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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)

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

Registrant's telephone number, including area code: (323) 210-5000

Securities registered pursuant to Section 12(b) of the Act:

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. / /

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes/ / No/X/

        At September 22, 2003, there were outstanding 7,006,114 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 ($2.07 per share) of the Registrant's Common Stock as quoted on the Over-the-Counter Bulletin Board was $14,502,656. 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.

Documents Incorporated by Reference

        Portions of Registrant's Proxy Statement relating to its 2003 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.

PART I

Item 1. Business

General

         Aames Financial Corporation (the “Company”) is a consumer finance company primarily engaged, through its subsidiaries, in the business of originating, selling and servicing 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 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 residential mortgage 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 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 account executives working throughout the United States (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, 2003, 2002 and 2001, the Company originated $4.4 billion, $3.2 billion and $2.4 billion, respectively, of mortgage loans.

        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, 2003, 2002 and 2001, the Company sold $4.5 billion, $3.2 billion and $2.3 billion, respectively, of loans. See “—Loan Disposition.”

        The Company’s servicing portfolio consists primarily of mortgage loans serviced for others on an interim basis, which includes loans sold where servicing has not yet been transferred and loans held for sale and, to a lesser extent, loans securitized prior to the year ended June 30, 2000 for which the Company retained servicing. During the years ended June 30, 2003, 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 has not added any new mortgage loans to the servicing portfolio (except for 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. At June 30, 2003, 2002 and 2001, the Company’s total servicing portfolio was $1.7 billion, $2.3 billion and $2.7 billion, respectively. The Company’s portfolio of mortgage loans in securitization trusts serviced in-house was $0.7 billion, $1.2 billion and $1.8 billion at June 30, 2003, 2002 and 2001, 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; and (iii) maintaining adequate liquidity and access to the capital markets.

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        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 retail branch network, the National Loan Centers, its regional broker office network, and its broker telemarketing and Internet platforms, are all targeted as sources of growth. In its retail branch network, the Company intends to drive this growth by: improving market penetration in its existing markets, introducing new products, and improving its customer service levels and branch efficiencies. The Company’s 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.

        The recent increases in mortgage rates and the resulting less favorable mortgage interest rate environment has reduced the overall demand for mortgage loans generally. While the Company has not to date experienced a reduced demand for its mortgage loan products specifically, and while no assurances can be made, should that event occur the Company expects to be responsive to such changes in market conditions by reducing its loan origination costs in light of reduced loan origination levels.

        Maintaining Adequate Liquidity and Access to the Capital Markets. The Company intends to continue to increase and diversify its funding sources by expanding its current funding relationships and identifying new funding sources. The Company intends to continue to fund its operations by disposing of a majority of its loan production for cash in the whole loan market, monetizing residual interests, mortgage servicing rights (“MSRs”) and the rights to prepayment fees on the mortgage loans in its new securitizations, if any, 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.

Recent Events

        The Company reported net income of $29.2 million for the year ended June 30, 2003 compared to a net income of $4.5 million during the year ended June 30, 2002. Net income during the year ended June 30, 2003 includes a $6.0 million reversal of deferred tax credits. Total revenue during the year ended June 30, 2003 was $263.6 million, an increase of $43.5 million over the $220.1 million reported for the year ended June 30, 2002. Included in total revenue during the year ended June 30, 2003 was $31.7 million of debt extinguishment income. Included in total revenue during the years ended June 30, 2003 and 2002 were residual interest write-downs of $34.9 million and $27.0 million, respectively. Excluding debt extinguishment income during the year ended June 30, 2003 and the write-downs of residual interests during the years ended June 30, 2003 and 2002, operating revenue during the year ended June 30, 2003 was $266.9 million, an increase of $19.8 million over the $247.1 million during the year ended June 30, 2002. The Company’s total expenses increased by $23.8 million to $236.3 million during the year ended June 30, 2003 over the $212.5 million during the year ended June 30, 2002.

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        As previously announced, on June 30, 2003, the Company redeemed $127.9 million principal balance of its 9.125% Senior Notes due November 2003 (the “Senior Notes”) representing all remaining outstanding Senior Notes, at par plus accrued and unpaid interest. The Company funded the redemption of its Senior Notes by borrowing $74.1 million through a financing facility secured by its residual interests and certain of its servicing advances (the “Financing Facility”) and paying the remaining $53.8 million in cash. The Financing Facility has a term of 18 months and bears interest at a rate of LIBOR plus 2.75% per annum. Eighty percent of the monthly cash flows generated from the Company’s residual interests and at least 70.0% of cash flows from recoveries of servicing advances securing the Financing Facility will be paid to the lender to reduce the outstanding balance. Subject to certain limitations, the Company may prepay, without penalty, the amount outstanding under the Financing Facility at any time. Capital Z Financial Services Fund II, L.P., a Bermuda partnership (“Capital Z”), an affiliate of Specialty Finance Partners, the Company's largest stockholder (“SFP”), is the limited guarantor on the Financing Facility.

        As master servicer of the mortgage loans in the securitization trusts, the Company has the right to call the securitization trusts when the remaining balance of the mortgage loans sold in the securitization trusts falls below 10.0% of the original mortgage loan balance. The principal benefit of calling securitization trusts is to improve the Company’s liquidity position. If the Company calls any of the securitization trusts, the Company receives a majority of the overcollateralization balance from the called trusts in a combination of mortgage loans in the securitization trusts and in cash.

        On May 15, 2003, the Company called seven securitization trusts with an unpaid principal balance of $17.6 million of mortgage loans. During the three months ended June 30, 2003, $14.5 million of the mortgage loans from these securitization trusts were sold by the Company with the remainder held as loans held for sale at June 30, 2003. This transaction did not materially impact the Company’s results of operations during the year ended June 30, 2003. In connection with the May 15, 2003 call of seven securitization trusts, the Company received cash of approximately $4.4 million.

        On August 15, 2003, the Company called four additional securitization trusts with an unpaid principal balance of $29.3 million of mortgage loans ($30.5 million at June 30, 2003). The August 15, 2003 call resulted in a $3.0 million write-down to the carrying value of the Company’s retained residual interests relating to these securitization trusts during the year ended June 30, 2003. If the Company calls any of the securitization trusts underlying the residual interests pledged under the Financing Facility, it is required to prepay the Financing Facility in an amount equal to the amount ascribed to the called residual interest and the servicing advances on mortgage loans in the securitization trusts by the lender under the Financing Facility. As a result of the August 15, 2003 call of such securitization trusts, the Company repaid the Financing Facility $3.4 million. In connection with the August 15, 2003 call of four securitization trusts, the Company received cash of approximately $5.1 million.

        As of August 31, 2003, of the Company’s remaining thirteen securitization trusts which had a mortgage loan balance of $735.9 million ($798.5 million at June 30, 2003, as adjusted for the call on August 15, 2003), six securitization trusts with a mortgage loan balance of $199.2 million ($214.7 million at June 30, 2003) were callable. If the Company calls any of these securitization trusts, it might be required to write down the value of the residual interests relating to the called securitization trusts. The Company would also be required to prepay the Financing Facility from proceeds realized from a call transaction in an amount equal to the amount ascribed to the called residual interest and the servicing advances on mortgage loans in the securitization trusts pledged to the lender under the Financing Facility. Additionally, the Company’s portfolio of mortgage loans serviced in securitization trusts would be reduced.

        As previously announced, the Company redeemed $4.8 million principal balance of its 5.5% Convertible Subordinated Debentures due 2012 (the “2012 Debentures”) on June 30, 2003, representing all remaining outstanding 2012 Debentures pursuant to a 5.0% optional call provision on the outstanding principal balance, or $0.2 million, plus accrued and unpaid interest.

        Subsequent to June 30, 2003, the Company increased its total capacity under its revolving warehouse and repurchase facilities to $1.2 billion of which $1.1 billion and $100.0 million was committed and uncommitted, respectively, from $900.0 million committed at June 30, 2003.

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        On September 16, 2003, the Company amended and restated its certificate of incorporation permitting the Company to issue up to 26.7 million shares of a new series of preferred stock, Series E Preferred Stock, par value $0.001 per share. The Series E Preferred Stock is not convertible into any other Company security, is not entitled to receive dividends, ranks pari passu with the Company’s other series of Preferred Stock and has a stated value of $1.00 per share. Subsequently, on September 18, 2003 the Company adopted its 2003 Series E Preferred Stock Option Plan, pursuant to which the Company plans to issue to certain directors and executive officers options to purchase shares of Series E Preferred Stock.

Mortgage Loan Production

        The Company’s principal loan product is a non-conforming residential mortgage loan with a fixed principal amount and term to maturity which is secured by a first or second mortgage on the borrower’s residence with either a fixed or adjustable interest rate. Non-conforming residential mortgage 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, 2003, the Company originated its residential mortgage loans through its retail and broker production channels. The Company’s retail channel produces loans through its 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 account executives throughout the United States (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.

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        The following table presents certain information about the Company’s mortgage loan production at or during the years ended June 30, 2003, 2002 and 2001:

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__________________

Production Channels

        Total Loan Production. Total loan production during the year ended June 30, 2003 increased $1.2 billion, or 37.5%, to $4.4 billion over $3.2 billion of total loan production during the year ended June 30, 2002 which, in turn, was a $870.9 million, or 36.7%, increase over the $2.4 billion during the year ended June 30, 2001. The increase in the Company's total loan origination volumes during the year ended June 30, 2003 over production volumes during the comparable periods in 2002 and 2001 was due primarily to the continuation of the favorable mortgage interest rate environment and, to a lesser extent, to the issuance of new uniform underwriting guidelines throughout the Company designed to improve the Company's competitive position and to provide greater underwriting consistency among the retail and broker origination channels.

        Retail Loan Channel. The Company originates home equity mortgage loans through its retail branch network and through its National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. At June 30, 2003, the Company had 91 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.

        Retail Production. The Company's total retail production was $1.8 billion during the year ended June 30, 2003, an increase of $185.6 million, or 11.5%, from the $1.6 billion of total retail production reported during the year ended June 30, 2002 which, in turn, was a $429.3 million, or 36.4%, increase over the $1.2 billion of total retail production reported during the year ended June 30, 2001.

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        Retail Branch Network

        During the year ended June 30, 2003, loan production through the Company's retail branch network was $1.3 billion, an increase of $53.3 million, or 4.2%, over the $1.3 billion of retail branch network loan production reported during the year ended June 30, 2002, which, in turn, was a $175.5 million, or 15.9%, increase over the $1.1 billion of retail branch network production reported during the year ended June 30, 2001. Retail branch network production increased in dollar volume during the year ended June 30, 2003 from a year ago primarily due to a 28.6% increase in average loan size, partially offset by a 19.0% decrease in the number of loans originated. The increase in average loan size and decrease in number of units was due primarily to the Company's decision to close retail branches in certain smaller markets and open additional branch offices in certain larger markets. Although the Company decreased its total number of retail branch offices by seven during the year ended June 30, 2003, the Company believes the benefits of the reduction in operating costs related to these closed branches exceeds the cost associated with the loss of production from the closed branches. The Company will continue to evaluate its retail branch presence in the markets in which it operates to further enhance its mortgage loan production capabilities.

        National Loan Centers

        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.

        Mortgage loan production from the Company's National Loan Centers, which primarily originate loans through affiliations with certain Internet sites, increased $132.2 million, or 40.1%, to $461.9 million during the year ended June 30, 2003 over $329.7 million during the year ended June 30, 2002. National Loan Center mortgage loan production during the year ended June 30, 2001 was $75.9 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 only partially contributed loan production during the year ended June 30, 2002.

        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. The Company conducts extensive telemarketing sales through which a significant portion of its retail loan business is generated. Effective October 1, 2003, a national do-not-call registry which a consumer can join to prevent unwanted telemarketing calls will become operational pursuant to recent rules promulgated by the Federal Communications Commission as required by the Telephone Consumer Protection Act of 1991. In addition, a number of states have enacted laws regulating telemarketing sales activities, some of which establish do-not-call registries and the Company has operated in compliance with these state laws and do-not-call registries and will be required to comply with this new national registry and will be prohibited from placing unsolicited marketing calls to any consumer who has placed their name in the registry.

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        Independent Mortgage Broker Channel. During the year ended June 30, 2003, the Company originated loans through 2,970 brokers, no one of which accounted for more than 5.0% of total broker originations.

        The broker's role is to identify the applicant, assist in completing the loan application, gather necessary information and documents, submit the application requesting the interest rate and terms of the loan, 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 in accordance with the Company's underwriting guidelines, approves or denies the application. If approved, the Company approves or counter offers the requested 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 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, the loans are processed and underwritten in regional offices, and loan consultants, loan processors and underwriters are available to answer questions, assist in the loan application process and facilitate ultimate funding of the loan.

        Broker Production. The Company's total broker loan production increased $1.1 billion, or 62.4%, to $2.7 billion during the year ended June 30, 2003 over $1.6 billion of total broker loan production during the year ended June 30, 2002 which, in turn, was an increase of $441.6 million, or 37.1%, over the $1.2 billion reported during the year ended June 30, 2001.

        Broker Office Network

        During the year ended June 30, 2003, mortgage loan production from the Company's regional broker office network increased $815.5 million, or 54.0%, to $2.3 billion over the $1.5 billion reported during the year ended June 30, 2002 which, in turn, was an increase of $374.5 million, or 33.0%, from the $1.1 billion of regional broker office network production reported during the year ended June 30, 2001.

        Broker Telemarketing and Internet

        The Company uses 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 outbound telemarketing calls to brokers that have been inactive for the past 90 days and 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 its internet web site "Aamesdirect.com".

        Broker mortgage loan production through telemarketing and the Internet was $325.0 million during the year ended June 30, 2003, an increase of $202.6 million, over the $122.4 million of broker telemarketing and Internet production reported during the year ended June 30, 2002. Broker mortgage loan production through telemarketing and the Internet was $55.3 million during the year ended June 30, 2001. The Company expects "Broker Direct" to continue to generate an increasing dollar amount and percentage of broker loan production in the coming quarters as general market acceptance by brokers of broker telemarketing and Internet use grows and the Company continues to enhance its "Broker Direct" capabilities.

        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.

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        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 may, in certain instances, allow for higher 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 or purchased by the Company generally includes a review of the completed loan package, which includes the loan application, a current appraisal, a preliminary title report and a credit report. All loan applications and all closed loans offered to the Company for purchase must be approved by the Company in accordance with its underwriting criteria. 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.

        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.

        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 and is not intended to be a detailed explanation of all credit considerations analyzed by the Company in underwriting loans.

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        ‘Super Aim’ Underwriting Guidelines. Subsequent to June 30, 2003, the Company has adopted new guidelines, which it is in the process of implementing in its wholesale and retail channels. The Super Aim guidelines are intended to replace the Traditional, Credit Score and Mortgage Only guidelines into a single set of uniform guidelines that more appropriately price for the credit risk. These guidelines require a minimum credit score of 500, although a higher credit score is often required to qualify for the maximum LTV under the program. The following chart generally outlines the parameters of the credit grades of the Company's Super Aim underwriting guidelines.

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        During the fiscal year ended June 30, 2003, the Company’s traditional retail branch office network, National Loan Centers and the independent mortgage broker channel employed unified underwriting guidelines. These 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.

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