another appealing factor: "Other U.S. companies have already paved the way," he said. Cityscape Financial Corp., an Elmsford, N.Y.-based subprime lender, started a nonconforming U.K. subsidiary last year, and several other U.S. lenders followed suit.

The U.K. lending market leaves plenty room for a whole new type of player, said Martin A. Finegold, president of Kensington Mortgage Co., a London-based subprime lender that serves the nonconforming mortgage market there.

"The major lenders, the building societies, only serve 80% of the population," he said. Single mothers, senior citizens, and immigrants are among the groups shunned by the traditional market, he said. "There's no Fannie or Freddie" and no guidelines on political correctness.

Southern Pacific Mortgage is originating all its loans through brokers, Mr. Howard said. The unit, which began lending in March, is currently bringing in $15 million of mortgage loans a month.

Former Kidder Peabody investment banker William Cherry, who was a Southern Pacific Thrift and Loan director, is managing the unit. Southern Pacific Mortgage has also hired John Proust, a U.K. nonconforming mortgage expert, as well as two other U.K. nationals who have worked with Citibank mortgage there.

U.S. involvement in the U.K. nonconforming mortgage market has come under scrutiny in recent months because the Office of Fair Trade there warned that it may make illegal the so-called Rule of 78.

This rule allows lenders to charge borrowers exorbitant penalties for paying off loans early. City Mortgage, the Cityscape subsidiary, has been especially criticized in the local press.

Mr. Howard says that Southern Pacific Mortgage has had several conversations with the Office of Fair Trade to ensure that the company's "guidelines fit within the realm of what is fair."

Although several U.S.-based companies have stepped into the U.K. mortgage market in recent months, Mr. Howard says he is not worried about overcrowding. "Competition is a good thing," he said. "It's capitalism at its best."

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