PaineWebber Inc. and Freddie Mac are teaming up to make securitization easier for smaller lenders. New South Federal Savings Bank is the first beneficiary of the program, which provides credit guarantees, structuring, and distribution for modestly sized packages of home loans.

The program enabled the Birmingham, Ala., lender late last month to securitize and sell directly to Wall Street $215.4 million of mortgages. This was preferable to holding the loans in portfolio or selling them on a whole loan basis to a larger lender, said Roger Murphree, capital markets chief at New South Federal, which has $900 million of assets.

"The overall economies were very appealing," Mr. Murphree said. "The proceeds, when all is said and done, appear to be the best we could have achieved" from the loans. The securitization accounts for a large chunk of the $800 million of mortgages that New South Federal expects to originate this year.

New South Federal was able to price the securities at a bit of a premium and receive more proceeds because of credit support by Freddie Mac. In return for a fee of several basis points, Freddie Mac agreed to repay investors' principal if the loans fail.

Freddie Mac has historically taken a support position with conventional loans. The New South Federal deal is another step in a pilot program that Freddie Mac launched this year to look into guaranteeing nonconforming loans.

Freddie Mac has not agreed to work exclusively through PaineWebber, but the investment bank is eager to continue the collaboration. PaineWebber earns fees for structuring the mortgages into investments and then distributing the bonds through a large institutional sales force. That kind of muscle has previously been available because of cost considerations to large lenders with $1 billion or more to securitize.

The program with Freddie Mac is a new way for lenders to replenish capital and increase operations, said Paul B. Jenison, a PaineWebber managing director. "This a opportunity for banks and thrifts to look at the securitization market as a way of gaining greater flexibility for asset and liability management."

Other lenders are looking into the Freddie Mac approach. "It's a potential way of helping to manage our loan growth," said Chris Castoro, chief executive at CFI Mortgage, West Palm Beach, Fla.

Other lenders are going the traditional route-selling their loans to large subprime and home equity lenders, which in turn approach Wall Street. The arrangement, while not as direct, allows smaller lenders to piggyback on established companies that have long dealt with Wall Street.

First Finance, a growing subprime lender in Bloomfield Hills, Mich., recently struck a deal with Advanta Mortgage Corp., one of the subprime industry's biggest lenders.

Advanta agreed to buy over the next three years at least $1 billion of loans that First Finance originates. The arrangement "presents us to Wall Street," said Randall Sage, chief executive of First Finance. Offering documents contain information about the First Finance loans, their size, type, and interest rates. That information will help First Finance build a track record and credibility on Wall Street, Mr. Sage said.

Such steps are seen as necessary for companies that anticipate tapping the capital markets by issuing debt or publicly traded securities.

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