Two mortgage companies have teamed up to make more loans to people with defaults and other serious blots on their credit records.

Westmark Group Holdings will enter the C and D market through an affiliation with MCA Financial, a diversified mortgage lender based in the Detroit suburb of Southfield, Mich. MCA will buy subprime loans that Westmark originates and also invest $500,000 of capital in the Delray Beach, Fla., company, said Westmark chief executive Mark D. Schaftlein.

The affiliation gives MCA a 5% stake in Westmark, through preferred stock, while giving Westmark a way to venture down the credit spectrum without incurring too much extra risk, Mr. Schaftlein said.

Selling the loans to MCA gives Westmark a ready outlet for products that it prefers not to carry on its books. To reduce MCA's exposure, Westmark will write its C and D loans to MCA's specifications, Mr. Schaftlein said, adding: "It's a good arrangement for both of us."

Executives at MCA agreed that the arrangement gives it a chance to buy more subprime paper, which can be more profitable than conventional mortgage loans because of its higher interest rates.

"Westmark is a joint venture we're creating to enlarge our securitization volume," said Denis Kuhn, MCA senior vice president. "Through the partnership we will share directly in their growth."

MCA, which also makes conventional and VA loans, originates about $900 million of mortgages a year, mostly in the Midwest. Westmark averages about $120 million of subprime mortgages annually, in Florida and through a growing operation in California.

Industry observers said MCA is smart to acquire a small stake in Westmark as a way of keeping in close touch with a growing company. "It's seen as a good investment," said Luke T. Smith, a finance company analyst at Chesapeake Securities, Chesapeake, Md. "They want to structure a solid relationship right from the beginning."

For Westmark, the deal is another step toward expansion as a subprime lender, said president Payton Story.

As its next step, the company is talking with Wall Street investment bankers about obtaining a credit line that would finance small acquisitions and bulk loan purchases, Mr. Story said.

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