A Seductive Subprime Lender

The greater the risk, the bigger the reward. That's the heart of subprime mortgage lending--or loans to less credit-worthy borrowers. The huge spread between the cost of funds and the high rate of interest that lenders charge has made the business lucrative. But it's also risky, and the group has been under severe pressure. Still, money manager Vince Carino likes Southern Pacific Funding (SFC). It attains a high internal rate of return because of lower loan-origination costs, notes Carino, president of Brookhaven Capital, which recently acquired a 6% stake.

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