When Nua Homeloans . . . a 60/40 joint venture between South African investment bank Investec and niche lender Finance Ireland . . .joined GE Capital, Kensington/Start, IIB and Permanent TSB in the subprime market on 5 April, the global business media had already spent several weeks chewing over the carcass of American below-prime lending. Catching a whiff of the rot, some local commentators cast disgusted glances across the water and diagnosed the source of the decay: mis-selling, exploitation and foreclosure. What, they asked, could Irish banks possibly see in this bankrupt lending model?

Declan Fitzpatrick, Nua's founding managing director, will tell you that . . . notwithstanding the difficulties with American mortgages . . . subprime lending in Ireland doesn't represent a problem, but an opportunity both for lenders and borrowers. Ireland, he says, has changed in ways that make it impossible to ignore certain underserved segments of the potential house-buying market: the self-employed, foreign nationals, single parents and . . . yes . . . people with poor credit.

"There are some sectors that frankly have been excluded from mainstream mortgage lending, " he says. "We're targeting self-certified borrowers, we're targeting credit repair, we're targeting the non-national community, we're targeting non-conforming borrowers with irregular income. Divorce, for instance, is a permanent feature of the marketplace.

"We're not chasing this business, the business is out there. There are people who genuinely need the service."

It's easy to glibly attack this sort of business for exploiting the vulnerable, but it's much harder to make the argument that logically follows from that assertion: that immigrants, divorced people, seasonal workers and failed or struggling entrepreneurs should be shut out of the housing market. Subprime, according to Fitzpatrick, makes sense now because in the last decade or so the country has "changed, grown up, matured f we see gaps that mainstream lenders haven't addressed and we'll go and get it."

Long gone are the days when mortgages were available exclusively to wealthy professionals and the state-employed middle class. Demographic and economic changes have simply made such a conservative model of lending unsupportable.

Mainstream banks have recognised this, too, which is why the mortgage market has seen a virtuous circle of competition and innovation since the arrival of Bank of Scotland in 1999. The advent of 100% loans and other inducements to first-time buyers have inched the mainstream closer to the 'specialist' end of the spectrum already. But few have taken the leap until this year.

"Perhaps mainstream banks were too busy concentrating on the business that they knew, " says Fitzpatrick. "We didn't just by accident happen to get into this market. The team at Finance Ireland would have seen this market developing. There was a year of gestation."

Fitzpatrick cites the massive influx of ambitious immigrants, the changing structure of the Irish family and a welcome appetite for entrepreneurship as the factors behind Nua's business case. There has always been a market for subprime lending in Ireland, he says, but the dramatic social changes of the last 10 years have widened the gap between the mainstream and margins. Irish attitudes to risk have changed in important ways, too.

"In the past 10 years the entrepreneurial spirit has developed big-time, " says Fitzpatrick. "The risk averse attitudes from the 1980s have changed."

Ireland's "young, educated workforce" is smart enough to see business opportunities, he says, and go for them.

"They look at Denis O'Brien, Tony O'Reilly, Michael Smurfit and say 'I'm a bright person, I can get into it."

Riskier 'non-conforming' borrowers, it follows, require riskier lending . . . and that's where subprime comes in. Subprime loans in comparable markets such as the UK and the US have historically carried arrears rates of about four times the typical mainstream mortgage. To compensate, the loans are charged at higher interest rates (5.5%-8.9%) and are tied to income more than property value.

"Our number one risk assessment criteria is affordability, " Fitzpatrick explains. "Above all else we're not lending on loan to value.

We're asking 'can the loan be serviced'. The vast majority of people will repay and have every intention of paying you."

"The arrears levels of course they're going to be higher because the risk is higher. Any lending is going to run into bad debt situations.

But we're not after the bottom of the barrel.

We're not dredging deep. We're about responsible lending to a gap in the market."

Fitzpatrick, who is a 25-year veteran of Irish lending, seems to take this point personally. Lending criteria is one thing, but he has built a reputation in the market and in the industry that he seems determined to maintain.

He's safely navigated his way from motor finance at GE Woodchester to set up the Friends First motor finance operation, then taking the helm at Bank of Scotland's motor finance division before switching to its homeloans division in 2005. Carelessness in uncharted waters could sink him and the team of 25 at Nua, who have also all left positions elsewhere to start something new.

Still, the backbone of subprime lending is borrowers with either troubled or absent credit history . . . bright red flags to most lenders. Fitzpatrick has a somewhat contrarian view on the matter.

"What's it tell me about the person? Is it bad or is it good? It's neither, it's probably neutral, " he says. "Absence of credit history is perceived as negative, but it doesn't actually tell you anything. Everybody has to start somewhere.

"We'd assess on income and personal circumstances. If you look at credit history and it's all in order, that's fine. But where you don't have it, we would recognise that a young population, people coming into the market for the first time, people coming to the country who don't have a track record. . ." He pauses here as if he can't quite believe he's been asked to explain what, to him, is self-evident: "Nothing concentrates the mind more than putting down your own money."

That's as true for Investec and Finance Ireland as it is for a self-certifying Polish kitchen fitter. Both calculate risk versus return and act accordingly. The kitchen fitter asks himself whether paying a few points over the odds is worth getting a property stake in his new home; the bankers ask themselves whetherlending to the kitchen fitter is worth a higher chance of getting stuck with bad debt.

According to a Davy note at the beginning of the year, the Irish subprime market in 2007 represents about 1bn out of a mortgage market of more than 40bn . . . but that's expected to quadruple in the next few years. The risk appears to be worth it.

"I would share those aggressive assumptions, " says Fitzpatrick. "A lot of research has gone into the market. A starting point would be the UK, where subprime is 15% of lending. If you take 1bn out of 40bn and compare it to 15%, that's a massive gap there."

Others have seen the gap, too. GE pioneered subprime lending here in 2002 and was alone until Kensington launched Start two years later. This year has already seen three new entrants . . . Nua, IIB and IL&P's Springboard . . . representing a 150% increase in competition.

"As a start-up business we've bought into a consensus view that the market is going to grow, " Fitzpatrick says. "We see ourselves with 20-25% market share four or five years out. We're not expecting 50% the first year out."

No worries about a US-style meltdown, then. Fitzpatrick acknowledges a certain amount of tightening in the Irish housing and lending market . . . and a slight sag in confidence as Ireland's 15-year bull run slows to a jog just as American real estate is tripping over its shoelaces . . . but he's holding his nerve.

"It's a blank sheet of paper. In every way it's brand spanking new, which makes it exciting.

Maybe it takes a bit of balls to move into something like that now. My mind made itself up. I believe in what's happening here. I have every confidence we'll be proved right."

CV

DECLAN FITZPATRICK
Age: 49
Position: Managing director of start-up subprime lender Nua Homeloans
Background: A qualified accountant, after training with PwC, Declan held a variety of senior positions in the financial services sector with companies such as GE Capital, Friends First and, most recently, Bank of Scotland where he was director of sales for home loans Hobbies: Golf and tennis
Family: Lives in Dublin with his wife, Brigid, and three children