Novelle's Hill dives into subprime

NEW YORK (Reuters) - Dozens of subprime mortgage lenders are closing their doors and prices on their loans pale from their heyday in 2005. But the time is right to start a business catering to risky borrowers, said Mallory Hill, chief executive of Novelle Financial Services.

Hill, a Wall Street veteran who has helped create subprime lenders including BNC Mortgage -- now owned by Lehman Brothers Holdings Inc. (LEH.N: Quote, Profile, Research, Stock Buzz) -- said Novelle can pick up the pieces of the meltdown that caused the closures of prominent lenders.

"I believe in being a contrarian here," Hill said by conference call at the Reuters Real Estate Summit in New York.

Orange County, California-based Novelle is able to make money by selling loans on an individual basis, versus the bulk sales done by larger competitors, he said.

As underwriters clamp down on lending standards and investors become pickier about what they buy, prices on single loans are better now than those on aggregated pools that can contain unwanted mortgages, he said.

Getting loans approved by firms such as Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) lets him avoid the costs of carrying the loans until they are sold, he said.

"This is a good time for people to be buying," he said. "Five or 10 percent of the originations caused most of the heartache and the heartburn for people that, simply put, were some of the more loosely underwritten or highly leveraged borrowers."

Even so, prices on new and existing bonds have come under renewed pressure in recent weeks, especially after the $3.2 billion bailout of a Bear Stearns Cos. Inc. BSC.N hedge fund sparked fears of deeper fallout in the $7 trillion U.S. mortgage bond market, according to money managers.

The funds made bad bets on subprime loans whose delinquencies and foreclosures have surged as the housing slump deepens.  Continued...