The online real estate auction company LFC Marketing Services Inc. wants to expand the secondary market for mortgages by offering them for sale through an eBay-like Web site to individual buyers.

Paul Lyons, LFC's senior vice president, said the Newport Beach, Calif., company's site was designed to connect banks and other mortgage holders with an audience that may be out of their reach today — individuals with the means to invest in loans one at a time.

"You can buy [mortgage] notes at a discount, maybe even your own," he said in an interview last week.

"Just because" a bank is "selling a loan at discounted value doesn't mean there's anything wrong with it," he said. "What if you saw your loan up there for sale at 75 cents on the dollar? You'd want to do anything you could to snap that up."

BigBidder offers performing and nonperforming first and second loans, sold individually or in pools.

The online-auction style and target audience make the service similar to such peer-to-peer lending services as Prosper Marketplace Inc. and Lending Club Corp., which enable individuals to lend money to individual borrowers.

But Lyons stressed that those similarities are only skin-deep.

To make unsecured peer-to-peer loans affordable to an individual investor, Prosper and Lending Club sell them in pieces; on BigBidder, mortgages are sold in their entirety. When borrowers default on loans made through Prosper and Lending Club, individual investors have little recourse beyond the companies' own collection efforts; on BigBidder, the investor could wind up with the borrower's home.

Another difference is that peer-to-peer sellers typically service the loans on their Web sites, but BigBidder does not.

BigBidder's audience "is not somebody who's got $10,000 and doesn't know what they're doing," he said. Its user agreement requires individual investors to have a net worth of at least $1 million or meet certain income criteria.

These mortgage buyers have "long been a very exclusive club for people who do this for a living … we're trying to expand that by making it easier," Lyons said.

BigBidder had more than $44 million in loan notes available on its Web site as of Monday and is adding new ones weekly. LFC plans to add $200 million more in the next few weeks, Lyons said. "We're constantly going out and working with new sellers." The service went live about three months ago.

Three banks are using BigBidder to sell loans, though Lyons would not name them. It also works with hedge funds and equity funds — "anybody who makes loans or buys loans," he said.

Large banks "love the format and want to utilize us, effectively, as a marketing platform for them mainly because they know that the best way to sell loans is in small pools," he said. "But they don't have that minutiae to facilitate that."

Small banks are also enthusiastic, he said, because they "don't have the internal infrastructure to deal with note sales, so if they don't sell a loan through their traditional methods," they would have to bundle a loan with more palatable ones and lose out on potential revenue. Through, "they won't have to give them away," he said.

Mark Schwanhausser, a research analyst for Javelin Strategy and Research, said the BigBidder model is challenging the "time-honored Wall Street process that may or may not be the most efficient."

He noted that many of the loans available now are in certain unappealing sections of California and Florida, "two of the riskiest real estate areas," though a savvy investor could put in the research to determine whether some of the loans are worth the risk, he said.

However, if there is an audience for loans of this type, then it makes sense to offer the notes online, Schwanhausser said.

"It is easier to take things and bundle them up" in packages of similar loans; "that's how the secondary market got to be such an efficient machine," he said. But some loans may not fit as part of an appealing bundle, he said. "Maybe this could be a better way to put those oddball things on the block."