AAMES FINANCIAL CORP/DE - 10-K Annual Report

AAMES FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
Preferred Stock purchase rights

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

At September 20, 2002, there were outstanding 6,482,761 shares of the Common Stock of Registrant, and the aggregate market value of the shares held on that date by non-affiliates of the Registrant, based on the closing price ($0.38 per share) of the Registrant's Common Stock as quoted on the Over-the-Counter Bulletin Board was $2,462,879. For purposes of this computation, it has been assumed that the shares beneficially held by directors and executive officers of Registrant were "held by affiliates"; this assumption is not to be deemed to be an admission by such persons that they are affiliates of Registrant.

Portions of Registrant's Proxy Statement relating to its 2002 Annual Meeting of Stockholders or an amendment to this Form 10-K are incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report.

Aames Financial Corporation (the "Company") is a consumer finance company primarily engaged, through its subsidiaries, in the business of originating, selling and servicing home equity mortgage loans collateralized by single family residences. Upon its formation in 1991, the Company acquired Aames Home Loan, a home equity lender making loans in California since it was founded in 1954. In 1995, the Company expanded its retail presence outside of California and began purchasing loans from correspondents. In August 1996, the Company acquired its broker production channel through the acquisition of One Stop Mortgage, Inc. In 1999, the Company consolidated its loan production channels into one company, and the retail and broker production channels (including the former One Stop) now operate under the name "Aames Home Loan."

The Company's principal market is borrowers whose financing needs are not being met by traditional mortgage lenders for a variety of reasons, including the need for specialized loan products or credit histories that may limit such borrowers' access to credit. The Company believes these borrowers continue to represent an underserved niche of the home equity loan market and present an opportunity to earn a superior return for the risk assumed. The residential mortgage loans originated by the Company, which include fixed and adjustable rate loans, are generally used by borrowers to consolidate indebtedness or to finance other consumer needs, and to a lesser extent, to purchase homes.

The Company originates loans through its retail and broker production channels. The Company's retail channel produces loans through its traditional retail branch network and through the National Loan Centers, which produces loans primarily through affiliations with sites on the Internet. The Company's broker channel produces loans through its traditional regional broker office network (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or "flow" basis) and by sourcing loans through telemarketing and the Internet. During the years ended June 30, 2002, 2001 and 2000, the Company originated $3.2 billion, $2.4 billion and $2.1 billion, respectively, of mortgage loans. The Company underwrites and appraises every loan it originates.

As a fundamental part of its business and financing strategy, the Company sells its loans to third party investors in the secondary market as market conditions allow. The Company maximizes opportunities in its loan disposition transactions by disposing of its loan production through a combination of securitizations and whole loan sales, depending on market conditions, profitability and cash flows. During the years ended June 30, 2002, 2001 and 2000, the Company sold $3.2 billion, $2.3 billion and $2.2 billion, respectively, of loans. See "—Loan Disposition."

During the years ended June 30, 2002 and 2001, the Company sold for cash the servicing rights on the mortgage loans in the securitizations it closed during those periods. The Company retained the servicing on the mortgage loans it securitized through the fiscal year ended June 30, 2000. The Company has generally not added any new mortgage loans to the servicing portfolio (excluding loans serviced on an interim basis) since January 1, 2000 due to the Company's sale of all of its mortgage loan production in servicing released transactions. The Company's servicing portfolio consists mainly of mortgage loans securitized prior to the year ended June 30, 2000 for which the Company retained servicing and, to a lesser extent, loans serviced for others on an interim basis, which includes loans sold where servicing has not yet been transferred and loans held for sale. It is the Company's strategy to maximize opportunities in loan servicing. At June 30, 2002, 2001 and 2000, the Company's servicing portfolio was $2.3 billion, $2.7 billion and $3.6 billion, respectively. Loans serviced in-house at June 30, 2002, 2001 and 2000, which includes loans serviced on an interim basis, were $2.2 billion, $2.5 billion and $3.3 billion, respectively, or 94.6%, 93.2% and 92.6%, respectively. The Company's portfolio of

loans serviced in-house in securitization trusts was $1.2 billion, $1.8 billion and $3.0 billion at June 30, 2002, 2001 and 2000, respectively.

The Company continues to focus on increasing its profitability through executing its core business strategy of: (i) increasing the amount and value of its loan production; (ii) reducing its cost of production; (iii) maximizing its opportunities in loan servicing; and (iv) maintaining adequate liquidity and access to the capital markets.

Increasing the Amount and Value of Its Loan Production. The Company intends to increase the size of its overall originations while improving its value. The Company's traditional retail branch network, the National Loan Centers, its traditional regional broker office network, and its broker telemarketing and Internet platforms, are all targeted as sources of growth. In its traditional retail branch network, the Company intends to drive this growth by: improving market penetration in its existing markets, introducing new products, improving its customer service levels and branch efficiencies. The Company's traditional regional broker office network operations plan to grow by: improving the service levels it offers to its current group of independent mortgage brokers, continuing to build new relationships with independent mortgage brokers throughout the country and introducing new products that meet the needs of brokers' customer bases. The Company's National Loan Centers, which produce loans through affiliations with sites on the Internet, and its growing broker telemarketing and Internet channel are planning to increase their scale by: identifying additional non-traditional lead sources, increasing their product offerings and expanding their overall operations. Additionally, the Company plans to continue using its knowledge of current customer needs and the historical performance of its loans to improve the value of its offerings to its retail customers and independent mortgage brokers while maximizing the resale value of its production.

Reducing Its Cost of Production. The Company intends to reduce its cost of production by leveraging its investment in its origination technology platform, increasing the amount of automation in the loan origination process and increasing the scale of the origination business driving fixed costs down as a percentage of overall production costs. The Company will also continue its on-going effort of identifying opportunities for cost reductions across all levels of the Company's operations.

Maximizing Its Opportunities in Loan Servicing. The Company intends to maximize opportunities in loan servicing taking into consideration the overall Company's profitability and liquidity position. Retaining loan servicing generates servicing income and related fees over the life of the loans in the servicing portfolio compared to receiving cash up front in selling servicing rights to third parties in connection with whole loan sales and securitizations. During the fiscal year ended June 30, 2003, the Company expects to maximize profitability and cash flow by selling all of its loan production through whole loan sales and securitization transactions on a servicing released basis. The Company sold all of its loan production during the year ended June 30, 2002 through whole loan sales and securitizations on a servicing released basis. When combined with existing loan servicing run-off, in the form of principal amortization, prepayments and liquidations, the Company's loan servicing portfolio at June 30, 2002 declined $409.0 million, or 15.1%, to $2.3 billion from $2.7 billion at June 30, 2001. Mortgage loans in securitization trusts serviced in-house declined by $619.0 million, or 34.2%, to $1.2 billion at June 30, 2002 from $1.8 billion at June 30, 2001.

Maintaining Adequate Liquidity and Access to the Capital Markets. The Company intends to continue to increase and diversify its funding sources by adding additional warehouse or repurchase facilities, expanding its current funding relationships and identifying new funding sources. The Company intends to continue to fund its operations by disposing of a portion of its loan production for cash in the whole loan market, monetizing residual interests, selling the mortgage servicing rights and the rights to prepayment fees on the mortgage loans in its securitizations, monetizing servicing advances and developing new sources for working capital.

The strategies discussed above contain forward-looking statements. Such statements are based on current expectations and are subject to risks, uncertainties and assumptions, including those discussed under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Thus, no assurance can be given that the Company will be able to accomplish the above strategies.

The Company reported net income of $4.5 million for the year ended June 30, 2002 compared to a net loss of $30.5 million during the year ended June 30, 2001. Total revenue during the year ended June 30, 2002 was $220.1 million, an increase of $31.4 million over the $188.7 million reported for the year ended June 30, 2001. Included in total revenue during the year ended June 30, 2002 and 2001 were residual interest write-downs of $27.0 million and $33.6 million, respectively. Excluding the write-downs of residual interests, total revenues during the year ended June 30, 2002 were $247.1 million, an increase of $24.8 million over the $222.3 million during the year ended June 30, 2001. The Company's total expenses declined by $4.9 million to $212.5 million during the year ended June 30, 2002 from $217.4 million during the year ended June 30, 2001.

On May 15, 2002, the Company commenced a refinancing of its outstanding 5.5% Convertible Subordinated Debentures due 2006 (the "Existing Debentures") by means of an offer to exchange (the "Exchange Offer") the Company's to be issued 4.0% Convertible Subordinated Debentures due 2012 (the "New Debentures") for any and all of its outstanding Existing Debentures. Of the $114.0 million of total Existing Debentures outstanding as of September 20, 2002, $41.6 million are owned by Specialty Finance Partners ("SFP"), the Company's largest stockholder which is controlled by Capital Z Financial Services Fund, II, L.P. (together with SFP, "Capital Z"). The terms of the Exchange Offer are set forth in an offering memorandum, amendments to the offering memorandum, a letter of transmittal and offering supplements filed previously with the SEC and incorporated into this Form 10-K by reference. As of September 20, 2002, the Company has received tenders of Existing Debentures from holders of approximately $42.9 million principal amount, or approximately 37.5% of the outstanding Existing Debentures. The Exchange Offer is scheduled to expire Friday, October 4, 2002, at 5:00 p.m., New York City time.

The Company's principal loan product is a non-conforming home equity loan with a fixed principal amount and term to maturity which is typically secured by a first or second mortgage on the borrower's residence with either a fixed or adjustable interest rate. Non-conforming home equity loans are loans made to homeowners whose borrowing needs may not be met by traditional financial institutions due to credit exceptions or other factors and generally cannot be directly marketed to agencies such as Fannie Mae and Freddie Mac. During the year ended June 30, 2002, the Company originated its residential loans through its retail and broker production channels. The Company's retail channel produces loans through its traditional retail branch network and through the National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. The Company's broker channel produces loans through its traditional regional broker office network (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or "flow" basis) and by sourcing loans through telemarketing and the Internet.

The following table presents certain information about the Company's loan production at or during the years ended June 30, 2002, 2001 and 2000:

Total Loan Production. Total loan production during the year ended June 30, 2002 increased $870.9 million to $3.2 billion over $2.4 billion of total loan production during the year ended June 30, 2001 which, in turn, was a $292.3 million increase from $2.1 billion during the year ended June 30, 2000. The increase in the Company's total loan origination volumes during the year ended June 30, 2002 over production volumes during the comparable periods in 2001 and 2000 was due, in part, to the generally more favorable mortgage interest rate environment in place during the year ended June 30, 2002 which contributed to increased financing activities in markets where the Company operates. The Company expects a less favorable mortgage interest rate environment during calendar 2003, which could reduce the overall demand for mortgage loans generally and demand for the Company's mortgage loan products.

Retail Production. The Company's total retail production was $1.6 billion during the year ended June 30, 2002, an increase of $429.3 million, or 36.4%, from the $1.2 billion of total retail production reported during the year ended June 30, 2001 which, in turn, was a $396.9 million, or 50.6%, increase over the $783.7 million of total retail production reported during the year ended June 30, 2000.

During the year ended June 30, 2002, loan production through the Company's traditional retail branch network was $1.3 billion, an increase of $175.5 million, or 15.9%, over the $1.1 billion of traditional retail branch network loan production reported during the year ended June 30, 2001, which, in turn, was a $326.9 million, or 42.0%, increase over the $777.8 million of traditional retail branch network production reported during the year ended June 30, 2000.

Mortgage loan production from the Company's National Loan Centers, which primarily originate loans through affiliations with certain Internet sites, increased $253.8 million to $329.7 million during the year ended June 30, 2002 from $75.9 million during the year ended June 30, 2001. National Loan Center mortgage loan production during the year ended June 30, 2000 was $5.9 million. As previously reported, on November 1, 2001 the Company acquired certain assets and the operating platform of another mortgage lender which became the Company's second National Loan Center and contributed loan production during the year ended June 30, 2002. The Company expects the National Loan Centers' production to continue to generate an increasing dollar amount and percentage of retail loan production in the coming quarters.

Broker Production. The Company's total broker loan production increased $441.6 million, or 37.1%, to $1.6 billion during the year ended June 30, 2002 from $1.2 billion of total broker loan

production during the year ended June 30, 2001 which, in turn, was a decrease of $104.5 million, or 8.1%, from the $1.3 billion reported during the year ended June 30, 2000.

During the year ended June 30, 2002, mortgage loan production from the Company's traditional regional broker office network increased $374.5 million, or 33.0%, to $1.5 billion over the $1.1 billion reported during the year ended June 30, 2001 which, in turn, was a decline of $134.9 million, or 10.6%, from the $1.3 billion of traditional regional broker office network production reported during the year ended June 30, 2000.

In the fourth quarter of the year ended June 30, 2000, the Company began using telemarketing and the Internet to increase its broker loan production and further penetrate the non-conforming home equity broker market through its "Broker Direct" program. Through Broker Direct, the Company makes out bound telemarketing calls to brokers who are not currently doing business with the Company or are outside the geographic areas served by the loan officers. The Company also obtains leads through a commercially available internet site as well as through its own internet web site "Aamesdirect.com".

Broker mortgage loan production through telemarketing and the Internet was $122.4 million during the year ended June 30, 2002, an increase of $67.1 million, over the $55.3 million of broker telemarketing and Internet production reported during the year ended June 30, 2001. Broker mortgage loan production through telemarketing and the Internet was $24.9 million during the year ended June 30, 2000. The Company expects "Broker Direct" to continue to generate an increasing dollar amount and percentage of broker loan production in the coming quarters.

Retail Loan Channel. The Company originates home equity mortgage loans through its traditional retail branch network and through its National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. At June 30, 2002, the Company had 98 retail offices and two National Loan Centers serving borrowers throughout the United States. The Company continually monitors its retail operations and evaluates current and potential retail offices on the basis of selected demographic statistics, marketing analyses and other criteria developed by the Company.

The Company generates applications for loans through its retail loan office network principally through a direct response marketing program, which relies primarily on the use of direct mailings to homeowners, telemarketing and yellow-page listings. The Company generates customer leads for the retail network in two ways: produced by the Company based upon Company derived models and commercially developed customer lists and generated by the local branch by the loan officers who are familiar with the local area. The Company's direct mail invites prospective borrowers to call the Company to apply for a loan. Direct mail is often followed up by telephone calls to potential customers. Contact with the customer is handled through the local branch. On the basis of an initial screening conducted at the time of the call, the Company's loan officer at the local retail loan office makes a preliminary determination of whether the customer and the property meet the Company's lending criteria. The loan officer may complete the application over the telephone, or schedule an appointment in the retail loan office most conveniently located to the customer or in the customer's home, depending on the customer's needs.

The Company's National Loan Centers obtain leads through several commercially available Internet sites as well as through its own Internet web site "Aames.net". On the basis of information provided by the customer through the Internet, a preliminary determination is made as to whether the

customer and the property meet the Company's lending criteria. Once the Company receives the lead, a loan officer contacts the prospective customer by telephone and the customer completes the application by telephone or mail.

Whether in the retail branches or in the National Loan Centers, the loan officer assists the applicant in completing the loan application, arranges for an appraisal, orders a credit report from an independent, nationally recognized credit reporting agency and performs various other tasks in connection with the completion of the loan package. The loan package is underwritten for loan approval on a centralized basis. If the loan package is approved, the loan is funded by the Company. The Company's loan officers are trained to structure loans that meet the applicant's needs while satisfying the Company's lending guidelines.

The Company believes that its marketing efforts establish name recognition and serve to distinguish the Company from its competitors. The Company continually monitors the sources of its applications to determine the most effective methods and manner of marketing.

Independent Mortgage Broker Channel. At June 30, 2002, the Company operated four regional offices and during the year ended 2002, the Company originated loans through approximately 3,100 brokers, no one of which accounted for more than 2.8% of total broker originations. All broker loans originated by the Company are underwritten in accordance with the Company's underwriting guidelines. Once approved, the loan is funded by the Company directly.

The broker's role is to identify the applicant, assist in completing the loan application, gather necessary information and documents and serve as the Company's liaison with the borrower through the lending process. The Company reviews and underwrites the applications submitted by the broker, approves or denies the application, sets the interest rate and other terms of the loan and, upon acceptance by the borrower and satisfaction of all conditions imposed by the Company, funds the loan. Because brokers conduct their own marketing and employ their own personnel to complete loan applications and maintain contact with borrowers, originating loans through the Company's broker network allows the Company to increase its loan volume without incurring the higher marketing and employee costs associated with increased retail originations.

Because mortgage brokers generally submit loan files to several prospective lenders simultaneously, consistent underwriting, quick response times and personal service are critical to successfully producing loans through independent mortgage brokers. To meet these requirements, the Company strives to provide quick response time to the loan application (generally within 24 hours). In addition, loan consultants and loan processors, including underwriters, are available in the Company's regional offices to answer questions, assist in the loan application process and facilitate ultimate funding of the loan.

Underwriting. The Company generally underwrites the loans it originates to its underwriting guidelines and, to a lesser extent, to the underwriting guidelines of its investors in the secondary markets. The Company's underwriting guidelines are designed to assess the borrower's creditworthiness and the adequacy of the real property as collateral for the loan. The borrower's creditworthiness is assessed by examination of a number of factors, including calculation of debt-to-income ratios, which is the sum of the borrower's monthly debt payments divided by the borrower's monthly income before taxes and other payroll deductions, an examination of the borrower's credit history and credit score through standard credit reporting bureaus, and by evaluating the borrower's payment history with respect to existing mortgages, if any, on the property.

Credit scores are obtained by the Company in connection with mortgage loan applications to help assess a borrower's creditworthiness. Credit scores are obtained from credit reports provided by various credit reporting organizations, each of which may employ differing computer models and methodologies. The credit score is designed to assess a borrower's credit history at a single point in time, using objective information currently on file for the borrower at a particular credit reporting

organization. Information utilized to create a credit score may include, among other things, payment history, delinquencies on accounts, level of outstanding indebtedness, length of credit history, types of credit, and bankruptcy experience. Credit scores range from approximately 400 to approximately 800, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score. However, a credit score purports only to be a measurement of the relative degree of risk a borrower represents to a lender; that is, a borrower with a higher score is statistically expected to be less likely to default in payment than a borrower with a lower score. Moreover, credit scores were developed to indicate a level of default probability over the period of the next two-years, which does not correspond to the life of a mortgage loan. Furthermore, credit scores were not developed specifically for use in connection with mortgage loans, but for consumer loans in general. Therefore, a credit score does not take into consideration the differences between mortgage loans and consumer loans generally or the specific characteristics of the related mortgage loan including, for example, the LTV or CLTV (defined below), the collateral for the mortgage loan, or the debt to income ratio. There can be no assurance that the credit scores of the mortgagors will be accurate predictors of the likelihood of repayment of the related mortgage loans.

An assessment of the adequacy of the real property as collateral for the loan is primarily based upon an appraisal of the property and a calculation of the loan-to-value ratios of the loan applied for (the "LTV") and of all mortgages existing on the property, including the loan applied for, (the "combined loan-to-value ratio" or "CLTV") to the appraised value of the property at the time of origination. Appraisers determine a property's value by reference to the sales prices of comparable properties recently sold, adjusted to reflect the condition of the property as determined through inspection. As a lender that generally specializes in loans made to credit impaired borrowers, the Company makes home equity mortgage loans to borrowers with credit histories or other factors that might disqualify them from consideration for a loan from traditional financial institutions. The Company's underwriting guidelines for such credit-impaired borrowers generally require lower combined loan-to-value ratios than would typically be the case if the borrower could qualify for a loan from a traditional financial institution, and at generally higher interest rates than the borrower could qualify for from a traditional financial institution.

The underwriting of a mortgage loan to be originated by the Company includes a review of the completed loan package, which generally includes the loan application, a current appraisal, a preliminary title report and a credit report. Loan applications must be approved by the Company in accordance with its underwriting criteria.

The Company requires title insurance coverage issued on an American Land Title Association (or similar) form of title insurance on all residential properties securing mortgage loans it originates or purchases. The loan originator and its assignees are generally named as the insured. Title insurance policies indicate the lien position of the mortgage loan and protect the Company against loss if the title or lien position is not as indicated. The applicant is also required to maintain hazard and, in certain instances, flood insurance, in an amount sufficient to cover the new loan and any senior mortgage, subject to the maximum amount available under the National Flood Insurance Program.

During the fiscal year ended June 30, 2002, each of the Company's traditional retail branch office network, National Loan Centers and the independent mortgage broker channel employed its own underwriting guidelines. While broadly similar, the underwriting guidelines varied among the origination channels. The following generally summarizes the Company's underwriting guidelines in effect during the year ended June 30, 2002 and through September 13, 2002:

Effective September 16, 2002, the Company has consolidated the underwriting guidelines for the three channels into one set of unified guidelines. These new guidelines have three separate programs or approaches to underwriting and pricing. They are the Traditional Underwriting Guidelines, Credit Score Guidelines, and the Mortgage Only Guidelines. The Traditional Underwriting Guidelines are substantially similar to the Traditional Underwriting Guidelines in use through September 13, 2002. The new Credit Score Guidelines replace the SNAP program and are discussed below. The last program is Mortgage Only, and this program was previously included as a subset of the Traditional Underwriting Guidelines.

Set forth below is a general description of the different underwriting guidelines designed to provide an overview of the general credit considerations utilized by the Company. The description is not intended to be a detailed explanation of all credit considerations analyzed by the Company in underwriting loans. The Company regularly reviews its underwriting guidelines and makes changes when appropriate to respond to market conditions, the performance of loans representing a particular loan product or changes in laws or regulations.

"Traditional" Underwriting Guidelines. Under the traditional underwriting guidelines, the Company assigns a credit grade (A, A-, B, C, C- and D) to each loan it originates depending on the risk profile of the loan, with the higher credit grades exhibiting a lower risk profile and the lower credit grades exhibiting increasingly higher risk profiles. Generally, the higher credit grade loans have higher loan-to-value ratios and carry a lower interest rate. The following chart generally outlines the parameters of the credit grades of the Company's traditional underwriting program. The Company

eliminated the D Credit Grade in the new guidelines effective on September 16, 2002 and made certain other changes.

"SNAP" Underwriting Program. The SNAP program in effect through September 13, 2002, used the credit score of the primary borrower (i.e., the borrower with the majority of total income) to determine program eligibility and then to determine the maximum LTV and interest rate for which the borrower may qualify. The minimum acceptable credit score under the SNAP program was 500.

In most cases, the payment history of the borrower under the existing mortgage loan was also taken into consideration. Borrowers with lower credit scores generally qualified for lower maximum LTVs and were charged higher interest rates than borrowers with higher credit scores. Under the SNAP program, a verification of the borrowers' mortgage payment history under their existing

mortgage loan over the most recent 12 months was required in all cases where the primary borrower's credit score was less than 600 (640 for loans less than $100,000). The maximum LTV allowed and the interest rate for the loan indicated by the SNAP program were adjusted based on the borrower's past mortgage payment history. Under the SNAP program, a poor mortgage payment history resulted in a lower maximum LTV and a higher interest rate (comparable to the maximum LTV and interest rate for a borrower with a lower credit score) in order to reflect the increased risk of default indicated by the mortgage payment history. The LTV and credit score adjustments are set forth in the chart below.

	Adjusted Credit Score and Maximum LTV Based Upon Mortgage Lates in Previous Months
Actual Credit Score	2x30	4x30 and 0x60; 2x30 and 1x60	12x30 and 2x60; 12x30 and 1x90	12x60 and 1x120	1x150
700+	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
680	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
660	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
640	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
620	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
600	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
580	580	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
560	560	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
540	540	540	540	520; 70%max LTV	500; 65%max LTV
520	520	520	520	520; 70%max LTV	500; 65%max LTV
500	500	500	500	500	500

For example, under the SNAP program, in the case of a borrower with a credit score of 640 who qualifies for a maximum LTV of 90%, the borrower's actual credit score of 640 was used for purposes of qualifying for the loan and determining the applicable interest rate and the 90% maximum LTV allowed would not be adjusted downward. However, if that same borrower with the 640 credit score had two 30-day late payments in the previous 12 months (i.e., 2x30), the credit score used for purposes of qualifying and determining pricing, would fall to 600—and the maximum LTV would have decreased to 80%. In addition, the interest rate for that loan would have been determined as if the borrower's credit score were 600 (instead of the actual credit score of 640). If that same borrower had a mortgage delinquency of 2x30 and 1x60 or 4x30 and 0x60 during the previous 12 months, then the loan would have been priced as if the credit score was 560. If that borrower had a mortgage delinquency of 12x30 and 2x60 or 12x30 and 1x60 or 1x90 for the previous 12 months, then the maximum LTV would have fallen to 75% and the loan would be priced as if the credit score was 550. If that borrower had a mortgage delinquency of 12x90, or 12x60 and 1x90 and 1x120 for the previous 12 months, then the maximum LTV decreases to 70% and the credit score used for pricing falls to 520. If that borrower had a mortgage delinquency of 1x150 or more for the previous 12 months, then the maximum LTV falls to 65% and the loan would be priced as if the credit score were 500.

Credit Score Guidelines—These guidelines, which replaced the SNAP program, require a minimum credit score of 550, a 12 month mortgage (or rental) history, and a minimum of 12 months seasoning for bankruptcy, foreclosure, or notice of default. The table below illustrates these guidelines.

Credit Grade	A+	A	A-	B	C
12 Month Mortgage History	0x30	1x30	3x30	1x60	1x90
Minimum Credit Score	580	560	560	550	550
BK/NOD/FC Seasoning	24 months	24 months	24 months	18 months	12 months
Full Doc Owner Occupied Max LTV	100%	100%	90%	85%	80%
Full Doc Non-Owner Occupied Max LTV	85%	85%	80%	80%	75%

Borrowers with credit scores below 550 (but 500 or above) are ineligible for the Credit Score Guidelines, but may be eligible to qualify for a loan under either the Traditional Underwriting Guidelines or the Mortgage Only Guidelines.

Mortgage Only Guidelines—This program is generally aimed at customers that have not paid their consumer credit in a timely basis, but consistently pay their mortgage. The minimum credit score for the mortgage only program is 500. Borrowers with credit scores below 500 generally are not eligible under any of the Company's underwriting guidelines. The main elements of these guidelines are illustrated below.

Credit Grade	A+	A	A-
12 Month Mortgage History	0x30	2x30	3x30
Minimum Credit Score	550	500	500
NOD/FC Seasoning	None Ever	None Ever	2 Years
Bankruptcy Seasoning	2 Years since Discharge	2 Years since Discharge	2 Years since Discharge of Chapter 7 or Chapter 13 filing
Maximum Loan Amount	$300,000	$300,000	$250,000
Maximum LTV	85%	80%	75%

The following tables present certain information about the Company's total loan production during the years ended June 30, 2002, 2001 and 2000:

Credit Grade(2)	Dollar Amount of Loan		% of Total		Weighted Average Combined Loan-to-Value		Weighted Average Interest Rate(1)
A	$	888,272,000	38	%	78	%	9.5	%
A-		552,268,000	23		78		10.0
B		553,131,000	23		76		10.6
C		274,589,000	12		74		11.7
C-		57,389,000	2		71		12.7
D		45,981,000	2		65		13.1

Total	$	2,371,630,000	100	%	77	%	10.3	%

Credit Grade(2)	Dollar Amount of Loan		% of Total		Weighted Average Combined Loan-to-Value		Weighted Average Interest Rate(1)
A	$	772,434,000	38	%	79	%	9.6	%
A-		499,408,000	24		77		9.8
B		508,467,000	24		76		10.4
C		197,119,000	9		63		11.5
C-		43,310,000	2		68		12.6
D		58,562,000	3		61		13.8

Total	$	2,079,300,000	100	%	76	%	10.2	%

Quality Control. The Company's quality control program is intended to (i) monitor and improve the overall quality of loan production generated by the Company's retail loan channel and independent mortgage broker channel and (ii) identify and communicate to management existing or potential underwriting and loan packaging problems or areas of concern. The quality control file review examines compliance with the Company's underwriting guidelines and federal and state regulations. This is accomplished by focusing on: (i) the accuracy of all credit and legal information; (ii) a collateral analysis which may include a desk or field re-ap

/X/		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2002
Or
/ /		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19604

Delaware (State or other jurisdiction of incorporation)	95-4340340 (I.R.S. Employer Identification No.)
350 S. Grand Avenue, Los Angeles, California (Address of principal executive offices)	90071 (Zip Code)

			Year Ended June 30,
			2002		2001		2000
Retail loans:
	Traditional retail branch network:
		Total dollar amount	$	1,280,225,000	$	1,104,676,000	$	777,800,000
		Number of loans		14,374		14,571		11,144
		Average loan amount	$	89,065	$	75,813	$	69,795
		Average initial combined LTV		76.37%		74.71%		73.47%
		Weighted average interest rate(1)		9.11%		10.33%		10.05%
		Number of traditional retail branch offices at period end		98		100		100
	National Loan Centers:
		Total dollar amount	$	329,650,000	$	75,875,000	$	5,900,000
		Number of loans		2,734		827		82
		Average loan amount	$	120,574	$	91,747	$	71,951
		Average initial combined LTV		74.92%		76.50%		69.93%
		Weighted average interest rate(1)		8.04%		9.48%		9.73%
		Number of National Loan Centers at period end		2		1		1
	Total retail		$	1,609,875,000	$	1,180,551,000	$	783,700,000
		Number of loans		17,108		15,398		11,226
		Average loan amount	$	94,101	$	76,669	$	69,811
		Average initial combined LTV		76.07%		74.83%		73.43%
		Weighted average interest rate(1)		8.89%		10.27%		10.05%
		Number of traditional retail branch offices and National Loan Centers		100		101		101
Broker loans: (2)
	Traditional regional broker office network:
		Total dollar amount	$	1,510,254,000	$	1,135,754,000	$	1,270,700,000
		Number of loans		11,993		10,404		13,886
		Average loan amount	$	125,928	$	109,165	$	91,509
		Average initial combined LTV		78.70%		78.71%		78.23%
		Weighted average interest rate(1)		9.03%		10.25%		10.35%
		Number of traditional regional broker offices at period end		4		5		7
	Telemarketing and Internet originations:
		Total dollar amount	$	122,380,000	$	55,325,000	$	24,900,000
		Number of loans		800		506		241
		Average loan amount	$	152,975	$	109,339	$	103,321
		Average initial combined LTV		80.70%		78.86%		78.41%
		Weighted average interest rate(1)		9.06%		10.56%		10.62%
	Total broker		$	1,632,634,000	$	1,191,079,000	$	1,295,600,000
		Number of loans		12,793		10,910		14,127
		Average loan amount	$	127,619	$	109,173	$	91,711
		Average initial combined LTV		78.85%		78.89%		78.16%
		Weighted average interest rate(1)		9.04%		10.26%		10.35%
		Number of traditional regional broker offices at period end		4		5		7

Total loans:
	Total dollar amount	$	3,242,509,000	$	2,371,630,000	$	2,079,300,000
	Number of loans		29,901		26,308		25,353
	Average loan amount	$	108,441	$	90,149	$	82,014
	Average initial combined LTV		77.47%		76.78%		76.00%
	Weighted average interest rate(1)		8.96%		10.27%		10.20%

		"A" Credit Grade	"A-" Credit Grade	"B" Credit Grade	"C" Credit Grade	"C-" Credit Grade	"D" Credit Grade
General Repayment		Has good credit.	Has good credit but might have some minor delinquency.	Generally good mortgage pay history but may have marginal consumer credit history.	Marginal credit history which is offset by other positive attributes.	Marginal credit history not offset by other positive attributes.	Designed to provide a borrower with poor credit history an opportunity to correct past credit problems.
Existing Mortgage Loans		Maximum of one 30-day late* in past 12 months.	No more than 59 days late at closing and a maximum of two 30-day lates in the past 12 months.	No more than 89 days late at closing and a maximum of four 30-day lates in the past 12 months or one 60-day late and two 30-day lates.	Can have six 30-day lates and two 60-day lates or one 90-day late in the past 12 months; currently not more than 119 days late at closing.	No more than 149 days delinquent in the past 12 months. Can have multiple 90-day lates or one 120 day late in the past 12 months.	Greater than 150 days delinquent in the past 12 months.
Consumer Credit		Consumer credit is good in the last 12 months. Up to 25% of credit report items derogatory with no 60-day or more lates.	Consumer credit is good in the last 12 months. Up to 35% of credit report items derogatory with no 90-day or more lates.	Consumer credit must be satisfactory in the last 12 months. Up to 40% of credit report items derogatory.	Consumer credit is fair in the last 12 months. The majority of the credit is not currently delinquent. Up to 50% of credit report items derogatory.	Consumer credit is poor in the last 12 months with currently delinquent accounts. Up to 60% of credit report items derogatory.	Consumer credit is poor in the last 12 months. The majority of the credit is derogatory (more than 60%). Percentage of derogatory items not a factor.
		Generally, requires a minimum credit score of 600.	Generally, requires a minimum credit score of 580.	Generally, requires a minimum credit score of 560.	Generally, requires a minimum credit score of 530.	Generally, requires a minimum credit score of 500.	Generally, requires a minimum credit score of 500.
Bankruptcy		2 years since discharge or dismissal with reestablished "A" credit.	2 years since discharge or dismissal with reestablished "A-" credit.	1 year since discharge with reestablished "B" credit or 18 months since discharge without reestablished credit.	Bankruptcy filing 12 months old, discharged or dismissed prior to application.	Bankruptcy filed within last 12 months and discharged or dismissed prior to application.	Current bankruptcy must be paid through loan.
Maximum Loan-to-Value Ratio:
	Owner Occupied	Generally 90% for a 1 to 4 family dwelling.	Generally 90% for a 1 to 4 family dwelling.	Generally 80% for a 1 to 4 family dwelling.	Generally 75% for a 1 to 4 family dwelling.	Generally 70% for a 1 to 4 family dwelling.	Generally 65% for a 1 to 4 family dwelling.
	Non-Owner Occupied	Generally 80% for a 1 to 4 family dwelling.	Generally 75% for a 1 to 4 family dwelling.	Generally 70% for a 1 to 4 family dwelling.	Generally 65% for a 1 to 4 family dwelling.	Generally 65% for a 1 to 4 family dwelling.	Generally 60% for a 1 to 4 family dwelling.

Credit Grade(2)	Dollar Amount of Loan		% of Total		Weighted Average Combined Loan-to-Value		Weighted Average Interest Rate(1)
A	$	1,340,729,000	41	%	78	%	8.3	%
A-		879,435,000	27		80		8.9
B		653,078,000	20		76		9.4
C		254,565,000	8		73		10.5
C-		68,458,000	2		78		10.0
D		46,244,000	2		64		11.7

Total	$	3,242,509,000	100	%	77	%	9.0	%