Subprime lenders are in the cross hairs of lawmakers, consumer groups, regulators and Wall Street.

Every day it seems a new subprime lender closes its doors, lays off employees or tightens its loan qualification process. And it appears the flash in the pan for this niche is nearly over.

No fewer than three dozen mortgage lenders "have croaked" in the past several months, according to the Mortgage Lender Implode-O-Meter (ml-implode.com).

New Century Financial Corp., the nation's second-biggest subprime mortgage lender, on Monday said it doesn't have the cash to pay creditors, increasing speculation the company will go bankrupt.

These lenders see Denver as a fertile ground for offering risky loans. The proof is in the area's record-setting foreclosure rate and numerous bills in the legislature to license mortgage brokers.

A big subprime player headquartered here is Aurora Loan Services, which is the top "Alt-A" mortgage originator in the country, according to the company's Web site.

The company, located at 10350 Park Meadows Drive, is a subsidiary of Wall Street investment firm Lehman Brothers Holdings Co.

Aurora Loan Services could not be reached for comment, but a Wall Street Journal article this month said the company was tightening its qualifications criteria for borrowers.

"For years, you only had two kinds of lenders: the prime lenders and the subprime lenders," said Kathleen Keest, of the Durham, N.C.-based nonprofit group Center for Responsible Lending.

"Only in the last couple of years have we seen talk of a market that separates the prime and subprime, called Alt-A lenders," or alternatives to A (the best credit) borrowers.

Lou Barnes, principal of Boulder West Financial Services, said the Alt-A loans "cover the entire continuum . . . everything from common sense loans all the way to junk."

Although they've been around for about 20 years, there is "no perfect definition of a subprime loan or lender," Barnes said.

However defined, the big question is whether subprime lending is synonymous with predatory lending.

Predatory lending is the practice of making loans where the lender knows there is little chance it will be repaid. Nationally, minorities in poor neighborhoods are the most likely victims of predatory lending, according to national studies.

"I will tell you for many, many years, everybody was very careful to say most predatory lending involved subprime loans, but not all subprime loans were predatory loans," said Keest, of the Center for Responsible Lending.

"But we looked at rising foreclosure rates and did a study that found in 2000, one in every 4 1/2 subprime loans entered into the foreclosure process," Keest said.

"It's like one of my friends said: If one out of every 4 1/2 cars of a certain make and model were involved in horrible car crashes, would you say they were caused by a design flaw or would you blame the drivers?"

Peter Lansing, owner of Denver's Universal Lending, one of the largest locally owned mortgage banking firms, said only about 2 percent of his company's loans are subprime. He does not think the business is inherently evil.

"I have seen the black eye subprime lenders are getting," he said. "But not all subprime lenders are the guys in black hats. Even some of the subprime lenders who have gone into bankruptcy are not guys in the black hats."

Subprime lenders have "provided a tremendous service" by allowing people to buy homes who otherwise would not have qualified, he said.

Chris Holbert, head of the Colorado Mortgage Lenders Association, said there are three bills regarding mortgage brokers working their way through the Colorado legislature, but market forces might make the biggest point.

"The CMLA is very gently trying to make the point with legislators that a very significant market correction (with subprime lenders) is going on and is going to continue," Holbert said.

"The market is addressing that, and subprime lenders are suffering right now," he said. "In 1989, we had a far worse foreclosure crisis than we do today, and the legislators didn't pass any laws. That was followed by the best 12 years we have ever had for housing appreciation. I think legislators must be very careful not to overcorrect now."

Lender lingo

• Subprime loans: Loans given to borrowers with blemished or limited credit histories. The loans are typically ARMs with initial rates that rise well above the market rate in two years or less. Borrowers tend to have higher than average debt-to-income ratios, making them more likely to default.

• Prime loans: Carry the lowest rates and the lowest risk, because the borrowers tend to have good credit histories.

• Alt-A lenders: They are between subprime and prime lenders. Aurora Loan Services, headquartered near the Park Meadows mall, is one of the nation's largest Alt-A mortgage originators.

Sources: Housing and Urban Development, Aurora Loan Services Web page

rebchookj@RockyMountainNews.com or 303-954-5207

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