South Carolina Firm Expands Secondary Market for Problem Loans.(Brief Article)

A fledgling company that opened its doors last December, Nautilus Capital LLC, a broker of distressed residential mortgage loans into the secondary market, already has plans to expand its business.

"By the end of the year, we hope to have our financing lines, put in our own capital and have warehouse capabilities, so that we could buy distressed loans in our own name. This will be more efficient when we turn around and sell those to other investors," said Steven P. Cohen, a managing director with the company.

Laird Minor, also a managing director with the company, added, "We would also like to be able to aggregate to a large enough extent to be a significant participant in a securitization pool, though that is further down the road. Maybe a few years yet. But eventually, we would like to be able to retain a piece of the loans that we buy."

The company, for now, remains in the midst of growth in its current niche. "Since Nautilus began operations, we have priced approximately $60 million in loans from 50 different lenders, and in the first two months of this year, we provided the winning bids on almost 50% of the loans shown to us," said Mr. Minor.

According to Mr. Cohen, 95% of what Nautilus is seeing in terms of its spreads are subprime loans. These include single family residentials, condos, townhouses, manufactured homes and "all different property types." They generally tend to have credit scores of approximately 600.

According to Mr. Cohen, the subprime industry originates "about $200 billion" annually, "and there is about 5% of that that does not sell at a premium ... and all we need is a little percentage of that market to have an incredible business plan."

The changing environment of the industry has also promoted an increase in distressed loans.