are forming a trade association - a sign that the once borderline business is coming of age. Subprime lending, as it is called, has delivered surging profits to the specialists in the last few years, and their success has attracted large numbers of conventional lenders to the niche in the past year. But the veteran subprime lenders see their interests as diverging from those of conventional mortgage companies with broad product lines. Most are members of the Mortgage Bankers Association and the National Home Equity Lending Association. In a meeting last week, several of the companies discussed the direction they want to take, said acting chairman Gary Judis, who is also president of Aames Financial Corp., a Los Angeles-based subprime lender. The organization, which is operating tentatively as the Home Equity Lenders Leadership Organization, or Hello, will focus on the special needs of the largest subprime loan originators. Some of the largest MBA members also formed a separate lobbying group earlier this year because they saw their interests as separate from those of the general MBA membership. Money Store and United Companies Lending Corp. of Baton Rouge, La., are among lenders involved in the new B and C group, Mr. Judis said, as well as several companies from the Wall Street side of the subprime lending equation. Oppenheimer & Co., Prudential Securities, and Bear, Stearns & Co. are among those interested, he said. Prospective members said Hello's formation is a direct result of the Home Ownership and Equity Protection Act, which increased the Truth-in- Lending disclosure requirements for B and C lenders. The legislation's approval in the fall of 1994 was a "reality check" for B and C lenders, said J. Terrell Brown, chairman and chief executive officer of United Companies, because of the lack of support these lenders received from either the Mortgage Bankers Association of America or the National Home Equity Mortgage Association. The legislation, introduced by Rep. Joseph P. Kennedy 2d, D.- Mass., defines certain loans as "high cost" depending on a ratio of fees and interest rates to total loan value. It requires lenders that make these loans to notify borrowers that they can lose their homes if they default, and prohibits negative amortization and prepayment penalties after five years, among other specifications. After it passed, "It became clear that our needs and concerns were not being addressed by other organizations," Mr. Judis said. "We didn't put a lot of resources into the high-rate mortgage issue," admits Warren Lasko, executive vice president of the Mortgage Bankers Association. Subprime lenders are not, and will not become, the focus of the mortgage trade organization, he explained, to avoid dilution of interests. "In our solar system, they're one of the outer planets," he said, while "the sun at the center of the MBA is the secondary mortgage market." The splintering off of B and C lenders marks the second such formation of a trade group in the last six months. The first, the Mortgage Capitol Group, represents larger lenders and real estate brokers. All this leads to the question: Has the mortgage industry become too diverse for the Mortgage Bankers Association to handle? "What we're seeing all over is a world that is getting increasingly complex and pigeonholed into intensely specified technical subjects," said Mr. Lasko. Nonetheless, membership at the MBA has continued to grow, he said. Neither Mortgage Capitol Group nor Hello members have left any of the larger trade organizations, and they don't seem to have any intention of doing so. "Pulling out of the MBA or the National Home Equity Association was not the issue," said Mr. Brown. "They had no lobbying methodology, and no research for tax issues." The MBA has made some concessions to special interests among subgroups of members, Mr. Lasko added, like a recent conference on B and C lending. "Some traditional lenders are getting into B and C paper, and we do conferences for them," he said, but the organization is not specifically reaching out to lenders that do B and C loans only. Hello's next meeting, slated for mid-February, will most likely be held in New Orleans, Mr. Judis said.

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