SANTA ANA - The origins of the subprime mortgage crisis can be found in Orange County, where an investment banker pioneered the idea of selling bonds backed by home loans in 1990, it was reported today.

William Komperda, a former Orange County investment banker now living in Connecticut, tapped into a funding bonanza when he was able to persuade insurers and bond rating firms to give his newfangled security their stamp of approval, the Orange County Register reported.

Through his client, Long Beach Savings FSB, Komperda was able to float a $70 million bond issue backed by home loans. The success of the offering helped Long Beach Savings pull in cash and spawn Orange-based Ameriquest Mortgage Corp., once the biggest originator of home loans to people with less- than-sterling credit.

"We thought it was just a niche market," Komperda told the Orange County Register. "It grew beyond what we imagined."

Komperda, who runs Greenwich Capital, said other investment bankers and rating firms did not have a good understanding of the product, but the bonds were snapped up anyway.

Once Wall Street got on board, Long Beach Savings grew rapidly, moved to Orange in 1991, then gave up its banking license in 1994 to become a mortgage lender.

In 1997, the firm split into privately-held Ameriquest and a publicly traded subsidiary, which sold for $350 million in 1999 to become the subprime arm of Washington Mutual Inc., the Register reported.

Executives who learned the ropes at Long Beach Savings also opened other mortgage lenders: ResMae Mortgage Corp. in Brea in 2001 and Encore Credit Corp. in Irvine in 2002.

"We did it here because you had a lot of talent," said Jon Daurio, an alumnus of Long Beach Savings who co-founded Encore and now runs a company that buys distressed mortgage loans. "You also had the Godfathers of subprime."

Daurio said the Godfathers were Arnall, Brian Chisick of Irvine-based First Alliance Mortgage Co., Russell and Rebecca Jedinak of Guardian Savings & Loan in Huntington Beach, and John T. French, founder of Santa Ana-based Plaza Savings & Loan.

French, now 76, said in an interview that the local lending industry evolved in response to market and regulatory changes. French worked with clients who had black marks on their records, but who seemed reliable.

Arnall was appointed U.S. ambassador to the Netherlands in 2006 after Ameriquest agreed to pay $325 million - without admitting wrongdoing - to settle predatory lending investigations in 49 states. He did not respond to requests from the Register for comment.

In 2004, Mark Adelson, an analyst for Nomura Securities International in New York, wrote a report warning that Orange County subprime lenders were ignoring the "three C's of good lending" - collateral, creditworthiness and cash flow.

But even Adelson's firm did not heed the advice. He was laid off after Nomura lost more than $1 billion from subprime investments, the Register reported.