---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---



|(Mark One)                                              |                                                                                               
|------------------------------------------------------- | ----------------------------------------------------------------------------------------------
|ý                                                       | QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                        |                                                                                               
|For the
      quarterly period ended September 30, 2002
|or                                                     
|                                                        |                                                                                               
|o                                                       | 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                         
|                                                        |                                                                                               
|                                                       



|AAMES FINANCIAL CORPORATION(Exact name of registrant as specified in its charter)                                                      
|---------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                       
|DELAWARE
      (State or other jurisdiction of
      incorporation or organization)                                                    
|                                                                                                                                       
|350 SOUTH GRAND AVENUE, LOS ANGELES,
      CA 90071-3459
      (Address of Registrant's principal executive offices including zip code)
|                                                                                                                                       
|(323) 210-5000
      (Registrant's telephone number,
      including area code)                                                        
|                                                                                                                                       
|NO CHANGES
      (Former names, former address and former fiscal year,
       if change since last report)                             
|                                                                                                                                       

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 ý
No o

At
November 12, 2002, Registrant had 6,483,961 shares of common stock
outstanding.

---

TABLE OF CONTENTS



|Item No. |                                                                                                                                                                                                                              | Page No.
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|         | PART I - FINANCIAL INFORMATION                                                                                                                                                                                               |         
|         |                                                                                                                                                                                                                              |         
|Item 1   | Financial
      Statements.........................................................................................................                                                                                          | 2       
|         | Condensed
      Consolidated Balance Sheets at September 30, 2002 (Unaudited)and June 30, 2002
      (Audited)............................................................................................                   | 2       
|         | Condensed Consolidated
      Income Statements for the
      three months endedSeptember 30, 2002 and 2001
      (Unaudited)......................................................................                           | 3       
|         | Condensed Consolidated Statements of Cash Flows for the
      three months ended
      September 30, 2002 and 2001
      (Unaudited)......................................................................                   | 4       
|         | Notes to Condensed Consolidated
      Financial Statements (Unaudited).....................                                                                                                                                  | 5       
|         |                                                                                                                                                                                                                              |         
|Item 2   | Management's Discussion and Analysis of Financial Condition
      and Result of 

      Operations.......................................................................................................................... | 7       
|         |                                                                                                                                                                                                                              |         
|Item 3   | Quantitative and Qualitative Disclosures About Market
      Risk...................................                                                                                                                          | 7       
|         |                                                                                                                                                                                                                              |         
|Item 4   | Controls and
      Procedures..................................................................................................                                                                                              | 36      
|         |                                                                                                                                                                                                                              |         
|         | PART II - OTHER INFORMATION                                                                                                                                                                                                  |         
|         |                                                                                                                                                                                                                              |         
|Item 1   | Legal
      Proceedings...............................................................................................................                                                                                       | 37      
|Item 2   | Changes in
      Securities.........................................................................................................                                                                                         | 38      
|Item 3   | Defaults Upon Senior
      Securities.......................................................................................                                                                                                 | 38      
|Item 4   | Submission of Matters to a Vote of Security
      Holders...................................................                                                                                                                 | 38      
|Item 5   | Other
      Information................................................................................................................                                                                                      | 38      
|Item 6   | Exhibits and Reports on Form
      8-K....................................................................................                                                                                                   | 38      
|         | Signature
      Page.....................................................................................................................                                                                                    | 40      
|         |                                                                                                                                                                                                                              |         



---

Item 1 Financial Statements

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                       |                                                                                                                                                      | September 30, 2002(Unaudited) |              | June 30, 2002(Audited) | 
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------------ | ---------------------- | 
|                                                       | ASSETS                                                                                                                                               |                               |              |                        | 
|                                                       |                                                                                                                                                      |                               |              |                        | 
|Cash and cash equivalents                              |                                                                                                                                                      | $                             | 21,206,000   |                        | 
|Loans held for sale, at lower
      cost or market     |                                                                                                                                                      |                               | 501,382,000  |                        | 
|Accounts receivable                                    |                                                                                                                                                      |                               | 58,577,000   |                        | 
|Residual interests, at estimated
      fair value      |                                                                                                                                                      |                               | 190,174,000  |                        | 
|Mortgage servicing rights, net                         |                                                                                                                                                      |                               | 2,160,000    |                        | 
|Equipment and improvements, net                        |                                                                                                                                                      |                               | 10,154,000   |                        | 
|Prepaid and other                                      |                                                                                                                                                      |                               | 16,019,000   |                        | 
|                                                       | Total Assets                                                                                                                                         |                               | $            | 799,672,000            | 
|                                                       |                                                                                                                                                      |                               |              |                        | 
|                                                       | LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                 |                               |              |                        | 
|                                                       |                                                                                                                                                      |                               |              |                        | 
|Borrowings                                             |                                                                                                                                                      | $                             | 256,438,000  |                        | 
|Revolving warehouse and
      repurchase facilities    |                                                                                                                                                      |                               | 412,756,000  |                        | 
|Accounts payable and accrued
      expenses            |                                                                                                                                                      |                               | 37,035,000   |                        | 
|Accrued dividends on convertible
      preferred stock |                                                                                                                                                      |                               | 41,586,000   |                        | 
|Income taxes payable                                   |                                                                                                                                                      |                               | 8,581,000    |                        | 
|                                                       | Total liabilities                                                                                                                                    |                               | $            | 756,396,000            | 
|Commitments and contingencies                          |                                                                                                                                                      |                               |              |                        | 
|Stockholders' equity:                                  |                                                                                                                                                      |                               |              |                        | 
|                                                       | Series A Preferred Stock, par value $0001 per
      share; 500,000 shares
           authorized; none outstanding                                    |                               |              | ----                   | 
|                                                       | Series B Convertible Preferred Stock, par
      value $0001 per share; 29,704,000
           shares authorized; 26,704,000 outstanding               |                               |              | 27,000                 | 
|                                                       | Series C Convertible Preferred Stock, par
      value $0001 per share; 61,230,000
           shares authorized; 20,186,000 shares outstanding        |                               |              | 20,000                 | 
|                                                       | Series D Convertible Preferred Stock; par
      value $0001 per share;
           108,566,000 shares authorized; 60,020,000 shares
      outstanding |                               |              | 60,000                 | 
|                                                       | Common Stock, par value $0001 per share;
      400,000,000 shares authorized;
           6,483,000 and 6,482,000 outstanding                         |                               |              | 6,000                  | 
|Additional paid-in capital                             |                                                                                                                                                      |                               | 418,027,000  |                        | 
|Retained deficit                                       |                                                                                                                                                      |                               | (374,864,000 | )                      | 
|                                                       | Total stockholders' equity                                                                                                                           |                               |              | 43,276,000             | 
|                                                       | Total liabilities and
      stockholders' equity                                                                                                     |                               | $            | 799,672,000            | 
|                                                       |                                                                                                                                                      |                               |              |                        | 



See accompanying notes to condensed consolidated financial statements.

---

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS 
(UNAUDITED)





|                                                                                 |                                  |                                                                             | Three Months Ended
      September 30, |           
|-------------------------------------------------------------------------------- | -------------------------------- | --------------------------------------------------------------------------- | -------------------------------------- | ----------
|                                                                                 |                                  |                                                                             | 2002                                   |           
|Revenue:                                                                         |                                  |                                                                             |                                        |           
|                                                                                 | Gain on sale of loans            |                                                                             | $                                      | 31,532,000
|                                                                                 | Write-down of residual interests |                                                                             |                                        | ---       
|                                                                                 | Origination Fees                 |                                                                             |                                        | 13,375,000
|                                                                                 | Loan servicing                   |                                                                             |                                        | 2,755,000 
|                                                                                 | Debt extinguishment income       |                                                                             |                                        | 1,087,000 
|                                                                                 | Interest                         |                                                                             |                                        | 18,614,000
|                                                                                 |                                  | Total revenue, including
      write-down of 
           residual interests |                                        |           
|                                                                                 |                                  |                                                                             |                                        |           
|Expenses:                                                                        |                                  |                                                                             |                                        |           
|                                                                                 | Personnel                        |                                                                             |                                        | 31,222,000
|                                                                                 | Production                       |                                                                             |                                        | 6,163,000 
|                                                                                 | General and administrative       |                                                                             |                                        | 10,677,000
|                                                                                 | Interest                         |                                                                             |                                        | 8,769,000 
|                                                                                 |                                  |                                                                             |                                        |           
|                                                                                 |                                  | Total expenses                                                              |                                        |           
|                                                                                 |                                  |                                                                             |                                        |           
|Income before income taxes                                                       |                                  |                                                                             | 10,532,000                             |           
|Provision for income
      taxes                                                 |                                  |                                                                             | 618,000                                |           
|                                                                                 |                                  |                                                                             |                                        |           
|Net
      income                                                                 |                                  | $                                                                           | 9,914,000                              |           
|                                                                                 |                                  |                                                                             |                                        |           
|Net income (loss) to common
      stockholders:                                  |                                  |                                                                             |                                        |           
|                                                                                 | Basic                            |                                                                             | $                                      | 6,091,000 
|                                                                                 | Diluted                          |                                                                             | $                                      | 11,481,000
|                                                                                 |                                  |                                                                             |                                        |           
|Net income (loss) per common
      share
                    
      outstanding: |                                  |                                                                             |                                        |           
|                                                                                 | Basic                            |                                                                             | $                                      | 0.94      
|                                                                                 | Diluted                          |                                                                             | $                                      | 0.12      
|                                                                                 |                                  |                                                                             |                                        |           
|Weighted average number shares                                                   |                                  |                                                                             |                                        |           
|                                                                                 | Basic                            |                                                                             | $                                      | 6,483,000 
|                                                                                 | Diluted                          |                                                                             | $                                      | 93,488,000

See accompanying notes to condensed consolidated financial statements.

---

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)





|                                                           |                                                                                                                           |                                                 |             | Three
      Months Ended                      
      September 30, |             
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ----------- | ------------------------------------------------------------------ | ------------
|                                                           |                                                                                                                           |                                                 |             |                                                                    | 2002        
|                                                           |                                                                                                                           |                                                 |             |                                                                    |             
|Operating activities:                                      |                                                                                                                           |                                                 |             |                                                                    |             
|                                                           | Net Income                                                                                                                |                                                 | $           | 9,914,000                                                          |             
|                                                           | Adjustments to
      reconcile net income to net cash provided by (used in) operating
                 
      activities: |                                                 |             |                                                                    |             
|                                                           |                                                                                                                           | Depreciation and amortization                   |             |                                                                    | 1,044,000   
|                                                           |                                                                                                                           | Write-down of residual interests                |             |                                                                    | ---         
|                                                           |                                                                                                                           | Accretion of residual interests                 |             |                                                                    | (4,826,000  
|                                                           |                                                                                                                           | Debt extinguishment income                      |             |                                                                    | (1,087,000  
|                                                           | Mortgage servicing
      rights amortized                                                                                 |                                                 |             | 760,000                                                            |             
|                                                           | Changes in assets and
      liabilities:                                                                                  |                                                 |             |                                                                    |             
|                                                           |                                                                                                                           | Loans held for sale originated                  |             |                                                                    | (969,158,000
|                                                           |                                                                                                                           | Proceeds from sale of loans held
      for sale |             |                                                                    | 929,844,000 
|                                                           | Decrease (increase)
      in:                                                                                             |                                                 |             |                                                                    |             
|                                                           |                                                                                                                           | Accounts receivable                             |             |                                                                    | 2,699,000   
|                                                           |                                                                                                                           | Residual interests                              |             |                                                                    | 11,949,000  
|                                                           |                                                                                                                           | Prepaid and other                               |             |                                                                    | (1,309,000  
|                                                           | Increase in:                                                                                                              |                                                 |             |                                                                    |             
|                                                           |                                                                                                                           | Accounts payable and accrued
      expenses     |             |                                                                    | 1,030,000   
|                                                           |                                                                                                                           | Income taxes payable                            |             |                                                                    | 25,000      
|Net cash
      provided by (used in) operating activities  |                                                                                                                           |                                                 | (19,115,000 | )                                                                  |             
|Investing activities:                                      |                                                                                                                           |                                                 |             |                                                                    |             
|                                                           |                                                                                                                           | Purchases of
      equipment and improvements   |             |                                                                    | (262,000    
|Net cash
      used in investing activities                |                                                                                                                           |                                                 | (262,000    | )                                                                  |             
|                                                           |                                                                                                                           |                                                 |             |                                                                    |             
|Financing activities:                                      |                                                                                                                           |                                                 |             |                                                                    |             
|                                                           | Reduction of
      borrowings                                                                                             |                                                 |             | (6,445,000                                                         | )           
|                                                           | Net
      increase (decrease) in revolving warehouse and repurchase
           facilities                                 |                                                 |             | 29,637,000                                                         |             
|Net Cash
      provided by (used in) financing activities  |                                                                                                                           |                                                 | 23,192,000  |                                                                    |             
|Net
      increase (decrease) in cash and cash equivalents |                                                                                                                           |                                                 | 3,815,000   |                                                                    |             
|Cash and
      cash equivalents at beginning of period     |                                                                                                                           |                                                 | 17,391,000  |                                                                    |             
|Cash and
      cash equivalents at end of period           |                                                                                                                           | $                                               | 21,206,000  |                                                                    |             



See accompanying notes to condensed consolidated financial statements.

---

AAMES FINANCIAL CORPORATION
                         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                   (UNAUDITED)

Note 1: Basis of Presentation

The condensed consolidated  financial statements of Aames Financial  Corporation,  a Delaware corporation,
and its  subsidiaries  (collectively,  the Company)  included  herein have been prepared by the Company,  without
audit,  pursuant to the rules and  regulations  of the United States  Securities and Exchange  Commission.  Certain
information  and  footnote  disclosures  normally  included in financial  statements  prepared in  accordance  with
accounting principles generally accepted in the United States have been omitted.

The  condensed  consolidated  financial  statements  include  the  accounts  of the Company and all of its
subsidiaries  after  eliminating  all  significant  intercompany  transactions  and reflect  all normal,  recurring
adjustments  which are, in the  opinion of  management,  necessary  to present a fair  statement  of the results of
operations of the Company in conformity  with  accounting  principles  generally  accepted in the United States for
the interim  periods  reported.  The results of operations for the Company for the three months ended September 30,
2002 are not necessarily indicative of the results expected for the full fiscal year.

At  September  30, 2002,  Specialty  Finance  Partners
  (SFP),  a  partnership  controlled  by Capital Z
Financial Services  Fund, II,L.P.,  a Bermuda  partnership  (together with SFP, Capital Z) owned preferred stock
representing  approximately  45.2%  of the  Company's  combined  voting  power in the  election  of  directors  and
approximately  90.2%  of the  combined  voting  power  in  all  matters  other  than  the  election  of  directors.
Representatives  or  nominees  of Capital Z have five of the nine seats on the Board of  Directors,  and as current
members'  terms expire,  Capital Z has the  continuing  right to appoint and elect four  directors and nominate one
additional  director.  As a result of its beneficial  ownership and Board  representation,  Capital Z has, and will
continue to have, sufficient power to determine the Company's direction and policies.

Note 2: Residual Forward Sale Facility with Related Party

On August 31,  2000, the Company entered into a
 Residual  Forward Sale Facility,  amended on September 30,
2002 (the Residual  Facility) with Capital Z Investments, L.P.,  a Bermuda partnership  (CZI), an affiliate of
Capital Z, the  Company's  largest  shareholder.  Pursuant to the terms of the Residual  Facility,  the Company may
sell up to  $75.0million  of its residual  interests  for cash in future  securitizations  through the earliest of
(i) March 31,  2003 (extended from  September30,  2002), (ii) the full utilization of the
$75.0 million  Residual
Facility  amount,  or (iii) a  termination  event, as defined in the Residual  Facility.  The sales of the residual
interests are without recourse to the Company.

---

During the three  months  ended  September  30,  2002,  the  Company  did not  dispose of any of its loans
through a  securitization  nor did the Company use the  Residual  Facility.  At September  30,  2002,  the capacity
remaining under the Residual Facility was $13.5 million.

In connection with obtaining the Residual  Facility,
the Company incurred and capitalized $3.3 million of
costs, of which $3.0 million  related to a facility fee paid to CZI. The  capitalized  costs are being amortized to
gain on sale of loans based upon the ratio of the dollar  amount of the  residual  interests  sold to CZI under the
Residual  Facility to the total Residual  Facility amount.  During the three months ended September 30, 2002, there
was no  amortization  of  capitalized  Residual  Facility.  During  the three  months  ended  September  30,  2001,
amortization  of total  capitalized  Residual  Facility  costs  charged to gain on sale of loans was $0.2  million,
substantially all of which related to the amortization of the facility fee paid to CZI.

Note 3: Subsidiary Guarantors

In  October 1996,  the Company  completed an offering of its 9.125%  Senior Notes due November  2003 which
were guaranteed by all of the Company's operating subsidiaries,  all of which are
wholly - owned.  The guarantees are
joint  and  several,  full,  complete  and  unconditional.  There  are no  restrictions  on  the  ability  of  such
subsidiaries  to transfer funds to the Company in the form of cash dividends,  loans or advances.  The Company is a
holding  company with  limited  assets or  operations  other than its  investments  in its  subsidiaries.  Separate
financial  statements of the guarantors are not presented because the aggregate total assets,  net earnings and net
equity of such  subsidiaries are substantially  equivalent to the total assets,  net earnings and net equity of the
Company on a consolidated basis.

Note 4: Per Share Data

The  following  table sets forth  information  regarding  basic and diluted  net income  (loss) per common
share for the three months ended September 30, 2002 and 2001 (dollars in thousands, except per share data):

| |                                                                                  |                                                                                                       |         |        | Three Months Ended
                                                     
      September 30, |         |     
| | -------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------- | ------ | -------------------------------------------------------------------------------------------- | ------- | ----
| |                                                                                  |                                                                                                       |         |        | 2002                                                                                         |         | 2001
| | Basic net income
      (loss) per common share:                                  |                                                                                                       |         |        |                                                                                              |         |     
| |                                                                                  | Net income                                                                                            |         | $9,914 |                                                                                              | $626    |     
| |                                                                                  | Less: Accrued
      dividends on Series B, C and D
                 Convertible
      Preferred Stock |         | (3,823 | )                                                                                            | (4,234  | )   
| |                                                                                  |                                                                                                       |         |        |                                                                                              |         |     
| | Basic net income
      (loss) to common stockholders                             |                                                                                                       | $6,091  |        | $(3,698                                                                                      | )       |     
| | Basic weighted
      average number of common
                shares outstanding |                                                                                                       | 6,483   |        | 6,265                                                                                        |         |     
| |                                                                                  |                                                                                                       |         |        |                                                                                              |         |     
| | Basic net income
      (loss) per common share                                   |                                                                                                       | $0.94   |        | $(0.59                                                                                       | )       |     
| | Diluted net income
      (loss) per common share:                                |                                                                                                       |         |        |                                                                                              |         |     
| |                                                                                  | Basic
      net income (loss) to common
           stockholders                                       |         | $6,091 |                                                                                              | ($3,698 | )   
| |                                                                                  | Plus: Accrued
      dividends on Series B, C and D
                Preferred Stock                    |         | 3,823  |                                                                                              | ---     |     
| |                                                                                  | Interest on 5.5% Convertible Preferred
                       
      Debentures                       |         | 1,567  |                                                                                              | ---     |     
| | Diluted net income
      (loss) to common stockholders                           |                                                                                                       | $11,481 |        | $(3,698                                                                                      | )       |     
| | Basic
      weighted average number of common shares
              outstanding   |                                                                                                       | 6,483   |        | 6,265                                                                                        |         |     
| | Plus incremental
      shares from assumed conversion of                         |                                                                                                       |         |        |                                                                                              |         |     
| |                                                                                  | 5.5% Convertible
      Subordinated Debentures                                                        |         | 1,458  |                                                                                              | ---     |     
| |                                                                                  | Series
      B, C, and D Convertible Preferred Stock                                                  |         | 85,547 |                                                                                              | ---     |     
| | Diluted net income
      (loss) per common share                                 |                                                                                                       | $0.12   |        | $(0.59                                                                                       | )       |     

---



Note 5: Reclassifications

Certain  amounts  related to fiscal  year 2002 have been  reclassified  to conform to the fiscal year 2003
presentation.

Item 2.  Management's  Discussion  and Analysis of Financial  Condition  and Results of  Operations.  The following
discussion and analysis of the financial  condition and results of operations of Aames Financial  Corporation  (the
"Company") should be read in conjunction with the Company's Condensed  Consolidated  Financial  Statements included
in Item 1 of this Form 10-Q.

Item  3.  Quantitative  and  Qualitative   Disclosures  About  Market  Risk.  The  following   discussion  includes
Management's  Discussion  and  Analysis of Financial  Condition  and Results of  Operations  and  Quantitative  and
Qualitative Disclosures about Market Risk.

Special Note Regarding Forward-Looking Information

This  Report  contains  statements  that  constitute  "forward-looking  statements"  within the meaning of
Section 21E  of the  Securities  Exchange Act of 1934 and Section 27A  of the  Securities  Act of 1933.  The words
"expect,"  "estimate,"  "anticipate,"  "predict,"  "believe," and similar  expressions  and variations  thereof are
intended to identify  forward-looking  statements.  Such statements appear in a number of places in this filing and
include statements  regarding the intent,  belief or current expectations of the Company, its directors or officers
with respect to, among other things (a) market  conditions in the  securitization,  capital,  credit and whole loan
markets  and their  future  impact on the  Company's  operations,  (b) trends  affecting  the  Company's  liquidity
position,  including, but not limited to, its access to warehouse,  working capital and other credit facilities and
its ability to effect  securitizations  and whole loan sales,  (c) the impact of the various cash savings plans and
other  restructuring  strategies being considered by the Company,  (d) the Company's  on-going efforts in improving
its equity  position,  (e) trends  affecting the Company's  financial  condition  and results of  operations,  and,
(f) the  Company's  business and liquidity  strategies.  The  stockholders  of the Company are cautioned not to put
undue reliance on such forward-looking  statements.  Such  forward-looking  statements are not guarantees of future
performance  and involve risks and  uncertainties.  Actual results may differ  materially  from those  projected in
this Report, for the reasons,  among others,  discussed under the captions "Recent Developments" and "Risk Factors"
and the other portions of  Management's  Discussion and Analysis of Financial  Condition and Results of Operations.
Readers should  carefully  review the factors referred to above and the other documents the Company files from time
to time with the Securities  and Exchange  Commission,  including the Company's  Annual Report on
Form 10-K for the
fiscal year ended June 30,  2002, the quarterly  reports on Form 10-Q  filed by the Company during the remainder of
fiscal 2003, and any current reports on Form 8-K filed by the Company.

---

Recent Events

During the three  months  ended  September  30, 2002,
the Company  recorded  net income of  $9.9 million
compared to $0.6 million during the comparable three month period a year ago.

Total revenue during the three months ended  September 30, 2002  increased  $14.3 million to $67.4 million
from  $53.1  million  during  the  comparable  period a year ago.  Total  revenue  during  the three  months  ended
September  30,  2002  includes  $1.1  million of debt  extinguishment  income  recognized  in  connection  with the
Company's $7.5 million  extinguishment  of its 9.125% Senior Notes at a discount from par for $6.4 million of cash.
Total  revenue  during the three  months  ended  September  30, 2001  includes a $10.0  million
write-down  to the
Company's  residual  interests.  Excluding  the $1.1 million of debt  extinguishment  income and the
$10.0 million
write-down to the residual interests during the three months ended September 30, 2002 and 2001,  respectively,  the
increase  in total  revenue  during  the three  months  ended September 30,  2002 over  total  revenue  during the
comparable  three month period in 2001 was $3.2 million.  The $3.2 million increase in total revenue was comprised
of an increase  of $7.7  million in gain on sale of loans,  partially  offset by  declines  of $3.8  million,  $0.4
million and $0.3 million in interest, origination fees and loan servicing income, respectively.

Total expenses  during the three months ended  September 30, 2002 increased $4.8 million to  $56.8 million
from $52.0  million  during the three months ended  September 30, 2001.  The increase in expenses  during the three
months ended  September 30, 2002 from expenses  reported during the comparable  period a year ago was  attributable
primarily to increases  of $5.3  million and  $1.8 million  in  personnel  and  production  expense,  respectively,
partially offset by a decline of $2.3 million in interest expense.

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 for any and all of its  outstanding
Existing  Debentures.  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-Q by  reference.  As of November  8, 2002,  the  Company  has  received  tenders of
Existing  Debentures from holders of approximately  $42.9 million principal  amount, or approximately  37.6% of the
outstanding  Existing  Debentures.  The Exchange  Offer is scheduled to expire  Friday,  November 22, 2002, at 5:00
p.m., New York City time.

---

Subsequent to the three months ended  September 30, 2002,  the Company  extinguished  an additional
$11.5
million of the 9.125% Senior Notes at a discount from par.

General

The Company is a consumer finance company primarily
 engaged,  through its  subsidiaries,  in the business
of  originating,  selling and servicing home equity  mortgage loans secured 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
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 Company ceased purchasing mortgage loans in bulk during the fiscal year ended
June 30, 1999.

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 and 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 plans
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 Company's overall  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 ending June 30,  2003, the Company  expects to maximize  profitability  and
cash flow by  selling  all of its loan  production  through  whole loan sales and  securitizations  on a  servicing
released  basis.  The Company sold all of its loan  production  during the three months  ended  September 30,  2002
through whole loan sales 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
September 30, 2002 declined  $22.0  million,  or 1.0%, to $2.3 billion from the balance of the servicing  portfolio
at June 30, 2002, and declined $438.0 million,  or 16.1%,  from $2.7 billion at September 30, 2001.  Mortgage loans
in  securitization  trusts serviced in-house  declined $125.0 million,  or 10.5%, to $1.1 billion at September  30,
2002 from $1.2  billion  at June 30,  2002,  and  declined  by $574.0  million,  or 35.0%,  from $1.6  billion  at
September 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" included in
the  Company's  Annual  Report on Form 10-K for the fiscal year ended  June 30,  2002.  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.

---

Loan Origination.  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 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 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,  and
appraises  every  loan it  originates.  The  underwriting  of a  mortgage  loan  to be  originated  by the  Company
generally includes a review of the completed loan package,  including the loan application,  a current appraisal, a
preliminary title report and a credit report.

The following  table presents the volume of loans  originated by the Company during the periods  presented
(in thousands):



| |         |                                                      |  | Three Months Ended | 
| | ------- | ---------------------------------------------------- |  | ------------------ | 
| |         |                                                      |  | September 30,      | 
| |         |                                                      |  | 2002               | 
| | Retail  |                                                      |  |                    | 
| |         | Traditional retail branch network                    |  | $321,915           | 
| |         | National Loan Centers                                |  | 130,299            | 
| |         | Total retail                                         |  | 452,214            | 
| |         |                                                      |  |                    | 
| | Broker: |                                                      |  |                    | 
| |         | Traditional regional broker office network
      (1) |  | 465,164            | 
| |         | Telemarketing and Internet                           |  | 51,780             | 
| |         | Total broker                                         |  | 516,944            | 
| |         |                                                      |  |                    | 
| |         | Total production                                     |  | $969,158           | 

|(1) | Includes the purchase of closed loans on a flow basis from
correspondents  of $2.7 million,
      $8.0 million and $6.9 million during the three months ended September 30, 2002, 2001 and June 30, 2002,
respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total  Loan  Production. Total  loan  production  during the three  months  ended  September  30,  2002  increased
$62.4 million,  or 6.9% to $969.2 million from $906.8 million reported during the three months ended June 30, 2002,
and increased  $245.9  million,  or 34.0%,  over the $723.3 million of total loan  production  reported  during the
three months ended  September  30, 2001.  Total loan  production  during the three months ended  September 30, 2002
increased  from loan  production  during  the three  months  ended  June 30,  2002 due to the  continuation  of the
favorable mortgage interest rate environment,  and the issuance of new uniform underwriting  guidelines  throughout
the Company designed to improve the Company's  competitive  position and to provide greater  consistency  among the
retail and broker  origination  channels.  The interest rate  environment  during the three months ended  September
30, 2002 was generally  more favorable than the mortgage  interest rate  environment  during the three months ended
September 30, 2001,  which  contributed to the increase in the Company's  total loan  origination  during the three
months ended  September 30, 2002  compared to total  production  during the three months ended  September 30, 2001.
Retail loan  production  during the three months ended  September 30, 2002,  also benefited from the acquisition of
certain assets and the operating  platform of another mortgage  lender,  which became the Company's second National
Loan Center,  and which did not  contribute to loan  production  during the three months ended  September 30, 2001. 
In the event that a less favorable mortgage interest rate environment occurs
during calendar year 2003 it could reduce the overall demand for mortgage loans
generally and demand for the Company's mortgage loan products.  Should that
event occur, the Company expects to be responsive to such changes in market
conditions.

---

Retail  Production.  The  Company's  total  retail  production  was $452.2  million  during the three  months ended
September  30, 2002,  an increase of $8.4  million,  or 1.9%,  from the $443.8  million  reported  during the three
months ended June 30, 2002,  and an increase of $98.2  million,  or 27.7%,  over the $354.0 million of total retail
production during the three months ended September 30, 2001.

Traditional Retail Branch Network

The Company's  traditional  retail branch  network  production  was $321.9 million during the three months
ended  September 30, 2002, a decrease of $6.4  million,  or 2.0%,  from the $328.3  million of  traditional  retail
branch network  production  reported during the three months ended June 30, 2002, and an increase of $22.6 million,
or 7.6%, over the $299.3 million reported during the three months ended September 30, 2001.

National Loan Centers

Mortgage loan  production  from the  Company's  National Loan Centers,  which  primarily  originate  loans
through  affiliations with certain Internet sites,  increased $14.7 million,  or 12.7% to $130.3 million during the
three months  ended  September  30, 2002 from $115.6  million  during the three  months  ended June 30,  2002,  and
increased  $75.6  million  over the $54.7  million  of loan  production  reported  during  the three  months  ended
September  30,  2001.  The  increase  in the  National  Loan  Centers'  production  during the three  months  ended
September 30, 2002 compared to their  production  during the three months ended  September 30, 2001 was due in part
to the fact that the September  2002  quarter's  production  included  loan  production  from the Company's  second
National Loan Center that was yet not in operation during the September 2001 quarter.

Broker  Production.  The Company's total broker  production  increased $54.0 million,  or 11.7%, to  $516.9 million
during the three months  ended  September  30, 2002 from the $462.9  million of total  broker  production  reported
during the three  months ended June 30, 2002,  and  increased  $147.6 million,  or 40.0%,  over the  $369.3 million
reported during the three months ended September 30, 2001.

---

Traditional Regional Broker Office Network

Mortgage loan  production  from the  traditional  regional  broker office  network during the three months
ended  September 30, 2002 was $465.2  million  which  increased  $40.2  million and $119.5  million over the $425.0
million and  $345.7 million,  respectively,  of traditional  regional  office network  production  during the three
months ended June 30, 2002 and September 30, 2001, respectively.

Broker Telemarketing and Internet

Broker  mortgage loan  production  through  telemarketing  and the Internet was $51.8  million  during the
three months ended  September 30, 2002, an increase of $13.8 million,  or 36.3%,  over the  $38.0 million  reported
during the three months ended June 30,  2002,  and an increase of  $28.2 million  over the  $23.6 million  reported
during the three months ended September 30, 2001.

The following  table sets forth the number of retail branch and broker offices  operated by the Company at
September 30, 2002 and 2001:

| |                                           | September 30, |     
| | ----------------------------------------- | ------------- | ----
| |                                           | 2002          | 2001
| | Traditional retail branches               | 97            | 100 
| | National Loan
      Centers               | 2             | 1   
| | Traditional regional broker
      offices | 4             | 5   

Loan  Securitizations  and Sales. As a fundamental part of its business and financing  strategy,  the Company sells
mortgage  loans to third  party  investors  in the  secondary  markets  as market  conditions  allow.  The  Company
generally  seeks to dispose of  substantially  all of its loan production  within
90 days.  The Company applies the
net  proceeds of the loan  dispositions,  whether  through  securitizations  or whole loan  sales,  to pay down its
warehouse and repurchase  facilities in order to make available  capacity under these facilities for future funding
of mortgage loans.         The Company  maximizes  opportunities  in its loan  disposition  transactions by selling
its loan  production  through  a  combination  of  securitizations  and  whole  loan  sales,  depending  on  market
conditions,  relative  profitability  and  cash  flows.  The  Company  generally  realizes  higher  gain on sale on
securitization  than it does on whole loan sales for cash. The higher gain on sale in  securitization  transactions
is  attributable  to  the  excess  servicing  spread   associated  with  retaining  a  residual   interest  in  the
securitization,  net of  transactional  costs.  In whole loan sales with  servicing  released,  the gain on sale is
generally lower than gains realized in securitizations, but the Company receives the gain in the form of cash.

In  a  securitization,   the  underlying  securities  are  generally  overcollateralized  by  the  Company
depositing  mortgage  loans with a  principal  balance  exceeding  the  principal  balance of the  securities.  The
upfront  overcollateralization  required in  securitizations  is generally cash flow negative to the Company in the
early years of the  securitization.  The Company has used the Residual  Facility to reduce the  negative  cash flow
aspects of  securitization  and to provide another source of cash to the Company through periodic sales of residual
interests for cash.  During the three months ended  September  30, 2002,  the Company did not dispose of any of its
loans through a  securitization.  The initial capacity of the Residual  Facility was $75.0 million and at September
30, 2002,  the  remaining  capacity  under the  Residual  Facility was $13.5  million.  When the Residual  Facility
expires  either through its full  utilization  or by its expiration on March 31, 2002, the Company's  evaluation of
loan  disposition  strategies  will have to include  the  negative  cash flow  considerations  associated  with the
upfront  overcollateralization  required in  securitizations  compared to the positive cash flow  considerations of
whole loan sales for cash.

---

The following  table sets forth certain  information  regarding  the Company's  securitizations  and whole
loan sales during the three months ended September 30, 2002 and 2001 (in thousands):

| |                                                | Three Months EndedSeptember 30, |                  
| | ---------------------------------------------- | ------------------------------- | -----------------
| |                                                | 2002                            | 2001             
| | Loans pooled and sold in
      securitizations | $            
      ---         | $  
      175,008
| | Whole loan
      sales                         | 920,704                         | 570,644          
| | Total
      loans securitized and sold         | $  
      920,704               | $  
      745,652

Each agreement that the Company has entered into in connection  with its  securitizations  requires  either
the  overcollateralization  of the trust or the  establishment of a reserve account that may initially be funded by
cash deposited by the Company.  If delinquencies or losses exceed certain  established  limits, as applicable,  the
credit-enhancement  aspects  of  the  trust  are  triggered.  In a  securitization  credit-enhanced  by a  monoline
insurance  policy,  any further losses  experienced in excess of the  established  overcollateralization  amount by
holders of the senior  interests  in the related  trust will be paid by the  insurer  under such  policy.  To date,
there have been no claims on any monoline  insurance  policy obtained in any of the Company's  securitizations.  In
a  senior/subordinated  structure,  losses in excess of the  overcollateralization  amount  generally are allocated
first to the holders of the subordinated interests and then to the holders of the senior interests of the trust.

During  the  three  months  ended  September  30,  2002,  total  mortgage  loan   dispositions   increased
$175.0 million  to $920.7  million  from $745.7  million of total loan  dispositions  during the three months ended
September 30, 2001. All of the Company's loan  dispositions  during the three months ended  September 30, 2002 were
whole loan sales for cash.  The  Company  did not  dispose of any of its loans  through  securitization  during the
three months ended September 30,  2002.  In  comparison,  during the three months ended  September  30, 2001,  the
Company's  $745.6 million of total loan  dispositions  were comprised of $570.6 million and $175.0 million of whole
loan sales for cash and  securitizations,  respectively.  The  Company's  sole  reliance on whole loan sales as its
loan disposition  strategy during the three months ended September 30,  2002 compared to the Company's reliance on
a combination of whole loan sales and  securitizations  during the comparable three month period in 2001 was due to
more attractive pricing  conditions  prevailing in the whole loan markets during the September 2002 period compared
to conditions  prevailing  during the comparable  period a year ago and, to a lesser  extent,  due to the Company's
strategy of  retaining  capacity in the  Residual  Facility  until the  expiration  of the  Facility in March 2003.
Future adverse  changes in the current  interest rate  environment and in the current  economic  climate as well as
the full  utilization  or  expiration  of the  Residual  Facility  could affect the mix in the  composition  of the
Company's strategy of selling loans in the form of securitizations or whole loan sales.

---

Loan  Servicing.  The Company's  servicing  portfolio  consists mainly of mortgage loans  securitized  prior to the
year ended June 30,  2001 for which the  Company  retained  servicing  and loans  serviced  on an  interim  basis,
consisting  of loans  held for sale and loans  subserviced  for  others on an  interim  basis.  Servicing  includes
collecting and remitting loan payments,  accounting for principal and interest,  contacting  delinquent  borrowers,
managing  borrower  defaults  and  liquidating  foreclosed  properties.  It is the  Company's  strategy to maximize
opportunities in loan servicing.  As a means to maximize cash flow from  securitizations,  the Company has recently
been selling for cash the servicing  rights in  securitizations.  Moreover,  the Company does not retain  servicing
on loans it sells in whole loan sale markets.

The  following  table sets forth  certain  information  regarding  the  Company's  servicing  portfolio at
September 30, 2002 and 2001 and June 30, 2001 (dollars in millions):

| |                                |                                         |  | September 30, |   | June 30, |   |         
| | ------------------------------ | --------------------------------------- |  | ------------- | - | -------- | - | --------
| |                                |                                         |  | 2002          |   | 2001     |   | 2002    
| |                                |                                         |  |               |   |          |   |         
| | Mortgage loans
      serviced: |                                         |  |               |   |          |   |         
| |                                | Loans in securitization trusts          |  | $1,067.0      |   | $1,641.0 |   | $1,192.0
| |                                | Loan serviced
      on an interim basis |  | 1,105.0       |   | 914.0    |   | 991.0   
| |                                | Serviced in-house                       |  | 2,172.0       |   | 2,555.0  |   | 2,183.0 
| |                                | Loans in securitization
      trusts    |  |               |   |          |   |         
| |                                | subserviced by others                   |  | 114.0         |   | 169.0    |   | 125.0   
| |                                | Total servicing portfolio               |  | $2,286.0      |   | $2,724.0 |   | $2,308.0
| |                                | Percentage
      serviced in-house      |  | 95.0          | % | 93.8     | % | 94.6    

The  Company  has not added any new 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 whole
loan sales and  securitizations  with servicing  released since that time. The Company's total servicing  portfolio
at  September  30, 2002  declined $22.0 million,  or 1.0% from $2.3 billion  at June 30,  2002,  reflecting  loan
servicing  portfolio  runoff,  in the form of  principal  amortization,  prepayments  and  liquidations  during the
quarter.  The Company's  portfolio of mortgage loans in  securitization  trusts serviced  in-house  declined $125.0
million,  or 10.5%,  to $1.1  billion at September  30, 2002 from $1.2  billion at June 30, 2002.  This decline was
partially  offset by an increase of $114.0  million of mortgage  loans  serviced by the Company on an interim basis
during the  quarter.  The  Company's  portfolio  of  mortgage  loans in  securitization  trusts  serviced
in-house
declined  $574.0  million,  or 35.0%,  from the $1.6 billion of mortgage loans in  securitization  trusts  serviced
in-house at September 30, 2001. In general,  the Company's  portfolio of mortgage  loans in  securitization  trusts
may be adversely  affected by the current  mortgage  interest rate environment  which could  accelerate  prepayment
activity.

The  Company's  servicing  portfolio  will  continue  to be  impacted  in  the  future  by  the  Company's
dispositions of its loan production  through whole loan sales and  securitizations  on a servicing  released basis,
which has resulted in a smaller servicing portfolio.

---

The Company has historically  experienced  delinquency rates that are higher than those prevailing in this
industry due to the inclusion of lower credit grade mortgage loans in the securitization  trusts.  Delinquent loans
(by principal balance) decreased at September 30, 2002 to $204.3 million from
$222.1 million at June 30,  2002 and $335.3 million  at September  30, 2001.  The  delinquency  rate at September  30, 2002 was
9.0% compared to 9.6% at June 30,  2002 and 12.3% at September  30, 2001.  The  delinquency  rate at September  30, 2002  declined  from the
delinquency  rate at June 30,  2002, due to a decrease in delinquent  loans in the Company's  portfolio of mortgage
loans in  securitized  trusts.  A decline in  delinquencies  generally  reduces  the  Company's  servicing  advance
obligations.  The  Company  expects the  delinquency  rate to continue  to decline as the  Company's  portfolio  of
mortgage loans in  securitization  trusts (and the number of delinquent loans in such trusts)  continues to decline
and become a smaller component of the Company's total servicing portfolio.

During the three months ended September 30, 2002, losses on loan  liquidations  decreased to $10.7 million
from $18.8  million  during the  comparable  three month  period a year ago  primarily  due to the  decrease in the
number of loans  liquidated.  Substantially  all of the foreclosures and liquidations  handled by the Company occur
in connection  with the Company's  portfolio of mortgage loans in  securitization  trusts.  The Company expects net
losses on loan  liquidations to continue to decline as the Company's  portfolio of mortgage loans in securitization
trusts (and the number of foreclosed loans in such trusts) continues to decline.

Credit  losses  incurred  by the  Company  on  liquidations  of loans were  disproportionately  higher for
correspondent  loans  purchased  in bulk and  included  in the  Company's  earlier  trusts  than  experienced  upon
liquidations of loans originated in the Company's retail and broker  production  channels.  During the three months
ended  September 30, 2002,  approximately  29.1% of losses on  liquidation  were from losses on disposition of real
estate collateral for bulk purchased  correspondent  loans. In turn, bulk purchased  correspondent  loans comprised
approximately  21.1% of the  Company's  servicing  portfolios  when  measured  at July1,  2002.  The  Company  has
discontinued  the bulk  purchase of  correspondent  loans,  increased  its focus on higher  credit  grade loans and
discontinued  certain  broker  programs.  However,  because  the  Company  has been  selling  its more  recent loan
production in whole loan sales for cash and in  securitizations  on a servicing  released basis, the effects of the
changes in its loan  origination  strategies  have  generally  not  affected  delinquencies  and  losses  caused by
mortgage  loans  remaining in its  securitized  trusts from the old  programs.  The bulk  purchased  portfolio  may
continue to contribute  disproportionately  to loan losses during the current fiscal year. Further,  current market
conditions,  and recent  regulatory  changes in certain  states have  resulted in the  tightening  of  underwriting
guidelines by many subprime home equity lenders.  These factors have had the effect of decreasing the  availability
of credit to  delinquent  lower credit grade  borrowers  who in the past had avoided  default by  refinancing.  The
Company  believes  that  continuance  of these factors  might  contribute  to the Company's  loan losses during the
current fiscal year.

Because  foreclosures and credit losses  typically occur months or years after a loan is originated,  data
relating to  delinquencies,  foreclosures and credit losses as a percentage of the current portfolio can understate
the risk of future delinquencies, foreclosures or credit losses.

---

The following table sets forth delinquency,  foreclosure,  and loss information of the Company's servicing
portfolio at or during the periods indicated:

|                                                                                                                |            | At or during the                      
|--------------------------------------------------------------------------------------------------------------- | ---------- | --------------------------------------
|                                                                                                                |            | Three Months
      Ended September 30,
|                                                                                                                |            | 2002                                  
|                                                                                                                |            | (Dollars in
      thousands)          
|Percentage of dollar amount of
      delinquent loans to
           loans serviced (period end) (1)(2)(3)(4)    |            |                                       
|One month                                                                                                       | 0.7        | %                                     
|Two
      months                                                                                                | 0.4        | %                                     
|Three or more months                                                                                            |            |                                       
|Not foreclosed(5)                                                                                               | 7.0        | %                                     
|Foreclosed(6)                                                                                                   | 0.9        | %                                     
|Total                                                                                                           | 9.0        | %                                     
|Percentage
      of dollar amount of loans foreclosed
           during the period to servicing portfolio(4)(8) | 0.5        | %                                     
|Number of loans
      foreclosed during the period                                                              | 168        |                                       
|Principal
      amount of foreclosed loans during the 
           period                                        | $11,612    |                                       
|Number of loans
      liquidated during the period                                                              | 194        |                                       
|Net
      losses on liquidations during the period(7)                                                           | $10,718    |                                       
|Percentage of
      annualized losses to servicing
           portfolio(4)(8)                                   | 1.9        | %                                     
|Servicing
      portfolio at period end                                                                         | $2,286,000 |                                       
|                                                                                                                |            |                                       
|                                                                                                                |            |                                       

|(1) |  | Delinquent loans are loans for which more than one payment is
due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The  delinquency  and  foreclosure  percentages  are calculated
on the basis of the total dollar amount of
      mortgage loans serviced by the Company, and any subservicers as of the end of the periods
indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(3) |  | At September 30, 2002, the dollar volume of loans  delinquent
more than 90 days in seven of the Company's
      twenty-two real estate mortgage  investment  conduit  ("REMIC")  trusts,  exceeded the permitted limit in
the
      related  pooling and  servicing  agreements.  All of the  aforementioned  REMIC trusts plus eight
additionalREMIC trusts have also exceeded certain loss limits.  At September 30, 2002, the unpaid principal
balance of
      mortgage  loans  in  the   securitization   trusts  which  exceeded  the  permitted   delinquency  limit
      was $229.9 million,  or 19.5% of the total loans serviced  (in-house and subserviced) in  securitization
trusts. 
      At September 30, 2002,  the unpaid  principal  balance of mortgage loans in the  securitization  trusts
where
      certain loss limits have been exceeded was $794.6  million,  or 67.3% of the total loans  serviced
(in-house
      and subserviced) in securitization trusts.
|(4) |  | The servicing portfolio used in the percentage  calculations
includes loans serviced by the Company on an
      interim basis of  $1.1 billion, $914.0 million, $991.0 million,
      $722.0 million  and $281.0 million for the
      periods ended  September 30, 2002, September 30,  2001, June 30,  2002,
      June 30,  2001 and
      June 30,  2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

---

|(5) |  | Represents loans which are in foreclosure but as to which
foreclosure proceedings have not concluded.                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) |  | Represents  properties  acquired  following a foreclosure sale and still serviced by the Company at period
      end.                                                                                                                                                                  
|(7) |  | Represents  losses,  net of gains,  on properties  sold through
foreclosed  or other  default  management
      activities during the period indicated.                                                                                                                                
|(8) |  | The  percentages  were calculated to reflect the dollar volume of
loans  foreclosed or annualized  losses,
      as the case may be,  to the  average  dollar  amount  of  mortgage  loans  serviced  by the  Company  and
any
      subservicers during the related periods indicated.

Critical Accounting Policies

The Company retained the residual  interests created in all of the $7.0 billion of  securitizations  which
closed  prior to and during the year ended June 30, 2000.  The Company did not retain  residual  interests  created
in any of the $585.0  million and $1.2  billion of  securitizations  which  closed  during the years ended June 30,
2002 and 2001,  respectively,  as all such  residual  interests  were sold for cash  under the  Residual  Facility.
During the three  months  ended  September  30,  2002,  the Company  did not dispose of any of its loans  through a
securitization.  The Company did not retain residual interests created in the $175.0 million  securitization  which
closed  during the three months ended  September 30,  2001,  as the residual  interest was sold for $5.0 million of
cash under the Residual Facility.

The  Company  sells  its  loans in whole  loan  sale  transactions  on a cash  basis.  In whole  loan sale
transactions,  the buyer acquires all future rights (including  mortgage  servicing  rights) to the loans,  without
recourse to the Company except for standard  representations  and warranties.  Gains and losses on whole loan sales
are recognized when the Company  surrenders  control over the loans  (generally on the settlement  date) based upon
the difference between the proceeds received and the net carrying amount of the loans.

Accounting  for   Securitizations. The  Company's  loan   disposition   strategy   relies  on  a  combination  of
securitization  transactions and whole loan sales. The following discusses certain accounting  considerations which
arise only in the context of securitization transactions.

In a  securitization,  the Company  conveys loans that it has  originated,  and formerly  purchased,  to a
special  purpose entity (such as a trust) in exchange for cash proceeds and a residual  interest in the trust.  The
cash proceeds are raised  through an offering of the  pass-through  certificates  or bonds  evidencing the right to
receive  principal  payments and interest on the certificate  balance or on the bonds. The non-cash gain on sale of
loans represents the difference between the portion sold and any retained interests  (residual  interests) based on
their  relative fair values at the date of transfer.  The residual  interests  represent,  over the estimated  life
of the loans,  the present  value of the  estimated  cash flows.  These cash flows are  determined by the excess of
the weighted  average  coupon on each pool of loans sold over the sum of the interest rate paid to  investors,  the
contractual  servicing fee, a monoline  insurance  fee, if any, and an estimate for credit  losses.  Each agreement
that the Company has entered into in connection  with its  securitizations  requires the  overcollateralization  of
the trust that may  initially be funded by cash  deposited by the Company.  The amount and timing of the cash flows
expected to be released from the  securitization  trusts  considers the impact of the  applicable  delinquency  and
credit loss limits specified in the securitization agreements.

---

The Company  determines  the present value of the cash flows at the time each  securitization  transaction
closes  using  certain  estimates  made by  management  at the time the loans are sold.  These  estimates  include:
(i) future rate of prepayment;  (ii) credit  losses; and  (iii) discount  rate used to calculate present value. The
future cash flows represent  management's best estimate.  Management monitors the performance of the loans, and any
changes in the  estimates  are  reflected  in earnings.  There can be no assurance of the accuracy of  management's
estimates.

The Company's  retained  residual  interests are recorded at estimated fair value and are marked to market
through a charge  (or  credit) to  earnings.  On a  quarterly  basis,  the  Company  reviews  the fair value of its
retained residual  interests by analyzing its prepayment,  credit loss and discount rate assumptions in relation to
its actual experience and current rates of prepayment and credit loss prevalent in the industry.  Additionally,  on
a quarterly basis, the Company  evaluates the effects,  if any, that increasing or decreasing  interest rates might
have on its retained residual  interests.  The Company may adjust the value of its retained  residual  interests or
take a charge to earnings related to its retained  residual  interests,  as appropriate,  to reflect a valuation or
write-down  of its  residual  interests  based upon the  actual  performance  of the  Company's  retained  residual
interests as compared to the  Company's  key  assumptions  and  estimates  used to determine  fair value.  Although
management  believes that the assumptions used to estimate the fair values of its retained  residual  interests are
reasonable, there can be no assurance as to the accuracy of the assumptions or estimates.

Rate of Prepayment. The estimated life of the  securitized  loans depends on the assumed  annual  prepayment  rate
which is a function of estimated  voluntary  (full and partial) and  involuntary  (liquidations)  prepayments.  The
prepayment rate represents  management's  expectations of future  prepayment rates based on prior and expected loan
performance,  the type of loans in the relevant  pool (fixed or  adjustable  rate),  the  production  channel which
produced the loan, prevailing interest rates, the presence of prepayment  penalties,  the loan-to-value ratios, the
credit grades of the loans  included in the  securitization  and other industry data. The rate of prepayment may be
affected by a variety of economic and other factors  including,  but not limited to, a declining  mortgage interest
rate environment.

Credit Losses.  In determining the estimate for credit losses on loans  securitized,  the Company uses  assumptions
that it believes are reasonable based on information from its prior  securitizations,  the loan-to-value ratios and
credit  grades of the loans  included in the  securitizations,  loss and  delinquency  information  by  origination
channel,  and information  available from other market  participants such as investment  bankers,  credit providers
and credit rating agencies. On a quarterly basis, the Company re-evaluates its credit loss estimates.

---

Discount  Rate.In order to  determine  the fair value of the cash flow from the residual  interests,  the Company
discounts the cash flows based upon rates prevalent in the market.

The following table summarizes certain  information about the  securitization  trusts in which the Company
had retained a residual interest at September 30, 2002 and June 30, 2002 (dollars in thousands):

|                                                                                                                   | September 30, 2002 |   |  | June 30, 20002 |   | 
|------------------------------------------------------------------------------------------------------------------ | ------------------ | - |  | -------------- | - | 
|                                                                                                                   |                    |   |  |                |   | 
|Aggregate principal balances of securitized
      loans at the time of securitizations                             | $7,016,205         |   |  | $7,016,205     |   | 
|Outstanding principal
      balances of securitized loans                                                          | $,181,268          |   |  | $1,316,956     |   | 
|Outstanding principal balances of
      pass-through certificates or bonds of the
           securitization trusts | $1,013,132         |   |  | $1,141,805     |   | 
|Weighted average coupon rates of:                                                                                  |                    |   |  |                |   | 
|Securitized loans                                                                                                  | 10.22              | % |  | 10.26          | % | 
|Pass-through
      certificates or bonds                                                                           | 5.56               | % |  | 5.53           | % | 
|                                                                                                                   |                    |   |  |                |   | 

Certain  historical data and key assumptions and estimates used by the Company in its
      September 30,  2002 and June 30, 2002 review of the residual interests retained by the Company were the following:

|                                                                                                                                                      | September 30, 2002 |   |  | June 30, 2002 |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | - |  | ------------- | - | 
|                                                                                                                                                      |                    |   |  |               |   | 
|Prepayments:                                                                                                                                          |                    |   |  |               |   | 
|Actual weighted
      average annual prepayment rate, as a percentage of outstanding
                 principal
      balances of securitized loans:  |                    |   |  |               |   | 
|Fixed rate loans                                                                                                                                      | 28.4               | % |  | 29.4          | % | 
|Adjustable rate loans                                                                                                                                 | 33.5               | % |  | 37.6          | % | 
|Estimated annual
      prepayment rates, as a percentage of outstanding principal
                balances of
      securitized loans:                |                    |   |  |               |   | 
|Fixed rate loans                                                                                                                                      | 22.31% to 36.6     | % |  | 22.3% to 34.4 | % | 
|Adjustable rate loans                                                                                                                                 | 13.8% to 38.1      | % |  | 13.8% to 41.0 | % | 
|Estimated weighted
      average life of securitized loans                                                                                            | 4.1 years          |   |  | 3.7 years     |   | 
|Credit losses:                                                                                                                                        |                    |   |  |               |   | 
|Actual credit losses
      to date, as a percentage of original principal balances of
                 securitized
      loans                        | 4.9                | % |  | 4.7           | % | 
|Future estimated credit losses, as a percentage of original principal
      balances of
                 securitized
      loans                      | 0.7                | % |  | 0.8           | % | 
|Total actual and
      estimated prospective credit losses, as a percentage of original
                 principal
      balance of securitized loans | 5.6                | % |  | 5.5           | % | 
|Total actual credit losses to date and estimated prospective credit losses
      (dollars in
                 thousands)                              | $386,338           |   |  | $385,372      |   | 
|Weighted average discount rate                                                                                                                        | 13.4               | % |  | 13.4          | % | 

---

To estimate the effects of changes in interest rates on the coupon rates of the  adjustable  rate mortgage
loans, the Company considers current underlying  indices,  periodic interest rate caps, lifetime interest rate caps
and  contractual  interest  rate floors.  In  determining  the interest  rates for the floating  rate  pass-through
certificates in the securitization  trusts, the Company uses each certificate's  specific spread over the one-month
LIBOR.

The total  actual  and  estimated  credit  losses,  as a  percentage  of  original  principal  balance  of
securitized loans in each  securitization  trust,  ranged from 2.0% to 9.3% at both September 30, 2002 and June 30,
2002.  Actual and  estimated  credit losses vary between  securitization  trusts due to differing  credit  quality,
i.e.,  credit grade,  production  channel and other factors  considered by the Company when evaluating  credit loss
estimates.

The Company has previously  disclosed that if actual credit losses and actual  prepayment  trends exceeded
the Company's  credit loss and  prepayment  rate  assumptions,  it would be required to adjust  earnings to reflect
changes in its credit loss and prepayment  assumptions.  In its regular quarterly review of its residual  interests
during the three  months ended  September  30, 2002,  the Company  considered  the  historical  performance  of its
securitized  pools, the recent prepayment  experience of loans in those pools, the credit loss performance of loans
in previously  securitized pools,  other industry data and economic factors prevailing in the U.S. economy.  During
the three months ended September 30, 2002, no adjustment to the Company's  assumptions (rate of prepayment,  credit
loss and discount  rate) was deemed  warranted.  In comparison,  during the three months ended  September 30, 2001,
the Company  recorded a residual  interest  write-down of  $10.0 million  in light of actual credit loss and actual
prepayment speed activity  compared to the credit loss and prepayment  speed  assumptions used to estimate the fair
value of its retained  residual  interests,  along with other industry data and economic factors  prevailing in the
U.S. economy at that time.

The Company  closely  monitors its residual  interests.  Should the actual rate of  prepayment  and credit
loss  performance of loans in its  securitized  pools vary  adversely in relation to the estimates and  assumptions
used by the Company to estimate the fair value,  the Company  will adjust the fair value of the  retained  residual
interests through a charge to earnings.

During the three months ended  September 30, 2002 and 2001,  all of the Company's loan  dispositions  were
on a servicing released basis; therefore, the Company did not capitalize mortgage servicing rights.

Prior to June 30, 2000, the Company  capitalized  mortgage  servicing rights based on an allocation of the
carrying amount of the loans  securitized on a servicing  retained basis.  Mortgage  servicing rights are amortized
in proportion to and over the period of estimated future servicing income.

The Company  periodically  reviews its mortgage  servicing rights for impairment,  based on estimated fair
value.  The Company  determines  fair value  based on the  present  value of  estimated  future net cash flows.  In
estimating future net cash flows, the Company  determines future servicing  revenues less future servicing expenses
over the expected life of the loans.  Servicing  revenues  include  contractual  servicing fees and other ancillary
income such as  prepayment  and late fees.

---

Servicing  expenses  consist of direct  servicing  costs and  allocated
indirect  expenses  relating to the servicing  operations.  Servicing  expenses include an estimate for the cost to
carry advances to the securitization  trusts,  based on the amount of advances which have been made,  advances that
are  expected  to be made and the period of time that the  advances  are  expected to be  outstanding.  The Company
uses a 15% discount rate to calculate the present  value of the estimated  future net cash flows.  At September 30,
2002 and 2001, there were no valuation allowances on mortgage servicing rights.

The Company sold to an  independent,  third party loan servicer for cash the MSRs on the loans included in
the $175.0 million  securitization  transaction  which closed  during the three months ended  September  30, 2001.
Accordingly, no MSR was capitalized by the Company during the three months ended September 30, 2001.

Results of Operations - Three Months Ended September 30, 2002 and 2001

The  following  table sets forth  information  regarding  the  components  of the  Company's  revenue  and
expenses for the three months ended September 2002 and 2001:

|                                                                          | Three Months Ended
                                   
      September 30, |  | 
|------------------------------------------------------------------------- | -------------------------------------------------------------------------- |  | 
|                                                                          | 2002                                                                       |  | 
|Revenue:                                                                  |                                                                            |  | 
|Gain on sale of
      loans                                               | $31,532,000                                                                |  | 
|Write-down of residual interests                                          | ---                                                                        |  | 
|Origination fees                                                          | 13,375,000                                                                 |  | 
|Loan servicing                                                            | 2,755,000                                                                  |  | 
|Debt extinguishment
      income                                          | 1,087,000                                                                  |  | 
|Interest                                                                  | 18,614,000                                                                 |  | 
|                                                                          |                                                                            |  | 
|Total revenue, including
      write-down of
           residual interest | 67,363,000                                                                 |  | 
|                                                                          |                                                                            |  | 
|Expenses:                                                                 |                                                                            |  | 
|Personnel                                                                 | 31,222,000                                                                 |  | 
|Production                                                                | 6,163,000                                                                  |  | 
|General and
      administrative                                          | 10,677,000                                                                 |  | 
|Interest                                                                  | 8,769,000                                                                  |  | 
|                                                                          |                                                                            |  | 
|Total Expenses:                                                           | 56,831,000                                                                 |  | 
|                                                                          |                                                                            |  | 
|Income before provision for
      income
           taxes                 | 10,532,000                                                                 |  | 
|Provision for income taxes                                                | 618,000                                                                    |  | 
|Net income                                                                | $9,914,000                                                                 |  | 
|                                                                          |                                                                            |  | 

---

Revenue

General.
Total revenue during the three months ended September 30, 2002 increased  $14.3 million  to $67.4 million
from  $53.1 million  during the  comparable  three month period a year ago.  Total revenue  during the three months
ended  September 30, 2002 includes $1.1 million of debt  extinguishment  income  recognized in connection  with the
Company's  extinguishment,  at a discount  from par, of $7.5 million of its 9.125% Senior Notes for $6.4 million of
cash.  Total revenue during the three months ended  September 30, 2001 includes a  $10.0 million  write-down to the
Company's  retained  residual  interests.  Excluding  the  $1.1  million  of  debt  extinguishment  income  and the
$10.0 million  write-down to the retained  residual  interests during the three months ended September 30, 2002 and
2001,  respectively,  total revenues  during the three months ended  September 30,  2002 increased  $3.2 million to
$66.3 million  over total  revenues  during the same period a year ago. The increase in total revenue was primarily
due to an increase of $7.7 million  in gain on sale of loans,  partially  offset by declines of $3.8 million,  $0.4
million and $0.3 million in interest income,  origination fees and loan servicing,  respectively,  during the three
months ended September 30, 2002 from amounts reported during the comparable 2001 period.

Gain on Sale of  Loans.
Gain  on sale of  loans  during  the  three  months  ended  September 30,  2002  increased
$7.7 million to $31.5 million from $23.8 million during the three months ended September 30,  2001. The increase in
gain on sale of loans resulted  primarily from the  $175.0 million,  or 23.5%,  increase in total loan dispositions
during the three months ended September 30, 2002 over total loan  dispositions  during the comparable period a year
ago.  During the three months ended  September 30,  2002, the Company relied solely on whole loan sales for cash as
its loan disposition  strategy based upon the Company's review of market  conditions,  profitability  and cash flow
requirements.  In addition,  the Company's  recent loan  disposition  strategy has been weighted towards whole loan
sales for cash as a means of  retaining  capacity  under the Residual  Facility.  In  comparison,  during the three
months ended September 30, 2001, the Company relied on a combination of a  securitization  and whole loan sales for
cash  based  upon its  review of market  conditions,  profitability  and cash flow  requirements.  During the three
months  ended  September 30,   2001,   $175.0 million  and  $570.6 million  of  mortgage  loans  were  disposed  in
securitizations  and whole  loan  sales,  or 23.5% and 76.5%,  respectively,  of the  $745.6 million  of total loan
dispositions during the period.

The gain on sale rates  realized  by the  Company on whole loan  sales were  generally  higher  during the
three  months  ended  September  30,  2002  compared  to the gain on sale  rates for whole  loan  sales  during the
comparable  three month  period a year ago due to generally  more  favorable  conditions  in the whole loan markets
during the September 2002 quarter when compared to market conditions during the September 2001 quarter.

During the three  months  ended  September  30,  2002,  the  Company  did not  complete  a  securitization
transaction.  Gain on sale of loans during the three  months  ended  September  30, 2001  included  $5.0 million of
cash  proceeds  for the  residual  interest  created in the  September  2001  securitization  sold to CZI under the
Residual Facility.  In addition,  gain on sale of loans during the three months ended  September 30,  2001 included
$2.3  million of cash  proceeds  from the sale of  mortgage  servicing  rights and the  rights to  prepayment  fees
relative to the September 2001  securitization  sold to an unaffiliated  independent  mortgage  servicing  company.
Finally,  gain on sale of loans during the three months ended  September  30, 2001 was reduced by the  amortization
of  capitalized  costs  related to obtaining  the Residual  Facility of $0.2  million,  substantially  all of which
related to the amortization of the facility fee paid to CZI.

---

During the three  months ended  September  30, 2002 and 2001,  the  Company,  as it has from time to time,
entered into forward  interest  rate swap  agreements  designed to mitigate  interest  rate  exposure to fixed rate
mortgage loans in its inventory and pipeline in anticipation of closing loan  disposition  transactions  during the
period.  Gain on sale of loans during the three months ended  September 30,  2002 includes  charges of $7.9 million
of derivative  related losses and is comprised of $7.1 million of losses on hedge  positions that closed during the
period and $0.8 million to mark open hedge  positions at September  30, 2002 to their  estimated  fair value.  Gain
on sale of loans during the three months ended  September 30, 2001  includes  charges of $1.6 million of derivative
related losses all of which were comprised of losses on hedge positions that closed during the period.

Origination  Fees. Origination  fees are  primarily  comprised  of points and other fees charged by the Company on
mortgage loans  originated by the Company's  retail channel,  partially  offset by broker  compensation,  generally
referred to as yield spread  premium,  paid by the Company to mortgage loan brokers in connection  with broker loan
production.  Retail  points and fees are  primarily a function of the volume of mortgage  loans  originated  by the
Company  through its retail  channel and the points  charged on such loans.  Yield spread  premiums are generally a
function of the volume of  mortgage  loans  originated  by the  Company  through  its broker  channel and the yield
spread  premium  paid on such loans by the  Company to brokers.  Origination  fees  during the three  months  ended
September  30, 2002 were $13.4  million as compared to $13.8  million  during the three months ended  September 30,
2001. The $0.4 million,  or 3.0%,  decrease in origination  fee revenue during the three months ended September 30,
2002  from the  amount  reported  during  the  comparable  three  month  period a year ago is  attributable  to the
confluence  of a decline in points and fees charged at the time of  origination  in the retail  channel due in part
to a change in the mix of retail loans  produced  during the September  2002 quarter  compared to the mix of retail
loans  produced  during the  September  2001  quarter and an increase in yield spread  premiums  paid in the broker
channel.

Retail  points and fee income  decreased by $0.7 million  during the quarter ended
September 30,  2002 to
$11.0 million,  from $11.7 million during the quarter ended  September 30,  2001. This decrease  occurred despite a
$98.2 million increase in retail  production  during the respective  periods due to a decline in the average points
and fees  charged by the retail  channel.  As  previously  reported,  the  Company  has,  primarily  in response to
competitive  factors  and, to a lesser  extent,  recent  regulatory  changes,  reduced  points and fees  charged to
customers in numerous  states and for certain loan products.  The Company  expects to continue to reduce points and
fees charged in certain states in response to pending  legislation  and regulation  restricting  points and fees in
certain states.

Yield spread  premium was $4.7 million and $2.7 million  during the three months ended  September 30, 2002
and  2001,  respectively.  The $2.0  million  increase  in yield  spread  premium  during  the three  months  ended
September  30, 2002 over yield spread  premium  during the three months ended  September  30, 2001 is  attributable
primarily to the $147.6 million,  or 40.0%,  increase in total broker  production during the 2002 period over total
broker  production  during the 2001 period,  and to a lesser  extent,  due to the 0.19%  increase in average  yield
spread  premium during the September 2002 quarter  compared to the September  2001 quarter.  Yield spread  premium,
expressed as a percentage of total broker  production  was 0.91% and 0.72% during the three months ended  September
30, 2002 and 2001, respectively.

---

Loan Servicing.
Loan servicing  revenue  consists of prepayment  fees, late charges and other fees retained by the
Company and  servicing  fees earned on  securitized  pools,  reduced by  subservicing  costs  related to  servicing
advance  arrangements  and amortization of the Company's MSRs. See "Critical  Accounting  Policies." Loan servicing
revenue was  $2.8 million  during the three months ended  September  30, 2002  compared to $3.1 million  during the
comparable  three month period in 2001.  During the three  months ended  September  30, 2002,  servicing,  late and
prepayment fees declined  $1.3 million  from amounts  reported during the comparable three month period a year ago.
The decline was due primarily to the $574.0  million  decrease in the size of the  Company's  portfolio of mortgage
loans in  securitization  trusts serviced in-house at September 30, 2002 compared to September 30,  2001,  together
with a decrease in prepayment  fees due to the aging of loans in the servicing  portfolio  beyond the term of their
prepayment  fee. This was  partially  offset by a $1.0 million  decline in  subservicing  related  expenses and MSR
amortization  expense during the three months ended  September 30,  2002 from the amounts reported during the three
months  ended  September  30,  2001.  In  addition,  subservicing  expenses  and  related  resolution,  set-up  and
reperformance  expenses during the three months ended September 30, 2002 were $0.1 million,  down $0.7 million from
the $0.8 million of such expenses during the three months ended September 30, 2001. The  subservicing  expenses are
a  result  of  certain  arrangements  previously  entered  into by the  Company  in  order to  reduce  its  advance
obligations.  In the first  arrangement,  a loan servicing  company  purchased  certain advances and agreed to make
future  advances with respect to an aggregate  $388.0 million  ($114.0 million  at September 30, 2002) in principal
amount of loans.  The loan servicing  revenue in the quarter ended September 30, 2001 was also affected by a second
arrangement in which an investment bank purchased  certain  advances and agreed to undertake the obligation to make
a  substantial  portion,  but not all, of the Company's  advance  obligations  on its  securitization  trusts.  The
Company  expects  subservicing  expense to trend  downward in future  periods as the  balance of loans  subserviced
declines. The Company also expects MSR amortization to decline as the servicing portfolio decreases.

The  Company  has not added any new 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 whole
loan  sales  for  cash  and   securitizations   with  servicing  released  since  that  time.   Mortgage  loans  in
securitization  trusts  serviced by the Company  in-house  declined $574.0 million to $1.1 billion at September 30,
2002 from $1.6 billion at September 30, 2001. The Company's  total loan  servicing  portfolio at September 30, 2002
decreased  $438.0  million,  or 16.1%,  to $2.3 billion from $2.7 billion at  September  30, 2001,  reflecting  the
$574.0 million runoff in mortgage loans in securitization  trusts, and loan dispositions,  partially offset by loan
production  during the  intervening  year.  The Company's  servicing  portfolio will continue to be impacted in the
future by the Company's  dispositions  of its loan  production  through whole loan sales and  securitizations  on a
servicing  released  basis,  which has resulted in a smaller  servicing  portfolio.  Future loan servicing  revenue
will  be  negatively  impacted  by  continuing  declines  in the  size  of  the  portfolio  of  mortgage  loans  in
securitization  trusts,  and in  prepayment  fees due to the aging of loans in the  portfolio of mortgage  loans in
securitization  trusts  past the term of any  prepayment  fees on  loans,  and,  to a lesser  extent,  by the costs
associated  with the  arrangements  the Company  entered  into to reduce  servicing  advances on mortgage  loans in
securitization trusts.

---

Interest Income.
 Interest income includes  interest on loans held for sale,  discount  accretion income associated
with the Company's  residual  interests and interest on short-term  overnight  investments.  Interest income during
the three months ended  September 30, 2002  decreased by $3.8 million to  $18.6million  from $22.4 million  during
the three  months  ended  September  30,  2001.  The  decrease in interest  income  during the three  months  ended
September 30, 2002 from the amount reported  during the comparable  three month period a year ago was primarily due
to a decline of $4.1million in accretion to the Company's  residual  interests.  The Company's  residual interests
were at lower balances during the three months ended  September 30, 2002 when compared to residual  interest levels
during the same three month period a year ago.  Partially  offsetting the decreases in accretion  income during the
three months ended  September 30, 2002 from amounts  reported  during the same period a year ago was an increase of
$0.3 million in interest  income on loans held for sale during the three months ended  September 30, 2002 over such
interest  income  levels  reported  during the  comparable  period a year ago. The  increase in interest  income on
loans  held for sale  during the three  months  ended  September  30,  2002 over the amount  reported a year ago is
attributable  to higher  outstanding  balances of loans held for sale  despite  such loans  having  lower  weighted
average  coupon rates during the three months ended  September  30, 2002 when  compared to such balances and coupon
rates during the same period a year ago.

Expenses

General.
Total  expenses  during the three months ended  September 30, 2002 were $56.8  million  compared to $52.0
million during the three months ended  September 30, 2001. The $4.8 million  increase in total expenses  during the
three months ended  September 30, 2002 over total expenses  during the comparable  period in 2001 was  attributable
to  increases  of $5.3  million  and $1.9  million in  personnel  expense  and  production  expense,  respectively,
partially offset by a decline of $2.3 million in interest expense.

Personnel.
Personnel  expense  includes  salaries,  payroll  taxes  and  medical  and  other  employee  benefits.
Personnel  expense also includes  incentives that are generally  related to the Company's loan origination  volume,
as retail and broker  account  executives  earn  incentives on funded  loans.  Personnel  expense  during the three
months ended  September 30, 2002 increased $5.3 million,  or 20.5%,  to $31.2 million from $25.9 million during the
three months ended September 30, 2001. The increase was comprised  primarily of $2.5 million of increased  salaries
attributable  principally to the increased  staffing  levels in the Company during the three months ended September
30, 2002 over the three months ended  September 30, 2001 due to the  acquisition of the Company's  second  National
Loan Center and to other  employee  head count growth within the Company due to $245.9  million  increase in retail
and broker  production  during the three  months ended  September  30, 2002 over such  production  during the three
months ended  September  30, 2001. In addition,  incentive  compensation  relative to retail and broker  executives
increased by $1.8 million  during the September  2002 quarter over the September  2001 quarter due to the increased
production in the September  2002  quarter.  Incentive  compensation  expense  relative to other senior  management
also  increased $0.6 million  during the three months ended  September 30, 2002 over the  comparable  period a year
ago. Finally,  payroll taxes,  medical and other benefit costs increased $0.4 million during the three months ended
September 30, 2002 over the expense amount incurred during the three months ended September 30, 2001.

---

Production.  Production expense,  primarily  advertising,  outside appraisal costs,  travel and entertainment,  and
credit  reporting fees increased $1.9 million,  or 44.2%,  to $6.2 million during the three months ended  September
30, 2002 from $4.3 million  during the three months ended  September 30, 2001. The increase in production  expense
during the three  months  ended September 30,  2002 from the  comparable  three month  period a year ago is due to
increased  advertising and appraisal expenses relative to the Company's  increased loan origination  volumes during
the three months ended September 30, 2002 over those during the comparable  period a year ago.  Production  expense
expressed as a percentage of total loan  origination  volume  remained  constant at 0.6% for the three months ended
September 30, 2002 compared to the three months ended September 30, 2001.

General and  Administrative. General and  administrative  expenses were $10.7 million during both the three months
ended  September  30, 2002 and 2001.  During the three months ended September
30,  2002,  communication  and other
expenses  decreased  by $211,000  from  amounts  reported  during the same  period a year ago.  This  decrease  was
partially  offset by an increase in occupancy  expense of $191,000 during the three months ended September 30, 2002
over the amount reported during the three months ended September 30, 2001.

As  part  of  the  Company's  on-going  cost  savings  program,  the  Company  is  evaluating   subleasing
opportunities  for space it  currently  occupies  that is subject to  operating  leases.  If the Company  agrees to
sublease such space at lease rates  significantly  less than existing base lease terms, or if the lease commitments
are bought out as a consequence of a negotiated  lease  termination,  the Company could incur a significant  charge
to earnings.

Interest  Expense.
Interest  expense  decreased  $2.3  million  to $8.8  million  during  the three  months  ended
September 30, 2002, from $11.1 million during the three months ended September
30,  2001. The decrease in interest
expense  during the three  months  ended  September  30, 2002 from  interest  expense  levels  reported  during the
comparable  three month period a year ago resulted from lower pricing under the Company's  revolving  warehouse and
repurchase  facilities  due to declines in the  one-month  LIBOR during the three months ended  September  30, 2002
despite  increased  average  borrowings during the three months ended September 30, 2002 over borrowings during the
comparable  period a year ago to fund the  origination of mortgage loans prior to their  securitization  or sale in
the secondary  market.  Interest  expense is expected to increase in future periods due to the Company's  continued
reliance on external  financing  arrangements to fund its loan production  operations and expected increases in the
general interest rate environment during calendar 2003.

Income Taxes.
 During the three months ended  September 30, 2002,  the Company  recorded an income tax provision of
$0.6 million which related  primarily to taxes on excess  inclusion  income on the Company's REMIC trusts and, to a
lesser extent,  to miscellaneous  state tax obligations.  Such tax provisions  reflect  effective tax rates of 5.9%
for the three months ended  September 30,  2002. The Company's regular taxable income is projected to be lower than
its excess  inclusion  income mainly due to usage of net operating loss  carryforwards  as well as partial reversal
of the deferred tax asset related to REMICs,  among other items. As such, the Company  provides  current tax on the
excess  inclusion  income as the excess  inclusion tax is payable unless current  taxable income exceeds the excess
inclusion  amounts.  During  the three  months  ended  September  30,  2001,  the  Company  recorded  an income tax
provision of $0.5 million,  which  reflects an effective  tax rate of 45.7%.  The provision for income taxes during
the three months ended  September 30,  2001 related  primarily to taxes on excess inclusion income on the Company's
REMIC trusts and, to a lesser extent, to other miscellaneous state tax obligations.

---

The  investment  in the Company by Capital Z during the year ended  June 30,1999  resulted in a change in
control for income tax purposes thereby limiting future net operating loss and certain other future deductions.

Financial Condition

Loans Held for Sale.The Company's  portfolio of loans held for sale  increased to $501.4 million at September 30,
2002 from $462.1 million at June 30,  2002 due primarily to loan originations  exceeding loan dispositions  during
the three months ended September 30, 2002.

Accounts  Receivable.  Accounts  receivable are comprised of advances to the securitization  trusts;  servicing and
late fees;  amounts due from CZI under the  Residual  Facility,  if  applicable;  cash due from the  securitization
trusts;  and accrued interest  receivable and other  miscellaneous  receivables.  While the Company has had advance
arrangements  with two different  counterparties to reduce its advance  obligations,  one has expired and the other
is not applicable to all advance  obligations.  Therefore,  the Company funds certain advances on a recurring basis
not otherwise  covered by such  arrangements  and recovers  those  advances on a periodic  basis.  At September 30,
2002,  there were no amounts due to the Company  from CZI under the  Residual  Facility.  The $5.0  million due the
Company from CZI under the Residual Facility at September 30, 2001 was subsequently collected by the Company.

Accounts  receivable  decreased  $2.7 million to $58.6 million at September 30, 2002 from $61.3 million at
June 30,  2002.  The decrease is primarily  attributable  to decreases of $4.1 million and $0.1 million in interest
and servicing  advances and  servicing and late fees  receivable,  respectively,  partially  offset by increases of
$1.0 million and $0.5 million in cash due from  securitization  trusts and accrued interest and other  receivables,
respectively.

The  $4.1 million   decrease  in  servicing  and  interest  advances  to  the  securitization   trusts  at
September 30,  2002 from June 30, 2002 is comprised of $10.5 million of advances made by the Company in its role of
servicer of the mortgage loans in the  securitization  trusts,  net of $14.6 million of recoveries of such advances
during the three months  ended  September  30,  2002.  The level of servicing  advances,  in any given  period,  is
dependent upon portfolio  delinquencies,  the level of REO and loans in the process of foreclosure,  and the timing
and remittance of cash collections on mortgage loans in the  securitization  trusts.  The  $0.1 million  decline in
servicing  and late fees  receivable  at  September  30, 2002 from  June 30,  2002 is due  primarily  to  declining
servicing and late fees earned by the Company as a consequence  of the decrease in its portfolio of mortgage  loans
in securitization  trusts during the three months ended September 30,  2002. The $1.0 million  increase in cash due
from the  securitization  trusts at September 30, 2002 from  June 30,  2002 is  attributable  to the timing of cash
being released by the trusts.  The $0.5 million  increase in accrued interest  receivable and other  receivables at
September 30, 2002 when compared to the balance at June 30,  2002 is due  primarily to a  $1.2 million  increase in
amounts  due from  counterparties  on whole loan sale and other  transactions  partially  offset by a $0.6  million
decrease in accrued interest receivable at September 30, 2002.

---

The Company  periodically  evaluates its accounts  receivable  for  realizability  and charges  income for
amounts deemed uncollectible.

Residual  Interests.
Residual interests  decreased to $190.2 million at September 30, 2002 from  $197.3 million at
June 30, 2002, reflecting $11.9 million of cash received from the securitization  trusts,  partially offset
 by $4.8 million of accretion during the three months ended September 30, 2002.

Mortgage  Servicing  Rights,  net.
MSRs, net,  decreased to $2.2 million at September 30, 2002 from $2.9 million at
June 30,  2002 reflecting  amortization of  $0.7 million  during the three months ended September 30, 2002.  During
the three months ended  September 30, 2002, the Company did not capitalize any MSRs as all of the Company's  $920.7
 million of total loan dispositions were whole loan sales for cash with servicing released.

Equipment and  Improvements,  net.
Equipment and  improvements,  net,  decreased to $10.2 million at September 30,
2002 from $10.9 million at June 30, 2002 reflecting  depreciation and amortization  outpacing the capitalization of
new equipment and improvement acquisitions during the three months ended September 30, 2002.

Prepaid  and Other  Assets.
Prepaid  and other  assets  increased  to  $16.0 million  at  September  30, 2002 from
$14.7 million  at June 30,  2002,  reflecting  an increase in  capitalized  costs  incurred for financing and other
arrangements  entered into by the Company over  amortization  of such items during the three months ended September
30, 2002.

Borrowings.  Borrowings  were $256.4  million at September  30, 2002 compared to $263.9  million at June 30,  2002.
The $7.5 million decline  represents the Company's purchase and  extinguishment,  at a discount from par, of 9.125%
Senior  Notes for $6.4  million of cash,  and the related $1.1  million of debt  extinguishment  income  recognized
during the three months ended September 30, 2002.

Revolving  Warehouse   Facilities.
Amounts  outstanding  under  revolving  warehouse  and  repurchase  facilities
increased  to $412.8  million at September  30, 2002 from  $383.1 million  at June 30,  2002  primarily  due to the
Company's  increased reliance on its revolving  warehouse  facilities and, to a lesser extent, as the result of the
increase  in loans held for sale due to loan  originations  during  the three  months  ended  September  30,  2002,
partially  offset by the  Company's  loan  dispositions  during  the  period.  Proceeds  from  whole loan sales and
securitizations  are used  first to  reduce  balances  outstanding  under the  Company's  revolving  warehouse  and
repurchase facilities, and then used to satisfy corporate operating requirements.

Income taxes payable.
Income taxes payable remained substantially  unchanged at $8.6 million at September 30,  2002
and  $8.6million  at June 30,  2002 reflecting the net activity caused by the provision for income taxes offset by
income tax remittances recorded during the three months ended September 30, 2002.

---

Liquidity and Capital Resources

The Company's  operations  require  continued  access to short-term  and  long-term  sources of cash.  The
Company's  primary operating cash requirements  include:  (i) funding of mortgage loan originations  prior to their
securitization  and  sale,  (ii) fees,  expenses  and  hedging  costs,  if any,  incurred  in  connection  with the
securitization  and  sale  of  loans,  (iii)  cash  reserve  accounts  or  overcollateralization  requirements  in
connection with the securitization,  (iv) ongoing  administrative,  operating,  and tax expenses,  (v)
interest and
principal  payments  under  the  Company's  revolving  warehouse  and  repurchase  facilities  and  other  existing
indebtedness and (vi) advances in connection with the Company's servicing portfolio.

The Company's primary sources of liquidity are expected to be (i) fundings  under revolving  warehouse and
repurchase   facilities,   (ii) securitization   and  sale  of  mortgage  loans  and  related   servicing   rights,
(iii) monetization  of residual  interests and  (iv) monetization  of the Company's  advances to the securitization
trusts.  The Company  historically had access to working capital financing  facilities and the issuance of debt and
equity securities to finance its operating cash requirements;  however, due to the Company's operating  performance
in the three most recent  fiscal  years,  the Company  does not expect  access to those  capital  resources  in the
foreseeable future.

The Company had cash and cash equivalents of approximately $21.2 million at September 30, 2002.

Warehouse  and  Repurchase  Facilities. The  Company  generally  relies  on  revolving  warehouse  and  repurchase
facilities to originate  mortgage loans and hold them prior to securitization  or sale. At
September 30,  2002, the
Company had  committed  revolving  warehouse and  repurchase  facilities  in the amount of  $900.0 million.  Of the
$900.0 million of committed  revolving  warehouse and repurchase  facilities  available to the Company at September
 30, 2002,  $300.0 million,  $300.0  million and  $300.0 million  expire on November 16,  2002,  March 20,  2003 and
July 30,  2003,  respectively.  The Company is currently  negotiating  the renewal of the $300.0 million  revolving
facility  that  expires  on  November  16,  2002.  There  can be no  assurances  given  that  the  Company  will be
successful, however, management expects that the facility will be renewed by the lender prior to expiration.

Certain  of the  Company's  warehouse  and  repurchase  facility  lenders  advance  less  than 100% of the
principal  balance of the  mortgage  loans,  requiring  the  Company to use working  capital to fund the  remaining
portion of the principal balance of the mortgage loans

All of the Company's  revolving  warehouse and  repurchase  facilities  contain  provisions  requiring the
Company  to  meet  certain  periodic  financial  covenants,  including,  among  other  things,  minimum  liquidity,
stockholders' equity,  leverage,  and net income levels. If the Company is unable to meet these financial covenants
going forward,  or is unable to obtain subsequent  amendments or waivers,  if required,  or for any other reason is
unable to maintain  existing  warehouse or repurchase lines or renew them when they expire,  it would have to cease
loan  production  operations  which  would  jeopardize  the  Company's  ability to  continue  to operate as a going
concern.

---

Pursuant to agreements  relating to the Company's two 1999  securitization  trusts, the monoline insurance
company  providing  credit  enhancement  requires  the  Company  to  maintain  a  specified  net worth and level of
liquidity in order to be able to continue to service the loans in the trusts. As previously  reported,  the Company
currently  does not satisfy the specified net worth test, and as a result,  the monoline  insurer can terminate the
Company as servicer.  The monoline  insurer has to date waived the Company's  failure to satisfy the net worth test
and to terminate the Company as servicer with respect to those securitization trusts.

Under the terms of the  Company's  Indenture  dated October 21,  1996 with  respect to its 9.125%  Senior
Notes due 2003, the Company's ability to incur certain additional  indebtedness,  including residual financing,  is
limited to two times  stockholders'  equity.  Funded  warehouse  indebtedness  is not included in the  indebtedness
limitations.  Securitization obligations are generally not included in the indebtedness limitations.  The Company's
revolving  warehouse and repurchase  facilities  also contain limits on the Company's  ability to incur  additional
indebtedness.  Further,  until the  Company  receives  investment  grade  ratings  for the notes  issued  under the
Indenture,  the amount of assets allocable to  post-September 1996  securitizations which the Company may pledge to
secure debt is limited by the Indenture to 75% of the  difference  between such  post-September 1996  residuals and
servicing  advances and  $225.0 million.  This could  restrict the Company's  ability to borrow to provide  working
capital as needed in the future.

The  Securitization  and Sale of  Mortgage  Loans. The  Company's  ability to sell loans  originated  by it in the
secondary  market through  securitizations  and whole loan sales is necessary to generate cash proceeds to pay down
its warehouse and  repurchase  facilities  and fund new mortgage loan  originations.  The ability of the Company to
sell loans in the secondary  market on acceptable  terms is essential for the  continuation  of the Company's  loan
origination operations.

During the three  months  ended  September  30,  2002,  the  Company  did not  dispose of any of its loans
through  securitizations  and sold all of its $920.7 million of loan dispositions in whole loan sales,  compared to
$175.0  million of loans  securitized  and $570.6 million of loans sold in whole loan sales,  respectively,  during
the  comparable  period a year ago. The gain on sale  recognized by the Company on  securitizations  and whole loan
sales is  affected  by,  among  other  things,  market  conditions  at the time of the  loan  disposition,  and the
Company's assumptions used in securitizations. See "Results of Operations-Revenue."

In  connection  with  securitization  transactions,  the Company is generally  required to provide  credit
enhancements in the form of  overcollateralization  amounts or reserve  accounts.  In addition,  during the life of
the related  securitization  trusts, the Company subordinates a portion of the excess cash flow otherwise due it to
the rights of holders of senior  interests  as a credit  enhancement  to support the sale of the senior  interests.
The terms of the  securitization  trusts  generally  require  that all excess  cash flow  otherwise  payable to the
Company  during the early  months of the  trusts be used to  increase  the cash  reserve  accounts  or to repay the
senior  interests  in  order  to  increase  overcollateralization  to  specified  maximums.   Overcollateralization
requirements  for  certain  pools  increase  up to  approximately  twice  the  level  otherwise  required  when the
delinquency  rates or realized  losses for those pools  exceed the  specified  limit.  At September  30, 2002,  the
Company was required to maintain  overcollateralization  amounts of  $182.6 million,  of which  $168.1 million  was
maintained.  The remaining $14.5 million is required to be added to the  overcollateralization  amounts from future
spread income from the loans in the securitization trusts. Of the $182.6 million of  overcollateralization  amounts
required at September 30, 2002,  $44.1 million is required to be maintained due to the level of  delinquency  rates
and  realized  losses of mortgage  loans being in excess of  specified  delinquency  rates and  realized  losses in
certain securitization trusts.

---

In the Company's  securitizations  structured as a REMIC,  the  recognition of non-cash gain on sale has a
negative  impact on the cash flow of the Company  since the Company is required to pay federal and state taxes on a
portion of these  amounts in the period  recognized  although it does not receive  the cash  representing  the gain
until later periods as the cash flows are received and  applicable  reserve or  overcollateralization  requirements
are met

Residual  Forward Sale Facility. On August 31,  2000, the Company entered into the Residual  Facility with CZI, an
affiliate of Capital Z, the  Company's  largest  shareholder,  and amended the Residual  Facility on September  30,
2002.  Pursuant to the terms of the Residual  Facility,  the Company may sell up to  $75.0 million  of its residual
interests  for  cash in  future  securitizations  through  the  earliest  of  (i)
March  31,  2003  (extended  from
September 30,  2002),  (ii) the full utilization of the $75.0 million  amount of the Residual Facility,  or (iii)
a
termination  event,  as defined in the Residual  Facility.  The Company  believes  that the  Residual  Facility has
strengthened  its  ability to  include  securitizations  in its loan  disposition  strategy  through  reducing  the
negative  cash flow aspects of  securitizations  and by  providing  another  source of cash to the Company  through
periodically converting residual interests into cash.

At September 30, 2002, the capacity  remaining under the Residual  Facility was  $13.5 million.  It is the
Company's  expectation to sell to CZI residual interests created in future  securitizations as a means of enhancing
its working  capital on a periodic  basis.  There can be no assurance  that the Residual  Facility  will be renewed
beyond its expiration.

In connection with obtaining the Residual Facility,  the Company incurred and capitalized  $3.3 million of
costs, of which  $3.0 million  related to a facility fee paid to CZI. The capitalized  costs are being amortized to
gain on sale of loans based upon the ratio of the dollar  amount of the  residual  interests  sold to CZI under the
Residual  Facility to the total Residual  Facility amount.  The Company did not dispose of any of its loans through
securitizations  and no  amortization  of the remaining  capitalized  costs was recognized  during the three months
ended  September 30,  2002.  During the three months ended September 30, 2001,  amortization  of total  capitalized
Residual  Facility  costs charged to gain on sale of loans was $0.2 million  substantially  all of which related to
the facility fee paid to CZI. At September 30, 2002,  the total  unamortized  capitalized  Residual  Facility costs
remaining to be amortized were $0.7 million,  of which  $0.6 million  related to the facility fee, and are included
in prepaid and other assets in the  accompanying  condensed  consolidated  balance sheet. If the Residual  Facility
expires with remaining  capacity  available or if it were to be terminated  prior to its full usage,  any remaining
unamortized fees would be charged to gain on sale of loans at such times.

Monetization  of  Advances  to the  Securitization  Trusts.  In the  past,  in order to  reduce  its  interest  and
servicing  advance  obligations,  the Company  entered into  arrangements  with a buyer pursuant to which the buyer
purchased certain cumulative advances and undertook the obligation to make a substantial  portion,  but not all, of
the Company's advance  obligations on its securitization  trusts. In the future, the Company may enter into similar
arrangements as a means to further reduce its advance obligations or to monetize advance receivables.

---

The Issuance of Debt and Equity  Securities. The Company has  historically  funded  negative  cash flow  primarily
from the sale of its equity and debt securities.  However,  current market conditions have restricted the Company's
ability to access its traditional equity and debt sources.

As previously  reported,  on February 12, 2002,  the Company  completed its rights  offering to its Common
Stockholders.  The Company  sold 637,000  shares of Series D  Convertible  Preferred  Stock at a price of $0.85 per
share and raised approximately $542,000 in the offering.

The Company has previously  raised  $179.2 million  through the sale of preferred stock in several phases,
consisting of  $170.8 million  to Capital Z and its  designees, $4.2 million  to certain  members of the Company's
management  and  $4.2 million  to holders of the  Company's  common  stock.  Capital Z  invested
$75.0 million  in
February1999,  $25.0 million  in  August 1999,  $20.8 million  pursuant to their  standby  commitment  in a rights
offering in  October 1999,  $34.7 million  in June 2000,  and  $15.3 million  in July 2000. The Company also issued
$2.9 million of preferred stock to certain  management  investors in February and October 1999, and $1.3 million of
preferred  stock to certain  current and former  management  investors,  and  consultants  to the Company in August
2000.  The  Company  raised  $4.2 million  from  the  sale  of  Series C  Convertible  Preferred  Stock  to  common
stockholders  in a rights  offering in October,  1999. The Company also issued warrants to affiliates and employees
of an affiliate of Capital Z to purchase an aggregate  of 500,000  shares of the  Company's  common stock for $5.00
per share in February 1999, and warrants to purchase  5.0 million  shares of Series D  Convertible  Preferred Stock
at $0.85 per share in July 2001.

In  December 1991,  July 1993,  June 1995 and  October 1996,  the Company effected public offerings and in
April 1998  effected  a private  placement  of its  common  stock  with net  proceeds  to the  Company  aggregating
$217.0 million.  In  February 1996,  the  Company  completed  an  offering  of its  5.5%  Convertible  Subordinated
Debentures due 2006 with net proceeds to the Company of $112.0 million.  In October 1996,  the Company completed an
offering  of its  9.125%  Senior  Notes due 2003 with net  proceeds  to the  Company of  $145.0 million.  Under the
agreements  relating  to these debt  issuances,  the  Company is required  to comply  with  various  operating  and
financial  covenants  including  covenants which may restrict the Company's  ability to pay certain  distributions,
including  dividends.  At September 30, 2002,  the Company did not have the ability to pay such  distributions  and
does not expect to have the ability to pay dividends for the foreseeable future.

If the Company's access to warehouse lines,  working capital or the  securitization  or whole loan markets
is restricted,  the Company may have to seek additional  equity.  There can be no assurance that sufficient sources
of liquidity  will be available to the Company at any given time or that  favorable  terms will be available.  As a
result of the  limitations  described  above,  the Company may be restricted in the amount of loans that it will be
able to produce and sell.  This would  negatively  impact  profitability  and jeopardize  the Company's  ability to
continue to operate as a going concern.

---

Risk Management

During the three  months ended  September  30, 2002 and 2001,  the  Company,  as it has from time to time,
entered into  agreements to hedge economic  exposure to its fixed rates loans held for sale. At September 30, 2002,
the Company had notional  amounts of $220.0  million of forward  interest  rate swap  agreements  in place to hedge
exposure to its fixed rate loans held for sale and  pipeline of fixed rate  loans.  There were no forward  interest
rate swap agreements in place at September 30,  2001. The following table summarizes certain information  regarding
the interest rate swap agreements:

| | At September 30, 2002                  |               
| | -------------------------------------- | --------------
| | Notional
      Amount
      In (000's) | Fixed Pay Rate
| | $50,000                                |               
| | 50,000                                 |               
| | 120,000                                |               
| | $220,000                               |               

Gain on sale of loans during the three months ended  September  30, 2002 includes a charge of $7.9 million
related to the Company's  hedging  activities,  of which $7.1 million related to losses on closed forward  interest
rate swap  agreements  and $0.8  million  related  to the  Company's  mark to the  estimated  fair value of forward
interest  rate swap  agreements  open at September 30, 2002,  respectively.  Gain on sale of loans during the three
months ended  September 30, 2001 includes a charge of $1.6 million  related to the  Company's  hedging  activities,
all of which  related to hedge losses  recorded on forward  interest  rate swap  agreements  that closed during the
period.  The Company  continually  monitors the interest  rate  environment  and its hedging  strategies.  However,
there can be no assurance  that the earnings of the Company  would not be adversely  affected  during any period of
unexpected  changes in  interest  rates or  prepayment  rates,  including  additional  charges to  earnings  on the
Company's  existing  forward  interest rate swap agreements or charges to earnings on future  derivative  contracts
into which the Company may enter.

Rate Sensitive  Derivative  Financial  Instruments,  Rate Sensitive  Assets and Liabilities  and Off-Balance  Sheet
Activities

Sale  of   Loans
-Securitizations   and  Whole  Loan  Sales-Interest  Rate  Risk.  A  significant  variable  in  the
determination  of gain on sale in a  securitization  is the  spread  between  the  weighted  average  coupon on the
securitized  loans and the  pass-through  interest rate. In the interim period between loan origination or purchase
and  securitization  of such loans,  the Company is exposed to interest rate risk. The majority of loans are either
sold or securitized  within 90 days of  origination or purchase.  However,  a portion of the loans is held for sale
or securitization  for as long as 12 months (or longer, in very limited  circumstances)  prior to securitization or
sale. If interest  rates rise during the period that the mortgage  loans are held,  the spread between the weighted
average  interest rate on the loans to be securitized and the  pass-through  interest rates on the securities to be
sold (the latter having increased as a result of market rate movements)  would narrow.  Upon  securitization,  this
would result in a reduction of the Company's  related gain on sale. The Company is also exposed to rising  interest
rates for loans  originated or purchased  which are held pending sale in the whole loan market.  From time to time,
the Company  mitigates  exposure to rising interest rates through the use of forward  interest rate swap agreements
or other hedging  activities.  These hedging  activities  help mitigate the risk of absolute  movements in interest
rates.

---

Rate  sensitive  assets and  liabilities.
At September 30, 2002, the Company's  $501.4 million  inventory of loans
held for sale was  comprised of  $230.8 million  and  $270.6 million  of fixed and variable  rate  mortgage  loans,
respectively,  which had weighted  average  interest rates of 8.33% and 8.53%,  respectively.  The weighted average
interest  rate on the Company's  inventory of loans held for sale was 8.43% at September  30, 2002. In  comparison,
at June 30,  2002 the Company's  $462.1 million  inventory of loans held for sale was  comprised of  $207.5 million
and  $254.6 million  of fixed and variable rate mortgage loans,  respectively,  which had weighted average interest
rates of 8.83% and 9.09%,  respectively.  The weighted  average  interest rate on the Company's  total inventory of
loans held for sale was 8.93% at June 30, 2002.

At September 30, 2002, the Company had aggregate  outstanding funded  indebtedness of  $669.2 million,  of
which  $412.8 million  and $256.4 million bore variable and fixed interest  rates,  respectively.  At September 30,
2002, the weighted average interest rate on the Company's  $412.8 million  of outstanding  revolving  warehouse and
repurchase  facilities was 2.88%. All of the Company's revolving  warehouse and repurchase  facilities were indexed
to one-month LIBOR which,  at September 30, 2002, was 1.81%.  The weighted  average  interest rate on the Company's
$256.4 million  of outstanding  fixed rate  borrowings was 7.51% at September 30, 2002. In comparison,  at June 30,
2002 the weighted  average interest rate on the Company's  $383.1 million  of outstanding  revolving  warehouse and
repurchase  facilities was 2.90%. At June 30,  2002, the one-month LIBOR was 1.84%.  The weighted  average interest
rate on the Company's $264.0 million of outstanding fixed rate borrowings was 7.56% at June 30, 2002.

Residual Interests and MSRs.
The Company had residual  interests of $190.2 million  and $197.3 million  outstanding
at September  30, 2002 and June 30,  2002,  respectively.  The Company also had MSRs  outstanding  at September 30,
2002 and June 30,  2002 in the amount of $2.2 million and  $2.9 million,  respectively.  Both of these  instruments
are recorded at estimated  fair value at September  30, 2002 and  June 30,  2002.  The Company  values these assets
based on the present value of future  revenues net of expenses using various  assumptions.  The discount rates used
to  calculate  the  present  value of the  residual  interests  and MSRs were  13.4% and  15.0%,  respectively,  at
September 30, 2002.  The discount  rate used to calculate the present value of the residual  interests and MSRs was
13.4% and  15.0%,  respectively,  at June 30,  2002.  The  weighted  average  life of the  mortgage  loans used for
valuation was 4.1 years at September 30, 2002 and 3.7years at June 30, 2002.

These  assets are  subject  to actual  prepayment  or credit  loss risk in excess of  assumptions  used in
valuation.  Ultimate cash flows  realized from these assets would be reduced  should actual  prepayments  or credit
losses exceed  assumptions  used in the valuation.  Conversely,  cash flows realized would be greater should actual
prepayments or credit losses be below expectations.

---

Fair Value of Financial  Instruments.  The Company's  financial  instruments  recorded at contractual  amounts that
approximate market or fair value primarily consist of loans held for sale,  accounts  receivable,  forward interest
rate swap  agreements,  and revolving  warehouse  and  repurchase  facilities.  Accounts  receivable  and revolving
warehouse  and  repurchase  facilities  are short term in nature or generally  bear market  rates of interest.  The
carrying  amounts of these  instruments  are  reasonable  estimates of their fair  values.  Loans held for sale are
carried at the lower of  aggregate  cost or market.  The fair value of forward  interest  rate swap  agreements  is
based on quoted market prices from a financial counterparty.

Credit  Risk. The  Company is exposed  to  on-balance  sheet  credit  risk  related to its loans held for sale and
residual  interests.  The Company is exposed to  off-balance  sheet  credit risk related to loans which the Company
has committed to originate or purchase.

Warehousing  Exposure.The Company  utilizes  revolving  warehouse and  repurchase  facilities  to facilitate  the
holding of mortgage  loans prior to  securitization  or sale in the whole loan markets.  At September 30, 2002, the
Company  had  total  committed  revolving  warehouse  and  repurchase   facilities   available  in  the  amount  of
$900.0 million and the total amounts  outstanding on these facilities was $412.8 million.  Revolving  warehouse and
repurchase  facilities  are  typically  for a term of one  year  or  less  and  are  designated  to fund  mortgages
originated  within  specified  underwriting  guidelines.  The majority of the assets remain in the facilities for a
period of up to 90 days at which  point they are  securitized  and/or  sold to  institutional  investors.  As these
amounts are short term in nature and/or generally bear market rates of interest,  the contractual  amounts of these
instruments are reasonable estimates of their fair values.

Item 4.  Controls  and  Procedures.
Within the 90 days prior to the date of filing this  Quarterly  Report on Form
10-Q, the Company  carried out an evaluation,  under the supervision  and with the  participation  of the Company's
Disclosure  Committee and management,  including the Chief Executive  Officer and Chief Financial  Officer,  of the
effectiveness  of the design and  operation  of the  Company's  disclosure  controls  and  procedures  pursuant  to
Exchange Act Rule 15d-14.  Based upon that  evaluation,  the Chief Executive  Officer and Chief  Financial  Officer
concluded that the Company's  disclosure  controls and procedures are effective in timely alerting them to material
information  relating to the Company (including its consolidated  subsidiaries)  required to be included in reports
the Company  files with the SEC pursuant to the  Securities  Exchange Act of 1934.  Subsequent  to the date of that
evaluation,  there have been no  significant  changes in the Company's  internal  controls or in other factors that
could significantly affect the internal controls.

---

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

The  Company  and  certain of its  subsidiaries  are  defendants  in Fowler  et.  al. v.  Aames  Financial
Corporation and Aames Funding  Corporation,  a putative class action filed on approximately  May11,  2001, in U.S.
District Court of California,  case  2:01cv04330.  Plaintiff,  a former loan  executive,  filed this putative class
action  on  behalf  of  himself  and  current  and  former  loan  executives  employed  by the  Company,  and seeks
certification of class,  damages  consisting of alleged unpaid overtime,  statutory  liquidated damages and waiting
time penalties,  attorneys' fees and costs,  restitution,  disgorgement of profits and injunctive relief. Plaintiff
alleges that during his employment,  he and other loan  executives  worked in excess of 8 hours per day or 40 hours
per week,  that the Company  willfully  failed to pay overtime in violation of the Federal Fair Labor Standards Act
and,  with  respect to loan  executives  employed in  California,  in violation  of the  California  Labor Code and
Business &  Professional  Code  §17200,  et seq.  Aames filed an answer  denying the claims and  asserting  various
affirmative defenses on September 4, 2001. Discovery is continuing.

The Company and certain of its  subsidiaries  are  defendants in Aslami et. al. v. Aames Home Loan,  Aames
Financial  Corporation,  et. al., a putative  class action filed on  approximately  April 11,  2000, in Los Angeles
County Superior Court, case No. BC228027.  Plaintiffs,  former customers, filed this action on behalf of themselves
and all persons who applied for or obtained  loans from the Company  during the  preceding  four years.  Plaintiffs
allege various state law claims premised upon their contention that the Company  routinely  "upcharges" third party
fees and  underdiscloses  annual percentage rates. On April 26, 2002,  Plaintiffs filed a third amended  complaint,
limiting  the  purported  class to  California  borrowers  and  asserting  claims based upon the payment of a yield
spread premium to their broker.  Plaintiffs  contend that such yield spread premium payments  constitute  kickbacks
and/or illegal  referrals under California law and/or that the Company failed to properly  disclose the nature of a
yield spread  premium.  Plaintiffs seek  certification  of the class,  damages  consisting of fees paid to mortgage
brokers,  statutory treble damages,  attorneys' fees and costs,  restitution,  disgorgement of improperly collected
charges,  punitive damages and injunctive relief.  The Company has answered the amended complaint,  again asserting
various  affirmative  defenses.  The  court  has set  December  2,  2002 as the date  upon  which it will  consider
Plaintiffs' motion to certify a class. No trial date has been set.

Wilmington  Trust  Company,  as successor  indenture  trustee with respect to the Company's  Senior Notes,
brought an action  against the Company  seeking to prevent the Company from  consummating  its Exchange  Offer.  On
June 20,  2002,  the  Supreme  Court of the State of New York heard oral  arguments  related  to  Wilmington  Trust
Company's  request for an order  preliminarily  enjoining the Company from  proceeding  with the Exchange Offer. On
July 1, 2002, the court denied Wilmington  Company's complaint.  On August 1, 2002,  Wilmington Trust Company filed
an amended  complaint  seeking a declaratory  judgment that if the Company were to proceed with the Exchange  Offer
an event of default would exist under the indenture  governing  the Senior Notes.  On August 14, 2002,  the Company
filed a motion to dismiss the amended  complaint and request a declaratory  judgment that the Exchange  Offer would
constitute an event of default under the indenture  governing  the Senior Notes.  In a decision  dated
October 25,
2002,  the Supreme  Court of the State of New York granted the Company's  motion to dismiss the  Trustee's  amended
complaint  and issued a  declaratory  judgment in favor of the Company that the  Exchange  Offer,  if  consummated,
would not (i) violate the terms of the indenture  governing  the Senior Notes,  or give rise to an event of default
thereunder, or (ii) constitute a breach of an implied covenant of good faith and fair dealing.

---

The Company  cannot  predict the outcome of these  matters.  The Company  believes these suits are without
merit and intends to vigorously  defend these actions.  However,  the Company believes that an unfavorable  outcome
of one or more of the above cases could have a material  adverse  effect on the  Company's  consolidated  financial
position and results of operations.

Item 2. Changes in Securities-None

Item
3. Defaults upon Senior Securities-None

Item
4. Submission of Matters to a Vote of Security Holders-None

Item 5. Other Information-None

Item 6. Exhibits and Reports on Form8-K

|(a) |  | Exhibits: See Exhibit Index                                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The Company filed the following Current Reports on Form8-K during
the quarter ended September 30, 2002:                                                                                                                          
|    |  | On July 3, 2002, the Company filed a Form 8-K (dated July 2,
2002) reporting that the expiration date of
      its Exchange Offer had been extended to 5:00 p.m., New York City time, on Friday, July 19, 2002.                  
|    |  | On July 11, 2002, the Company filed a Form 8-K (dated
May 31, 2002) reporting delinquency and loss
      statistics in the loan servicing portfolio of Aames Capital Corporation, a wholly owned subsidiary of
      the Company.

---

| |  | On July 22, 2002, the Company filed a Form 8-K (dated July 19,
2002)  reporting  that the expiration  date
      of its Exchange Offer had been extended to 5:00 p.m., New York City time, on Friday, August 2,
2002.                                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On July 31, 2002, the Company filed a Form 8-K (dated
June 30, 2002)  reporting the  delinquency  and loss
      statistics in the loan servicing portfolio of Aames Capital Corporation.                                                            
| |  | On August 2, 2002,  the Company  filed a Form 8-K
(dated  August 1, 2002)  reporting  that the  expiration
      date of its  Exchange  Offer had been  extended to 5:00 p.m.,  New York City time,  on Friday,  August 16,
      2002.              
| |  | On August 16, 2002,  the Company filed a Form 8-K (dated
August 16, 2002)  reporting  that the  expiration
      date of its Exchange  Offer had been extended to 5:00 p.m.,  New York City time,  on Friday,  September 6,
      2002.              
| |  | On  September  6,  2002,  the  Company  filed a Form 8-K
(dated  September  6,  2002)  reporting  that the
      expiration  date of its  Exchange  Offer had been  extended to 5:00 p.m.,  New York City time,  on Friday,
      September 20, 2002.
| |  | On  September  23, 2002,  the Company  filed a Form 8-K
(dated  September  20,  2002)  reporting  that the
      expiration  date of its  Exchange  Offer had been  extended to 5:00 p.m.,  New York City time,  on Friday,
      October 4, 2002.   
| |  | On September 30, 2002, the Company filed a Form 8-K
(dated September 27, 2002) reporting fiscal 2002 and
      fourth quarter results and the release of wholesale web-based automated underwriting engine.                                          

---

AAMES FINANCIAL CORPORATION

SIGNATURES

Pursuant to the requirements of the Securities  Exchange Act of 1934, as amended,  the Registrant has duly
caused this Report on Form10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

| |                         |  |     | AAMES FINANCIAL CORPORATION            | 
| | ----------------------- |  | --- | -------------------------------------- | 
| | Date: November 14, 2002 |  |     |                                        | 
| |                         |  |     |                                        | 
| |                         |  | By: |                                        | 
| |                         |  |     | /s/Ronald J. Nicolas, Jr.              | 
| |                         |  |     | Ronald J. Nicolas, Jr.                 | 
| |                         |  |     | Executive Vice President - Finance and | 
| |                         |  |     | Chief Financial Officer                | 
| |                         |  |     |                                        | 
| |                         |  |     |                                        | 

---

CERTIFICATIONS



| | I, A. Jay
      Meyerson, certify that: |                                                                                                                                                                                                                                                                                                                                                                
| | --------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| | 1.                                      | I have reviewed this
      quarterly report on Form10-Q of Aames Financial Corporation;                                                                                                                                                                                                                                                                        
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| | 2.                                      | Based on my  knowledge,  this  quarterly  report
does not  contain  any  untrue  statement  of a
      material fact or omit to state a material fact  necessary to make the  statements  made, in light
      of the  circumstances  under which such  statements were made, not misleading with respect to the
      period covered by this quarterly report;
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| | 3.                                      | Based on my knowledge,  the financial
statements,  and other financial  information  included in
      this quarterly report,  fairly present in all material respects the financial condition,  results
      of  operations  and cash flows of the  registrant  as of, and for, the periods  presented in this
      quarterly report;                       
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| | 4.                                      | The registrant's other certifying officer and I are
responsible for establishing and
      maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
      15d-14) for the registrant and we have:                                                                                                                           
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| |                                         | a)                                                                                                                                                                                                                                                                                                                                                             
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| |                                         | b)                                                                                                                                                                                                                                                                                                                                                             
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| |                                         | c)                                                                                                                                                                                                                                                                                                                                                             
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| | 5.                                      | The registrant's other certifying officer and I
have disclosed, based on our most recent
                  evaluation, to the registrant's auditors and the audit committee of registrant's board of
                  directors (or persons performing the equivalent function):                                                                              
| |                                         |                                                                                                                                                                                                                                                                                                                                                                
| |                                         | a)                                                                                                                                                                                                                                                                                                                                                             
| |                                         |                                                                                                                                                                                                                                                                                                                                                                

---

| |    | b)                                                                                                                                                                                                                                                                                                                                                                                                         | any fraud, whether or not material, that involves
management or other employees who have a significant
                           role in the registrant's internal controls; and | 
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                   | 
| | 6. | The registrant's other certifying officer and I have
indicated in this quarterly report whether
      or not there were significant changes in internal controls or in other factors that could
      significantly affect internal controls subsequent to the date of our most recent evaluation,
      including any corrective actions with regard to significant deficiencies and material weaknesses. |                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                   | 



| | Date: November 14, 2002 |  |                               | 
| | ----------------------- |  | ----------------------------- | 
| |                         |  |                               | 
| |                         |  | /s/ A. Jay Meyerson           | 
| |                         |  | A. Jay Meyerson               | 
| |                         |  | Chief Executive Officer       | 
| |                         |  | (Principal Executive Officer) | 







| | I, Ronald J. Nicolas, Jr., certify
that: |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                          |                                                                                                                                                                                                                                                                                                                                                                
| | 1.                                       | I have reviewed this quarterly report on
Form10-Q of Aames Financial Corporation;                                                                                                                                                                                                                                                                              
| |                                          |                                                                                                                                                                                                                                                                                                                                                                
| | 2.                                       | Based on my  knowledge,  this  quarterly
report  does not  contain  any  untrue  statement  of a
      material fact or omit to state a material fact  necessary to make the  statements  made, in light
      of the  circumstances  under which such  statements were made, not misleading with respect to the
      period covered by this quarterly report;
| |                                          |                                                                                                                                                                                                                                                                                                                                                                
| | 3.                                       | Based on my knowledge,  the financial
statements,  and other financial  information  included in
      this quarterly report,  fairly present in all material respects the financial condition,  results
      of  operations  and cash flows of the  registrant  as of, and for, the periods  presented in this
      quarterly report;                       
| |                                          |                                                                                                                                                                                                                                                                                                                                                                
| | 4.                                       | The registrant's other certifying officer and I are
responsible for establishing and
      maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and
      15d-14) for the registrant and we have:                                                                                                                           
| |                                          |                                                                                                                                                                                                                                                                                                                                                                
| |                                          | a)                                                                                                                                                                                                                                                                                                                                                             



---

| |    | b)                                                                                                                                                                                                                                                                                                                                                                                                               | evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within
                           90 days prior to the filing date of this quarterly report (the "Evaluation Date");
and                                                                                                              | 
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                       | 
| |    | c)                                                                                                                                                                                                                                                                                                                                                                                                               | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls
                           and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                    | 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                       | 
| | 5. | The registrant's other certifying officer and I have
disclosed, based on our most recent
      evaluation, to the registrant's auditors and the audit committee of registrant's board of
      directors (or persons performing the equivalent function):                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                       | 
| |    | a)                                                                                                                                                                                                                                                                                                                                                                                                               | all significant deficiencies in the design or operation of
internal controls which could adversely
                           affect the registrant's ability to record, process, summarize and report financial
      data and have identified for the registrant's auditors any material weaknesses in
      internal controls; and | 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                       | 
| |    | b)                                                                                                                                                                                                                                                                                                                                                                                                               | any fraud, whether or not material, that involves
management or other employees who have a significant
                           role in the registrant's internal controls; and                                                                                                                                                     | 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                       | 
| | 6. | The registrant's other certifying officer and I have
indicated in this quarterly report whether
      or not there were significant changes in internal controls or in other factors that could
      significantly affect internal controls subsequent to the date of our most recent evaluation,
      including any corrective actions with regard to significant deficiencies and material
      weaknesses. |                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                       | 



| | Date: November 14, 2002 |  |                               | 
| | ----------------------- |  | ----------------------------- | 
| |                         |  |                               | 
| |                         |  | /s/ Ronald J. Nicolas, Jr.    | 
| |                         |  | Ronald J. Nicolas             | 
| |                         |  | Chief Financial Officer       | 
| |                         |  | (Principal Financial Officer) | 

---

EXHIBIT INDEX

|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                          
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                 
|3.1         |  | Certificate of Incorporation of Registrant, as amended (1)                                                                                                                                                                      
|3.2         |  | Bylaws of Registrant, as amended (2)                                                                                                                                                                                            
|4.1         |  | Specimen certificate evidencing Common Stock of Registrant (1)                                                                                                                                                                  
|4.2         |  | Specimen certificate evidencing Series B Convertible Preferred Stock of
Registrant (1)                                                                                                                                          
|4.3         |  | Certificate of Designations for Series B Convertible Preferred Stock of
Registrant, as amended (3)                                                                                                                              
|4.4         |  | Specimen certificate evidencing Series C Convertible Preferred Stock of
Registrant (1)                                                                                                                                          
|4.5         |  | Certificate of Designations for Series C Convertible Preferred Stock of
Registrant, as amended (3)                                                                                                                              
|4.6         |  | Specimen certificate evidencing Series D Convertible Preferred Stock of
Registrant (1)                                                                                                                                          
|4.7         |  | Certificate of Designations for Series D Convertible Preferred Stock of Registrant, as amended
(3)                                                                                                                              
|4.8(a)      |  | Rights Agreement, dated as of June 21, 1996 between Registrant and Wells
Fargo Bank, as rights agent (4)                                                                                                                        
|4.8(b)      |  | Amendment to Rights Agreement, dated as of April 27, 1998 (5)                                                                                                                                                                   
|4.8(c)      |  | Amendment to Rights Agreement, dated as of December 23, 1998 (6)                                                                                                                                                                
|4.9(a)      |  | Indenture of Trust, dated February 1, 1995, between Registrant and Bankers Trust Company of
California, N.A.,
relating to Registrant's 10.50% Senior Notes due 2002 (7)                                                         
|4.9(b)      |  | Supplemental Indenture of Trust, dated as of April 25, 1995 to Exhibit 4.9(a) (8)                                                                                                                                               
|4.10        |  | Indenture, dated as of February 26, 1996, between Registrant and
The Chase Manhattan Bank, N.A., relating to
                   Registrant's 5.5% Convertible Subordinated Debentures due 2006 (9)                              
|4.11(a)     |  | First Supplemental Indenture, dated as of October 21, 1996, between Registrant, The Chase
Manhattan Bank and
certain wholly owned subsidiaries of Registrant, relating to Registrant's 9.125% Senior Notes due 2003
(9)         
|4.11(b)     |  | Second Supplemental Indenture, dated as of February 10, 1999,
between Registrant, The Chase Manhattan Bank and
      certain wholly owned subsidiaries of Registrant, relating to Registrant's 9.125% Senior Notes due 2003
(10)
|10.34(b)    |  | First Amendment to the Residual Forward Sale Facility, dated
September 30, 2002, between Registrant and Capital
      Z Investments, L.P.                                                                                       
|11          |  | Computation of Net Income (Loss) Per Common Share                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                 

---



|(1) |  | Incorporated  by reference from  Registrants  Annual Report on Form10-K for the year ended
June30,  2000
         and filed with the Commission on September28, 2000
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Incorporated by reference from  Registrant's  Annual Report
on Form10-K for the year ended June30,  1999
         and filed with the Commission on September 3, 1999
|(3) |  | Included in Exhibit3.1                                                                                                                                              
|(4) |  | Incorporated by reference from Registrant's  Registration Statement on Form8-A, File No.33-13660,
filed
         with the Commission on July12, 1996                

---

|(5)  |  | Incorporated by reference from  Registrant's  Registration  Statement on Form8-A/A dated as
of, and filed
         with the Commission on, April 27, 1998                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6)  |  | Incorporated by reference from Registrant's  Current Report
on Form8-K dated as of
      December 23,  1998 and
         filed with the Commission on December 31, 1999             
|(7)  |  | Incorporated by reference from Registrant's Registration
Statement on Form S-2, File No.33-88516                                                                                    
|(8)  |  | Incorporated by reference from  Registrant's  Annual Report on
Form 10-K for the year ended June 30,  1995
         and on file with the Commission                                 
|(9)  |  | Incorporated  by  reference  from  Registrant's  Quarterly  Report  on
Form 10-Q  for the  quarter  ended
March 31, 1996 and filed with the Commission on July 3, 1996              
|(10) |  | Incorporated  by  reference  from  Registrant's   Quarterly  Report  on
Form 10-Q  for  the  quarter
     ended December 31, 1998 and filed with the Commission on February 22, 1999