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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q







|(Mark One)                                          |                                                                                               
|--------------------------------------------------- | ----------------------------------------------------------------------------------------------
|ý                                                   | QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                    |                                                                                               
|For the
      quarterly period ended March 31, 2003
|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 0-13660                     
|                                                    |                                                                                               
|                                                   



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AAMES FINANCIAL
  CORPORATION (Exact Name of
Registrant as Specified in its Charter)


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|                                                                     |  |                                     
|-------------------------------------------------------------------- |  | ------------------------------------
|                                                                     |  |                                     
|DELAWARE                                                             |  | 95-4340340                          
|(State or Other Jurisdiction of
      Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                                     |  |                                     
|350 SOUTH GRAND AVE, LOS ANGELES,
    CA 90071-3459                 
|(Address of principal executive offices)                            
|                                                                     |  |                                     
|323-210-5000                                                        
|(Issuer's telephone
    number)                                     
|                                                                    

Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
  (or for such shorter period that the issuer was required to file such reports),
  and (2) has been subject to such filing requirements for the past 90 days.    Yesý      o

At May 8, 2003, Registrant had 6,598,717 shares of common
  stock outstanding.



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Table of Contents

|                   | **TABLE
        OF CONTENTS** |                      
|------------------ | ----------------------------- | ---------------------
|**Item
      No.** |                               | **Page
      Number**

|                |  |                                                                                                                             |    | 
|--------------- |  | --------------------------------------------------------------------------------------------------------------------------- | -- | 
|                |  | PART
        I - FINANCIAL INFORMATION                                                                                      |    | 
|                |  |                                                                                                                             |    | 
|Item 1.         |  | Financial
      Statements                                                                                                  | 2  | 
|                |  |                                                                                                                             |    | 
|                |  | Condensed Consolidated Balance Sheets at March 31,
      2003 (Unaudited) and
      June 30, 2002 (Audited)                 | 2  | 
|                |  |                                                                                                                             |    | 
|                |  | Condensed
      Consolidated Income Statements for the three and six months ended March
      31, 2002 and 2002 (Unaudited) | 3  | 
|                |  |                                                                                                                             |    | 
|                |  | Condensed
      Consolidated Statements of Cash Flows for the six months ended March 31,
      2002 and 2002 (Unaudited)    | 4  | 
|                |  |                                                                                                                             |    | 
|                |  | Notes
      to Condensed Consolidated Financial Statements (Unaudited)                                                      | 5  | 
|                |  |                                                                                                                             |    | 
|Item
      2.   |  | Management's
      Discussion and Analysis of Financial Condition and Results of Operations                                 | 9  | 
|                |  |                                                                                                                             |    | 
|Item
      3.   |  | Quantitative
      and Qualitative Disclosures About Market Risk                                                            | 9  | 
|                |  |                                                                                                                             |    | 
|Item
      4.   |  | Controls and Procedures                                                                                                     | 40 | 
|                |  |                                                                                                                             |    | 
|                |  |                                                                                                                             |    | 
|                |  | PART
        II - OTHER
        INFORMATION                                                                                 |    | 
|                |  |                                                                                                                             |    | 
|Item
      1.   |  | Legal Proceedings                                                                                                           | 42 | 
|                |  |                                                                                                                             |    | 
|Item
      2.   |  | Changes in Securities                                                                                                       | 43 | 
|                |  |                                                                                                                             |    | 
|Item
        3. |  | Defaults
      Upon Senior Securities                                                                                       | 43 | 
|                |  |                                                                                                                             |    | 
|Item
        4. |  | Submission
      of Matters to a Vote of Security Holders                                                                   | 43 | 
|                |  |                                                                                                                             |    | 
|Item
        5. |  | Other
      Information                                                                                                     | 43 | 
|                |  |                                                                                                                             |    | 
|Item
      6.   |  | Exhibits
      and Reports on Form 8 K                                                                                      | 43 | 
|                |  |                                                                                                                             |    | 
|                |  | Signature
      Page                                                                                                        | 44 | 
|                |  |                                                                                                                             |    | 
|                |  | Certifications                                                                                                              | 45 | 



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Table of Contents

Item 1. Financial
  Statements

AAMES
  FINANCIAL CORPORATION AND SUBSIDIARIES
  CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                  | **March
        31, 2003
        (Unaudited)** | **June
        30, 2002
        (Audited)**
|--------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------
|**ASSETS**                                                                        |                                                |                                            
|Cash
      and cash equivalents                                                   |                                                | $   21,033,000                             
|Loans
      held for sale, at lower of cost or market                             |                                                | 393,876,000                                
|Accounts
      receivable                                                         |                                                | 47,862,000                                 
|Residual
      interests, at estimated fair value                                 |                                                | 145,065,000                                
|Mortgage
      servicing rights, net                                              |                                                | 812,000                                    
|Equipment
      and improvements, net                                             |                                                | 9,408,000                                  
|Prepaid
      and other                                                           |                                                | 14,429,000                                 
|                                                                                  |                                                |                                            
|Total
      assets                                                                |                                                | $ 632,485,000                              
|                                                                                  |                                                |                                            
|                                                                                  |                                                |                                            
|**LIABILITIES
      AND STOCKHOLDERS' EQUITY**                                    |                                               
|Borrowings                                                                        |                                                | $ 197,111,000                              
|Revolving
      warehouse and repurchase facilities                               |                                                | 298,670,000                                
|Accounts
      payable and accrued expenses                                       |                                                | 34,415,000                                 
|Accrued
      dividends on convertible preferred stock                            |                                                | 47,390,000                                 
|Income
      taxes payable                                                        |                                                | 8,571,000                                  
|                                                                                  |                                                |                                            
|Total
      liabilities                                                           |                                                | 586,157,000                                
|                                                                                  |                                                |                                            
|Commitments
      and contingencies                                               |                                               
|Stockholders'
      equity:                                                       |                                               
|SeriesA
      Preferred Stock, par value $0.001 per share; 500,000 shares         |                                               
|authorized;
      none outstanding                                                |                                                | --                                         
|                                                                                  |                                                |                                            
|SeriesB
      Convertible Preferred Stock, par value $0.001 per share;            |                                                |                                            
|29,704,000
      shares authorized; 26,704,000 shares outstanding                 |                                                | 27,000                                     
|                                                                                  |                                                |                                            
|SeriesC
      Convertible Preferred Stock, par value $0.001 per share;            |                                                |                                            
|61,230,000
      shares authorized; 20,176,000 and 20,186,000 shares outstanding  |                                                | 20,000                                     
|                                                                                  |                                                |                                            
|SeriesD
      Convertible Preferred Stock; par value $0.001 per share;            |                                                |                                            
|108,566,000
      shares authorized; 60,015,000 and 60,020,000 shares outstanding |                                                | 60,000                                     
|                                                                                  |                                                |                                            
|Common
      Stock, par value $0.001 per share; 400,000,000 shares authorized;    |                                                |                                            
|6,598,000
      and 6,482,000 shares outstanding                                  |                                                | 7,000                                      
|                                                                                  |                                                |                                            
|Additional
      paid-in capital                                                  |                                                | 418,110,000                                
|Retained
      deficit                                                            |                                                | (371,896,000                               
|Total
      stockholders' equity                                                  |                                                | 46,328,000                                 
|                                                                                  |                                                |                                            
|Total
      liabilities and stockholders' equity                                  |                                                | $ 632,485,000                              
|                                                                                  |                                                |                                            
|                                                                                  |                                                |                                            

See accompanying notes to condensed consolidated financial statements.

2

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Table of Contents

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

|                                          | Three
      Months EndedMarch 31, | Nine
      Months EndedMarch 31,
|----------------------------------------- | --------------------------------- | --------------------------------
|                                          |                                   | **2003**                        
|Revenue:                                  |                                  
|Gain
      on sale of loans               |                                   | $35,157,000                     
|Write-down
      of residual interests    |                                   | --                              
|Origination
      fees                    |                                   | 12,435,000                      
|Loan
      servicing                      |                                   | 1,252,000                       
|Debt
      extinguishment income          |                                   | 83,000                          
|Interest                                  |                                   | 16,556,000                      
|                                          |                                   |                                 
|Total
      revenue, including            |                                  
|write-down
      of residual              |                                  
|interests                                 |                                   | 65,483,000                      
|                                          |                                   |                                 
|Expenses:                                 |                                  
|Personnel                                 |                                   | 31,904,000                      
|Production                                |                                   | 6,832,000                       
|General
      and administrative          |                                   | 12,114,000                      
|Interest                                  |                                   | 7,042,000                       
|                                          |                                   |                                 
|Total
      expenses                      |                                   | 57,892,000                      
|                                          |                                   |                                 
|Income
      before income taxes          |                                   | 7,591,000                       
|Provision
      for income taxes          |                                   | 900,000                         
|                                          |                                   |                                 
|Net income                                |                                   | $  6,691,000                    
|                                          |                                   |                                 
|Net income
      (loss) to common         |                                  
|stockholders:                             |                                  
|Basic                                     |                                   | $  2,919,000                    
|                                          |                                   |                                 
|Diluted                                   |                                   | $  6,691,000                    
|                                          |                                   |                                 
|Net income
      (loss) per common share: |                                  
|Basic                                     |                                   | $           0.44                
|                                          |                                   |                                 
|Diluted                                   |                                   | $           0.07                
|                                          |                                   |                                 
|Weighted
      average number of shares   |                                   |                                 
|outstanding:                              |                                  
|Basic                                     |                                   | 6,595,000                       
|                                          |                                   |                                 
|Diluted                                   |                                   | 98,339,000                      
|                                          |                                   |                                 



See accompanying notes to condensed consolidated financial statements.

3

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

|                                                                                        | Nine
      Months EndedMarch 31,
|--------------------------------------------------------------------------------------- | --------------------------------
|                                                                                        |                                 
|                                                                                        |                                 
|                                                                                        |                                 
|Operating
      activities:                                                             |                                 
|Net
      income                                                                        |                                 
|Adjustments
      to reconcile net income to net cash provided by operating activities: |                                 
|Depreciation
      and amortization                                                     |                                 
|Noncash
      gain on sale of loans                                                     |                                 
|Write-down
      of residual interests                                                  |                                 
|Accretion
      of residual interests                                                   |                                 
|Debt
      extinguishment income                                                        |                                 
|Mortgage
      servicing rights amortized                                               |                                 
|Changes
      in assets and liabilities:                                                |                                 
|Loans
      held for sale originated                                                    |                                 
|Proceeds
      from sale of loans held for sale                                         |                                 
|Decrease
      in:                                                                      |                                 
|Accounts
      receivable                                                               |                                 
|Residual
      interests                                                                |                                 
|Prepaid
      and other                                                                 |                                 
|Increase
      (decrease) in:                                                           |                                 
|Accounts
      payable and accrued expenses                                             |                                 
|Income
      taxes payable                                                              |                                 
|                                                                                        |                                 
|Net cash
      provided by operating activities                                         |                                 
|                                                                                        |                                 
|Investing
      activities:                                                             |                                 
|Purchases
      of equipment and improvements                                           |                                 
|                                                                                        |                                 
|Net cash
      used in investing activities                                             |                                 
|                                                                                        |                                 
|Financing
      activities:                                                             |                                 
|Reduction
      in borrowings:                                                          |                                 
|Mandatory
      sinking fund payment                                                    |                                 
|Other
      principal redemptions                                                       |                                 
|Net
      proceeds from convertible preferred stock issuance                            |                                 
|Proceeds
      from issuance of common stock from exercise of options                   |                                 
|Net
      increase (reduction) in revolving warehouse and repurchase                    |                                 
|facilities                                                                              |                                 
|                                                                                        |                                 
|Net cash
      used in financing activities                                             |                                 
|                                                                                        |                                 
|Net increase
      (decrease) in cash and cash equivalents                              |                                 
|Cash
      and cash equivalents at beginning of period                                  |                                 
|                                                                                        |                                 
|Cash
      and cash equivalents at end of period                                        |                                 
|                                                                                        |                                 



See accompanying notes to condensed consolidated financial statements.

4

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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 and nine months ended March 31, 2003 are not necessarily indicative of the results expected for the full fiscal year.

At  March  31,  2003,  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 convertible  preferred stock representing  approximately
90.1% of the Company's  combined voting power in the election of directors and approximately  44.8% 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

The Companys  Residual  Forward Sale Facility  (the  Residual  Facility),  as amended with Capital Z  Investments, L.P.,  a
Bermuda partnership (CZI), an affiliate of Capital Z, the Company's largest shareholder, expired on March 31, 2003.

During the three months ended March 31, 2003,  the Company did not dispose of any of its loans  through a  securitization  nor
did the Company use the Residual  Facility.  During the nine months ended March 31, 2003,  the Company  securitized  $315.0  million of
mortgage loans and sold the residual interest created therein to CZI for $8.7 million under the Residual Facility.

In connection with obtaining the Residual  Facility,  the Company  initially  capitalized $3.3 million of costs, of which $3.0
million  related to a facility  fee paid to CZI.  During the three months ended March 31,  2003,  the Company  wrote off the  remaining
unamortized  Residual  Facility  costs of $0.2 million by charging gain on sale.  During the nine months ended March 31, 2003 and 2002,
amortization  of total  capitalized  Residual  Facility  costs  charged  to gain on sale of loans was $0.8  million  and $0.5  million,
respectively.

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Note 3: Subsidiary Guarantors

In  October 1996,  the Company  completed an offering of its 9.125% Senior Notes due November 2003 which are 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.  Aames  Financial  Corporation  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.

Aames Financial  Corporation has guaranteed amounts outstanding under revolving  warehouse and repurchase  agreements pursuant
to which certain of its operating subsidiaries are the contractual borrowers.  The guarantees are full, complete and unconditional.

Note 4: Debt Redemption and Debt Extinguishment Income

On December 13, 2002, the Company  consummated its offer to exchange (the Exchange  Offer) its newly issued 5.5% Convertible
Subordinated  Debentures due 2012 (the 2012  Debentures) for its outstanding 5.5% Convertible  Subordinated  Debentures due 2006 (the
2006  Debentures).  The Company  exchanged  $49.6 million of the  outstanding  2006 Debentures that were tendered and issued an equal
amount of 2012  Debentures.  On December 23,  2002, the Company redeemed $19.8 million,  or 40.0%, of the principal amount  outstanding
on the 2012  Debentures  through a scheduled  mandatory  sinking fund payment.  On  December 31,  2002, SFP forgave its remaining $25.0
million  principal  balance of 2012  Debentures  due from the  Company.  At  December  31,  2002,  amounts  outstanding  under the 2006
Debentures and the 2012 Debentures were $64.4 million and $4.8 million, respectively.

During the three and nine months ended March 31, 2003, the Company redeemed $3.0 million and $22.1 million,  respectively,  of
its 9.125% Senior Notes at a discount from par.

During the three and nine  months  ended March 31,  2003,  debt  extinguishment  income was $0.1  million  and $27.2  million,
respectively.  All of the $0.1  million of debt  extinguishment  income  during the three  months  ended March 31, 2003  related to the
redemption of the  Companys  9.125% Senior  Notes.  Of the $27.2  million of debt  extinguishment  income during the nine months ended
March 31, 2003, $25.0 million and $2.2 million related to the redemption of the 2012 Debentures and 9.125% Senior Notes, respectively.

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Note 5: Per Share Data

The following  table sets forth  information  regarding basic and diluted net income (loss) per common share for the three and
nine months ended March 31, 2003 and 2002 (amounts in thousands, except per share data):

|                                                  | Three Months Ended
              March 31, | Nine Months
      EndedMarch 31,
|------------------------------------------------- | ------------------------------------------ | --------------------------------
|                                                  |                                            | **2003**                        
|                                                  |                                           
|Basic
      net income (loss) per common share:   |                                           
|Net
      income                                  |                                            | $
        6,691                 
|Less:
      Accrued dividends on Series B, C      |                                            |                                 
|and
      D Convertible Preferred Stock           |                                            | (3,772                          
|                                                  |                                            |                                 
|Basic
      net income (loss) to                  |                                            |                                 
|common
      stockholders                         |                                            | $
        2,919                 
|                                                  |                                            |                                 
|Basic
      weighted average number               |                                            |                                 
|of
      common shares outstanding                |                                            | 6,595                           
|                                                  |                                            |                                 
|Basic
      net income (loss) per common          |                                            |                                 
|share                                             |                                            | $
        0.44                  
|                                                  |                                            |                                 
|Diluted
      net income (loss) per common share: |                                           
|Basic
      net income (loss) to common           |                                            |                                 
|stockholders                                      |                                            | $
        2,919                 
|Plus:
      Accrued dividends on Series B, C      |                                            |                                 
|and
      D Convertible Preferred Stock           |                                            | 3,772                           
|                                                  |                                            |                                 
|Diluted
      net income (loss) to common         |                                           
|stockholders                                      |                                            | $
        6,691                 
|                                                  |                                            |                                 
|Basic
      weighted average number of            |                                            |                                 
|common
      shares outstanding                   |                                            | 6,595                           
|                                                  |                                            |                                 
|Plus:
      Incremental shares from assumed       |                                           
|conversions
      of Series B, C and D            |                                            |                                 
|Convertible Preferred Stock                       |                                            | 85,538                          
|Exercise
      of warrants                        |                                            | 1,911                           
|Exercise
      of common stock options            |                                            | 4,295                           
|                                                  |                                            |                                 
|Diluted
      weighted average number of          |                                            |                                 
|common
      shares outstanding                   |                                            | 98,339                          
|                                                  |                                            |                                 
|Diluted
      net income (loss) per common        |                                            |                                 
|Share                                             |                                            | $
        0.07                  
|                                                  |                                            |                                 

During the three and nine months ended March 31, 2003,  the  conversion of the 5.5%  Convertible  Subordinated  Debentures due
2006 and 2012 into 0.9 million and 1.5 million of common shares, respectively, was not assumed due to their antidilutive effective.

7

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Note 6: Pro forma Stock Based Compensation

The Company applies Accounting Principles Board Opinion 25 and related interpretations in accounting for its stock-based compensation
plans and arrangements.  No compensation cost has been recognized for its stock option plan.  If compensation cost for the stock
option plan and arrangements had been determined based on the fair value at the grant dates for awards under this plan consistent
with the method prescribed by Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation
- Transition and Disclosure, an amendment of SFAS No. 123, the Company's net income (loss) and income (loss) per common share would
have reflected the pro forma amounts indicated below:

|                                                    | Three
      Months Ended
         March 31, |                    | Nine
      Months Ended
              March 31,
|--------------------------------------------------- | ------------------------------------------- | ------------------ | -----------------------------------------------
|                                                    |                                             |                    |                                                
|                                                    |                                             | **2003**           | ****                                           
|Net income:                                         |                                            
|As
      reported                                   |                                             | $     6,691,000    |                                                
|Pro
      forma                                     |                                             | 6,299,000          |                                                
|Basic
      income (loss) to common stockholders:   |                                             |                    |                                                
|As
      reported                                   |                                             | 2,919,000          |                                                
|Pro
      forma                                     |                                             | 2,527,000          |                                                
|Diluted
      income (loss) to common stockholders: |                                             |                    |                                                
|As
      reported                                   |                                             | 6,691,000          |                                                
|Pro
      forma                                     |                                             | 6,299,000          |                                                
|Basic
      income (loss) per common share:         |                                             |                    |                                                
|As
      reported                                   |                                             | $             0.44 |                                                
|Pro
      forma                                     |                                             | 0.38               |                                                
|Diluted
      income (loss) per common share:       |                                             |                    |                                                
|As
      reported                                   |                                             | 0.07               |                                                
|Pro
      forma                                     |                                             | 0.06               |                                                
|                                                    |                                             |                    |                                                

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following
Weighted-average assumptions:

|                              |  | **Three
        Months EndedMarch 31,** |      |                 | **Nine
        Months EndedMarch 31,**
|----------------------------- |  | --------------------------------------- | ---- | --------------- | --------------------------------------
|                              |  |                                         |      |                 |                                       
|                              |  | **2003**                                | **** | **2002**        | ****                                  
|Dividend
      yield          |  | 0.00                                    | %    | 0.00            | %                                     
|Expected
      Volatility     |  | 118.00                                  | %    | 118.00          | %                                     
|Risk-free
      interest rate |  | 2.97                                    | %    | 4.13            | %                                     
|Expected
      life of option |  | 4.5
      years                         |      | 4.5
      years |                                       

The pro forma stock based compensation cost, net of tax effect was $0.4 million and $0.3 million for the three months ended March 31,
2003 and March 31, 2002, respectively.  The pro forma stock based compensation cost, net of tax effect for the nine months ended
March 31, 2003 and March 31, 2002 was $1.1 million and $1.0 million, respectively.

8

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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 and its subsidiaries (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  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

On April 25, 2003, the Company executed a commitment  letter with Greenwich Capital Financial  Products,  Inc.  (Greenwich),
pursuant to which  Greenwich  agreed to provide the Company with a financing  facility of up to $82.9 million secured by certain of the
Companys  residual  interests and servicing  advances,  subject to certain  conditions,  including the  negotiation and execution of a
definitive loan  agreement.  The Company  intends to use the proceeds from this facility,  along with other corporate  funds, to redeem
the Companys  outstanding  9.125% Senior Notes due November  2003.  The Company  anticipates  completing  the financing with Greenwich
prior to the  maturity  of its 9.125%  Senior  Notes due  November  2003.  The Company  can give no  assurance  that it will be able to
successfully negotiate and execute a definitive loan agreement or satisfy any other conditions required to complete the financing.

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During the three  months  ended March 31,  2003,  the Company  recorded  net income of  $6.7 million  compared to $2.2 million
during the comparable three month period a year ago.

Total revenue  during the three months ended March 31, 2003  increased $7.9 million to $65.5 million from $57.6 million during
the  comparable  period a year ago.  Total  revenue  during  the three  months  ended  March 31,  2003  includes  $0.1  million of debt
extinguishment  income  recognized in  connection  with the  Companys  extinguishment  of $3.0 million of its 9.125% Senior Notes at a
discount  from par for $2.9 million of cash.  Excluding  the $0.1 million of debt  extinguishment  income during the three months ended
March 31, 2003,  total revenue  increased  $7.8 million  during the three months ended  March 31,  2003 from total  revenue  during the
comparable  three month period in 2002.  The $7.8 million  increase in total revenue was comprised of a $12.7 million  increase in gain
on sale of loans, partially offset by decreases of $3.1 million and $1.8 million in interest income and loan servicing, respectively.

Total  expenses  during the three  months ended March 31, 2003  increased  $3.4 million to  $57.9 million  from $54.5  million
during the three  months  ended March 31, 2002.  The  increase in expenses  during the three months ended March 31, 2003 from  expenses
reported  during the  comparable  period a year ago was  attributable  primarily to increases  of $2.8  million,  $1.2 million and $0.8
million in personnel,  production and general and administrative  expenses,  respectively,  partially offset by a $1.4 million decrease
in interest expense.

The Company renewed two existing $300.0 million committed revolving repurchase
  facilities with new maturity dates of July 15, 2003 and September 30, 2003.

General

The Company is a consumer  finance  company  primarily  engaged 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 since 1954.

The Company originates loans through its retail and broker production  channels.  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 continues to focus on increasing its profitability through executing
  its core business strategies of: (i) increasing the amount and value of
  its loan production; (ii) reducing its cost of production; and (iii) maintaining
  adequate liquidity and access to the capital markets.

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Increasing the Amount and Value of Its Loan Production. The Company intends to increase the size of its overall originations while
improving its value. The Company's traditional retail branch network, the National Loan Centers, its traditional regional broker
office network and its broker telemarketing and Internet platforms are all targeted as sources of growth. In its traditional retail
branch network, the Company intends to drive this growth by: improving market penetration in its existing markets, introducing new
products, and 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 originations 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 products 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.

In the event that a less favorable  mortgage interest rate environment  evolves during calendar year 2003, it could reduce the
overall demand for mortgage loans generally and demand for the Companys mortgage loan products  specifically.  While no assurances can
be made,  should that event occur the Company expects to be responsive to such changes in market  conditions by reducing its production
costs in light of reduced loan origination levels.

Maintaining  Adequate  Liquidity  and Access to the Capital  Markets.  The Company  intends to continue to increase and  diversify  its
funding  sources by adding more 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 loans for cash in the whole loan market,
monetizing residual  interests,  selling the mortgage servicing rights (MSRs) and the rights to prepayment fees on the mortgage loans
in its securitizations, monetizing 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.

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Mortgage Loan Production

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 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 sets forth the number of retail  branches,  National  Loan  Centers and broker  offices  operated by the
Company at March 31, 2003 and 2002:

|                                          | March
      31,
|----------------------------------------- | ---------------
|                                          |                
|                                          |                
|Traditional
      retail branches         |                
|National
      Loan Centers               |                
|Traditional
      regional broker offices |                

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

|                                             |  | **Three
        Months Ended** |      | **Nine
        Months Ended**
|-------------------------------------------- |  | ------------------------------ | ---- | -----------------------------
|                                             |  | **March
        31,**          |      | **December
        31,**     
|                                             |  | **2003**                       | **** | **2002**                     
|Retail:                                      | 
|Traditional
      retail branch network      |  | $   287,821                    |      | $   372,542                  
|National
      Loan Centers                  |  | 106,417                        |      | 143,691                      
|                                             |  |                                |      |                              
|Total
      retail                           |  | 394,238                        |      | 516,233                      
|                                             |  |                                |      |                              
|Broker:                                      | 
|Traditional
      regional office network(1) |  | 543,813                        |      | 702,928                      
|Telemarketing
      and Internet             |  | 78,742                         |      | 87,574                       
|                                             |  |                                |      |                              
|Total
      broker                           |  | 622,555                        |      | 790,502                      
|                                             |  |                                |      |                              
|Total
      production                       |  | $1,016,793                     |      | $1,306,735                   
|                                             |  |                                |      |                              



|(1) | Includes
      the purchase of closed loans on a flow basis from correspondents of $6.7
      million and $3.7 million during the three
      months ended March 31, 2003 and 2002, respectively, and $10.4 million and
      $17.2 million during the nine months ended March 31, 2003 and 2002, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                



Total Loan Production. Total loan
  production during the three months ended March 31, 2003 decreased $289.9 million,
  or 22.2% to $1.0 billion from $1.3 billion reported during the three months
  ended December 31, 2002, and increased $238.6 million, or 30.7%, over the $778.2
  million of total loan production reported during the three months ended March
  31, 2002. Total loan production during the nine months ended March 31, 2003
  increased $956.9 million, or 41.0%, to $3.3 billion over the $2.3 billion of
  total mortgage loan production reported during the nine months ended March 31,
  2002. Total loan production during the three months ended March 31, 2003 decreased
  from loan production during the three months ended December 31, 2002, primarily
  due to seasonality factors which have historically resulted in lower loan production
  during the Companys March quarters. Total loan production during the three
  and nine months ended March 31, 2003 increased from the comparable three
  and nine month periods in 2002 due primarily to the continuation of the favorable
  mortgage interest rate environment and, to a lesser extent, to the issuance
  of new uniform underwriting guidelines throughout the Company designed to improve
  the Companys competitive position and to provide greater underwriting
  consistency among the retail and broker origination channels.

Total Retail  Production.  The Companys  total retail  production  was $394.2  million during the three months ended March 31, 2003, a
decrease of $122.0  million,  or 23.6%,  from the $516.2  million  reported  during the three  months ended  December 31, 2002,  and an
increase of $19.6 million,  or 5.2%, over the $374.6 million of total retail production  during the three months ended March 31,  2002.
During the nine months ended March 31, 2003,  total retail  production  increased  $196.7 million,  or 16.9%,  over the $1.2 billion of
total retail production during the nine months ended March 31, 2002.

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Traditional Retail Branch Network

The Companys traditional retail branch network production was $287.8 million
  during the three months ended March 31, 2003, a decrease of $84.7 million, or
  22.7%, from the $372.5 million of traditional retail branch network production
  reported during the three months ended December 31, 2002, and a decrease
  of $8.2 million, or 2.8%, from the $296.0 million reported during the three
  months ended March 31, 2002. The Companys traditional retail branch network
  production during the three months ended March 31, 2003 was lower than production
  during the three months ended December 31, 2002 due to seasonality factors.
  The small decline in traditional retail branch network production was generally
  due to the loss of production from the traditional retail branches closed by
  the Company during the year which resulted in eleven fewer traditional retail
  branches. The Company believes the benefits of the reduction in operating costs
  related to these closed branches exceeds the cost associated with the incremental
  loss of production from the closed branches. During the nine months ended March 31,
  2003, traditional retail branch network production increased $30.4 million,
  or 3.2%, to $982.3 million from $951.9 million during the comparable nine month
  period a year ago. The increase in the Companys traditional retail branch
  network production during the nine months ended March 31, 2003 exceeded the
  production during the same period a year ago due primarily to continuation of
  the favorable mortgage interest rate environment.

National Loan Centers

Mortgage loan production from the Companys National Loan Centers,  which primarily originate loans through  affiliations with
certain  Internet sites,  decreased $37.3 million,  or 26.0% to $106.4 million during the three months ended March 31, 2003 from $143.7
million  during the three months ended  December  31, 2002,  and  increased  $27.8  million over the $78.6  million of loan  production
reported  during the three months ended March 31, 2002. The decrease in the National Loan Centers  production  during the three months
ended March 31, 2003 compared to their  production  during the three months ended  December 31, 2002 was  primarily due to  seasonality
factors as discussed  above.  During the nine months ended March 31,  2003,  mortgage loan production from the Companys  National Loan
Centers  increased  $166.3 million,  or 77.7%,  to $380.4 million from $214.1 million during the nine months ended March 31,  2002. The
increase in the National Loan Centers  production  during the three and nine months ended March 31, 2003 over their production  levels
during the three and nine  months  ended March 31,  2002 was due,  in part,  to a  continuation  of the  generally  favorable  mortgage
interest  rate  environment  during  the  three and nine  months  ended  March 31,  2003 as  compared  to the same  periods a year ago.
Additionally,  the increase in the National Loan Centers  production  during the nine months ended March 31, 2003 was due, in part, to
the fact that the March 2002 period  production  included only five months of loan production  from the Companys  second National Loan
Center, which commenced operation in November 2001.

Total Broker  Production.  The Company's total broker  production  decreased  $167.9 million,  or 21.2%, to  $622.6 million  during the
three months ended March 31, 2003 from the $790.5 million of total broker  production  reported  during the three months ended December
31, 2002, and increased  $219.1 million,  or 54.3%, over the $403.5 million reported during the three months ended March 31,  2002. The
Companys  total  broker  production  during the three months ended March 31, 2003 as compared to such  production  network  during the
three months ended  December 31,  2002 was impacted  primarily  by  seasonality  factors.  During the nine months ended March 31, 2003,
total broker  mortgage loan  production  increased  $760.3  million,  or 65.0%, to $1.9 billion from $1.2 billion during the comparable
nine month period in 2002.  The increase in the  Companys  total  broker  production  during the three and nine months ended March 31,
2003 was  attributable to improved market  penetration due to changes in the Companys  underwriting  guidelines which improved product
availability  in the  wholesale  channel and  increased  utilization  by brokers of the  Companys  broker  telemarketing  and Internet
platform.  In addition,  the Companys  broker  production  benefited from the  continuation  of the favorable  mortgage  interest rate
environment.

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Traditional Regional Broker Office Network

Mortgage loan  production  from the  traditional  regional  broker office network during the three months ended March 31, 2003
was $543.8  million which  decreased  $159.1  million,  or 22.6%,  from $702.9 million of  traditional  regional  broker office network
production  during the three months ended  December 31,  2002, and,  increased $173.8 million,  or 47.0%,  over the  $370.0 million  of
traditional  regional  broker  office  network  production  during the three months ended March 31, 2002.  During the nine months ended
March 31, 2003,  mortgage loan  production  through the Companys  traditional  regional  broker  office  network was $1.7 billion,  an
increase of $626.6 million,  or 57.7%,  over the $1.1 billion of traditional  regional broker network  production during the comparable
nine month period in 2002.

Broker Telemarketing and Internet

Broker mortgage loan production  through  telemarketing and the Internet was $78.7 million during the three months ended March
31, 2003, a decrease of $8.9 million,  or 10.2%, from the  $87.6 million  reported during the three months ended December 31, 2002, and
an increase of $45.2 million over the $33.5 million reported during the three months ended March 31, 2002.

During the nine months ended March 31, 2003,  broker  mortgage  loan  production  through  telemarketing  and the Internet was
$218.1 million, an increase of $133.7 million over the $84.4 million reported during the nine months ended March 31, 2002.

Loan Dispositions

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.

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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 a  securitization.  The Company had 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. The Residual  Facility  expired on March 31, 2003. As a result,  the Companys
evaluation  of loan  disposition  strategies  going  forward will 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 and nine months ended March 31, 2003 and 2002 (in thousands):

|                                       | Three
      Months Ended
      March 31, | Nine
      Months Ended
      March 31,
|-------------------------------------- | ---------------------------------------- | ---------------------------------------
|                                       |                                          | **2003**                               
|Loans
      pooled and sold in         |                                         
|securitizations                        |                                          | $            --                        
|Whole
      loan sales                 |                                          | 1,248,096                              
|                                       |                                          |                                        
|Total
      loans securitized and sold |                                          | $1,248,096                             
|                                       |                                          |                                        
|                                       |                                          |                                        

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 March 31, 2003,  total mortgage loan  dispositions  increased  $491.3 million,  or 64.9%, to $1.2
billion  from  $756.8  million  of total  loan  dispositions  during  the three  months  ended  March 31,  2002.  Total  mortgage  loan
dispositions  during the nine months ended  March 31,  2003 were $3.3  billion,  an increase of $1.0 billion,  or 43.1%,  over the $2.3
billion of total  mortgage  loan  dispositions  during the  comparable  nine month  period a year ago.  The  Companys  increased  loan
dispositions  during the three and nine months ended March 31, 2003 over the  comparable  periods a year ago are  primarily  related to
its  increased  mortgage  loan  production  levels  during the fiscal 2003 periods over  mortgage  loan  production  levels  during the
comparable fiscal 2002 periods.

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The Company has maximized opportunities in its loan disposition transactions
  by selling its loan production through a combination of securitizations and
  whole loan sales, depending on market conditions, profitability and cash flows.
  During the three months ended March 31, 2003, the Company did not dispose of
  any of its loans through securitizations but securitized $132.8 million of mortgage
  loans during the comparable three month period a year ago. Whole loan sales
  for cash during the three months ended March 31, 2003 were $1.2 billion, an
  increase of $624.1 million over the $624.0 million of whole loan sales during
  the three months ended March 31, 2002. During the nine months ended March 31,
  2003, the Company securitized $315.0 million of mortgage loans compared to $542.8
  million during the comparable period a year ago. During the nine months ended
  March 31, 2003, the Company continued to be more reliant on whole loan sales
  selling $3.0 billion of mortgage loans in whole loan sales for cash compared
  to $1.8 billion of whole loan sales for cash during the nine months ended March 31,
  2002. The Company relied more heavily upon whole loan sales than upon securitizations
  as its loan disposition strategy during the three and nine months ended March
  31, 2003 and 2002 due to attractive pricing conditions prevailing in the whole
  loan markets during such periods and, to a lesser extent, due to the limited
  capacity in the Residual Facility until its expiration which occurred on March
  31, 2003. With the expiration of the Residual Facility, coupled with the current
  whole loan sale environment, the Company anticipates that it will continue to
  be reliant on whole loan sales for cash as its primary loan disposition strategy.
  However, future adverse changes to the current interest rate environment or
  in the current economic climate could affect the mix in the composition of the
  Company's strategy of selling loans in the form of whole loan sales or securitizations
  in future periods.

Loan Servicing

The Company's servicing  portfolio consists of mortgage loans securitized prior to the year ended June 30,  2000 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  sells 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 March 31, 2003 and 2002
and June 30, 2002 (dollars in millions):

|                                                       | March
      31, | June 30,     
|------------------------------------------------------ | --------------- | -------------
|                                                       |                 | **2003**     
|Mortgage
      loans serviced:                         |                
|Loans
      in securitization trusts serviced in-house |                 | $       852.7
|Loans
      serviced on an interim basis               |                 | 1,099.3      
|                                                       |                 |              
|Serviced
      in-house                                |                 | 1,952.0      
|Loans
      in securitization trusts                   |                
|subserviced
      by others                            |                 | 96.2         
|Total
      servicing portfolio                        |                 | $   2,048.2  
|                                                       |                 |              
|Percentage
      serviced in-house                     |                 | 95.3         
|                                                       |                 |              

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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 March 31, 2003 declined  $354.0 million,  or 14.7%, from
$2.4 billion at March 31, 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 $478.3
million,  or 35.9%,  to $852.7  million at March 31, 2003 from $1.3 billion at March 31, 2002. In general,  the Companys  portfolio of
mortgage  loans in  securitization  trusts will  continue to decline from run-off as all loans are sold  servicing  released,  and such
decline may be exacerbated by the current mortgage interest rate environment which could accelerate  prepayment  activity.  The decline
of loans in  securitization  trusts serviced in-house was partially offset by an increase of $168.5 million to $1.1 billion of mortgage
loans  serviced by the Company on an interim basis at March 31,  2003 from $930.8  million at March 31,  2002.  The increase was due to
increased  loan  production  during the nine months ended  March 31,  2003.  Mortgage loans serviced on an interim basis includes loans
held for sale,  and also includes  loans sold by the Company but servicing on such loans has not yet been  transferred to new servicers
by the buyers.

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 of the total
servicing  portfolio)  decreased at March 31,  2003 to  $167.6 million  from  $222.1 million  at June 30,  2002 and  $265.3 million  at
March 31,  2002. The  delinquency  rate at March 31, 2003 was 8.2% compared to 9.6% at June 30,  2002 and 11.0% at March 31,  2002. The
delinquency  rate at March 31, 2003 declined from the  delinquency  rate at June 30,  2002, due to the fact that loans in the Companys
portfolio of mortgage  loans in  securitized  trusts,  which  contains the majority of delinquent  loans,  became a smaller part of the
Companys total servicing  portfolio.  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.

Delinquent loans in the Companys  portfolio of loans in securitization  trusts (serviced  in-house and by others) were $155.0
million,  $207.1 million and $243.1 million at March 31,  2003, June 30, 2002 and March 31,  2002,  respectively.  The dollar amount of
such delinquent loans when expressed as a percentage of the Companys  portfolio of loans in securitization  trusts (serviced  in-house
and by others) was 16.3%, 15.7% and 16.5% at March 31, 2003, June 30, 2002 and March 31,  2002,  respectively.  Delinquent loans in the
Companys portfolio of loans serviced on an interim basis were $12.6 million,  $15.0 million and $22.3 million at March 31,  2003, June
30,  2002 and March 31,  2002,  respectively.  The  dollar  amount of such  delinquent  loans when  expressed  as a  percentage  of the
Companys  portfolio of loans serviced on an interim basis was 1.1%, 1.5% and 2.4% at March 31, 2003, June 30, 2002 and March 31, 2002,
respectively.

During the nine months  ended March 31,  2003,  losses on loan  liquidations  decreased to  $28.6 million  from $51.6  million
during the  comparable  nine 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.

18

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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 nine months  ended  March 31,  2003,  approximately  28.3% 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 portfolio of loans in securitization  trusts when measured at July
1, 2002. The Company has  discontinued  the bulk purchase of  correspondent  loans;  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 certain  regulatory  changes have resulted in the
tightening of underwriting  guidelines for lower credit grade  borrowers 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  loans are  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.

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

|                                                         | At or
      during the
|-------------------------------------------------------- | ----------------------
|                                                         |                       
|                                                         |                       
|                                                         |                       
|                                                         |                       
|Percentage
      of dollar amount of delinquent loans to |                       
|loans
      serviced (period end)(1)(2)(3)(4)            |                       
|One month                                                |                       
|Two months                                               |                       
|Three
      or more months:                              |                       
|Not foreclosed(5)                                        |                       
|Foreclosed(6)                                            |                       
|                                                         |                       
|Total                                                    |                       
|                                                         |                       
|Percentage
      of dollar amount of loans foreclosed    |                       
|during
      the period to servicing portfolio(4)(8)     |                       
|                                                         |                       
|Number
      of loans foreclosed during the period       |                       
|Principal
      amount of foreclosed loans during the    |                       
|period                                                   |                       
|Number
      of loans liquidated during the period       |                       
|Net losses
      on liquidations during the period(7)    |                       
|Percentage
      of annualized losses to servicing       |                       
|portfolio(4)(8)                                          |                       
|Servicing
      portfolio at period end                  |                       

---



|(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
        March 31, 2003, the dollar volume of loans delinquent more than 90 days
        in 6 of the Company's 22 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 9 additional REMIC
        trusts have also exceeded certain loss limits. At March 31, 2003, the
        unpaid principal balance of mortgage loans in the securitization trusts
        which exceeded the permitted delinquency limit was $146.7 million,
        or 15.5% of the total loans serviced (in-house and subserviced) in securitization
        trusts. At March 31, 2003, the unpaid principal balance of mortgage loans
        in the securitization trusts where certain loss limits have been exceeded
        was $639.1 million, or 67.4% 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, $930.8 million, $991.0 million, $722.0
      million and $281.0 million for the periods ended March 31, 2003, March 31,
      2002, June 30, 2002, June 30, 2002 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  





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|(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 foreclosure 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

During the nine months ended  March 31,  2003, the Company  securitized  $315.0  million  mortgage loans and sold for cash the
residual interest created therein to CZI under the Residual  Facility.  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.  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  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, to a lesser  extent,  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.

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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,  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 to
be 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 market participants
such as investment  bankers,  credit  providers and credit rating agencies.  On a quarterly basis, the Company  re-evaluates its credit
loss estimates.

22

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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 March 31, 2003 and June 30, 2002 (dollars in thousands):

|                                                                              |  |                         
|----------------------------------------------------------------------------- |  | ------------------------
|                                                                              |  | **March
      31, 2003**
|Aggregate
      principal balances of securitized loans at the time of the    |  | $     7,016,205         
|securitizations                                                               | 
|Outstanding
      principal balances of securitized loans                     |  | $         948,859       
|Outstanding
      principal balances of pass-through certificates or bonds of | 
|the
      securitization trusts                                               |  | $         794,489       
|Weighted
      average coupon rates of:                                       | 
|Securitized
      loans                                                       |  | 10.20                   
|Pass-through
      certificates or bonds                                      |  | 5.51                    

Certain
  historical data and key assumptions and estimates used by the Company in its
  March 31, 2003 and June 30, 2002 review of the residual interests retained
  by the Company were the following:

|                                                                               |  | **March
      31, 2003** |   | **June
      30, 2002** |  
|------------------------------------------------------------------------------ |  | ------------------------ | - | ----------------------- | -
|Prepayments:                                                                   | 
|Actual
      weighted average annual prepayment rate, as a percentage of       | 
|outstanding
      principal balances of securitized loans                      | 
|Fixed
      rate loans                                                         |  | 30.2                     | % | 29.4                    | %
|Adjustable
      rate loans                                                    |  | 32.1                     | % | 37.6                    | %
|Estimated
      annual prepayment rates, as a percentage of outstanding        | 
|principal
      balances of securitized loans:                                 | 
|Fixed
      rate loans                                                         |  | 23.7%
      to 41.7      | % | 22.3%
      to 34.4     | %
|Adjustable
      rate loans                                                    |  | 25.0%
      to 52.0      | % | 13.8%
      to 41.0     | %
|Estimated
      weighted average life of securitized loans                     |  | 2.2
      years          |   | 3.7
      years         |  
|Credit
      losses:                                                           | 
|Actual
      credit losses to date, as a percentage of original principal      | 
|balances
      of securitized loans                                            |  | 5.1                      | % | 4.7                     | %
|Future
      estimated credit losses, as a percentage of original principal    | 
|balances
      of securitized loans                                            |  | 0.6                      | % | 0.8                     | %
|Total
      actual and estimated prospective credit losses, as a percentage of | 
|original
      principal balance of securitized loans                          |  | 5.7                      | % | 5.5                     | %
|Total
      actual credit losses to date and estimated prospective credit      | 
|losses
      (dollars in thousands)                                            |  | $         399,606        |   | $         385,372       |  
|Weighted
      average discount rate                                           |  | 13.4                     | % | 13.4                    | %



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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 March 31,  2003 and at 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 closely  monitors its residual  interests.  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  March 31,  2003, 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  March 31,  2003,  no  adjustment  to the
Companys assumptions (rate of prepayment,  credit loss and discount rate) was warranted.  During the nine months ended March 31, 2003,
write-downs to the Companys residual assets were $31.9 million.

No residual  interest  write-down  was recorded  during the three months ended  March 31,  2002.  During the nine months ended
March 31, 2002, the Company recorded residual interest write-downs of $27.0 million.

During the three and nine months ended  March 31,  2003 and 2002, all of the Companys loan  dispositions  were on a servicing
released  basis;  therefore,  the Company did not  capitalize  any  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 March 31,  2003 and 2002,  there were no valuation  allowances
on mortgage servicing rights.

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The Company sold to an independent, third party loan servicer for cash the MSRs
  on the loans included in the $315.0 million securitization transaction
  which closed during the nine months ended March 31, 2003. No MSR was capitalized
  by the Company.

On April 15, 2003,  the Company  notified the trustee for seven of the  securitization  trusts with an  outstanding  principal
balance of  approximately  $18.0 million that the Company was exercising its option to call these trusts,  which it expects to complete
on or about May 15, 2003.  The result of this  transaction  is not  expected to have a material  effect on the  consolidated  financial
statements of the Company.

Results of Operations - Three and Nine Months Ended March 31, 2003 and 2002

The following table sets forth  information  regarding the components of the Company's  revenue and expenses for the three and
nine months ended March 31, 2003 and 2002 (dollars in thousands):

|                                             | Three
      Months Ended
      March 31, | Nine Months
      Ended
      March 31,
|-------------------------------------------- | ---------------------------------------- | ---------------------------------------
|                                             |                                          | **2003**                               
|Revenue:                                     |                                         
|Gain
      on sale of loans                  |                                          | $35,157                                
|Write-down
      of residual interests       |                                          | --                                     
|Origination
      fees                       |                                          | 12,435                                 
|Loan
      servicing                         |                                          | 1,252                                  
|Debt
      extinguishment income             |                                          | 83                                     
|Interest                                     |                                          | 16,556                                 
|                                             |                                          |                                        
|Total
      revenue, including write-down of |                                         
|residual
      interests                     |                                          | 65,483                                 
|                                             |                                          |                                        
|Expenses:                                    |                                         
|Personnel                                    |                                          | 31,904                                 
|Production                                   |                                          | 6,832                                  
|General
      and administrative             |                                          | 12,114                                 
|Interest                                     |                                          | 7,042                                  
|                                             |                                          |                                        
|Total
      expenses                         |                                          | 57,892                                 
|                                             |                                          |                                        
|Income
      before income taxes             |                                          | 7,591                                  
|Provision
      for income taxes             |                                          | 900                                    
|                                             |                                          |                                        
|Net income                                   |                                          | $  6,691                               
|                                             |                                          |                                        

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Revenue

General.  Total  revenue  during the three months ended March 31, 2003  increased  $7.9 million  to  $65.5 million  from  $57.6 million
during the  comparable  three month period a year ago. The increase in total  revenue was primarily due to an increase of $12.7 million
in gain on sale of loans,  partially  offset by decreases of $3.1 million and $1.8 million in interest  income and loan servicing fees,
respectively.

Total revenue during the nine months ended March 31, 2003 was $196.8 million
  compared to $165.3 million during the nine months ended March 31, 2002. The
  $31.5 million increase in total revenue for the nine months ended March 31,
  2003 over the comparable nine month period a year ago is primarily due to $27.2
  million of debt extinguishment income and a $21.1 million increase in gain on
  sale of loans over gain on sale of loans reported during the comparable 2002
  period. The $27.2 million is comprised of $25.0 million related to SFPs
  forgiveness of $25.0 million of the Companys 5.5% 2012 Debentures due
  and $2.2 million of debt extinguishment income recognized in connection with
  the Companys extinguishment, at a discount from par, of $22.1 million
  of its 9.125% Senior Notes for $19.9 million of cash during the nine months
  ended March 31, 2003. Total revenue during the nine months ended March 31,
  2003 was negatively impacted by decreases of $7.4 million, $3.2 million and
  $1.3 million in interest income, loan servicing and origination fees, respectively.
  Total revenue during the nine months ended March 31, 2003 and March 31,
  2002 includes a $31.9 million and a $27.0 million write-down, respectively,
  to the Companys retained residual interests. Excluding the $27.2 million
  of debt extinguishment income and the $31.9 million write-down to the retained
  residual interests during the nine months ended March 31, 2003 and the $27.0
  million residual write-down during the nine months ended March 31, 2003,
  total revenue increased $9.2 million to $201.5 million from $192.3 million of
  total revenue during the same nine month period a year ago.

Gain on Sale of Loans.  Gain on sale of loans  during the three  months  ended March 31, 2003 was $35.2  million,  an increase of $12.7
million,  or 56.4%,  over the $22.5 million gain on sale of loans  reported  during the three months ended March 31, 2002. The increase
in gain on sale of loans resulted  primarily from the $491.3 million,  or 64.9%,  increase in total loan dispositions  during the three
months ended March 31, 2003 over total loan  dispositions  during the same period in 2002. Gain on sale rates recognized by the Company
in its whole loan sales for cash during the three months ended March 31, 2003 were  generally  flat or modestly  down from gain on sale
rates  recognized  during the same period in 2002.  During the three months ended March 31, 2003,  the Company  relied  solely on whole
loan sales for cash as its loan  disposition  strategy  and during the three  months  ended  March 31,  2002,  the Company  relied on a
combination of  securitizations  and whole loan sales for cash as its loan  disposition  strategy,  based upon the Companys  review of
market  conditions,  profitability  and cash flow  requirements.  During the three months  ended March 31, 2003,  $1.2 billion of total
loan  dispositions  were disposed of in whole loan sales for cash. In comparison,  during the three months ended March 31, 2002, of the
$756.8  million of total loan  dispositions  by the  Company,  $132.8  million and $624.0  million of mortgage  loans were  disposed in
securitizations and whole loan sales for cash, respectively.

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During the three  months  ended  March 31,  2003 and 2002,  the  Company,  as it has from time to time,  entered  into forward
interest rate swap agreements  designed to mitigate  interest rate exposure to certain  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
March 31,  2003 included charges of $0.2 million of derivative  related losses on hedge positions that closed during the period.  There
were no open hedge  positions at March 31, 2003.  Gain on sale of loans  during the three  months  ended March 31, 2002  included  $1.3
million of derivative  related gains and was  comprised of $0.2 million of gains on hedge  positions  that closed during the period and
$1.1 million of hedge gains to mark open hedge positions at March 31, 2002 to their estimated fair value.

Gain on sale of loans  increased  $21.1 million,  or 27.0%,  to $99.2 million during the nine months ended March 31, 2003 from
$78.1  million  during the nine months ended March 31,  2002.  The increase in gain on sale of loans during the nine months ended March
31, 2003 over gain on sale of loans  during the  comparable  nine month period a year ago  resulted  from the $1.0 billion  increase in
total loan  dispositions  during the nine months ended March 31, 2003 over loan  dispositions  levels  reported  during the  comparable
period a year ago,  partially  offset by lower gain on sale rates  realized by the Company on loan sales  during the nine months  ended
March 31,  2003 compared to the gain on sale rates for loan sales during the comparable  nine month period a year ago.  During the nine
months ended March 2003 and 2002,  the Company  relied on a combination  of  securitizations  and whole loan sales for cash as its loan
disposition  strategy  based on the Companys  review of market  conditions,  profitability  and cash flow needs.  Whole loan sales for
cash  increased  $1.2  billion,  or 68.8%,  to $3.0 billion  during the nine months  ended March 31, 2003 from $1.8 billion  during the
comparable nine month period a year ago. Loan  securitizations  declined  $227.8  million,  or 42.0%, to $315.0 million during the nine
months ended March 31, 2003 from $542.8 million during the comparable nine month period in 2002.

Gain on sale of loans  during  the nine  months  ended  March 31,  2003 and 2002  includes  $8.7  million  and $21.1  million,
respectively,  of cash proceeds from the sale of residual  interests to CZI. In addition,  gain on sale of loans during the nine months
ended March 31, 2003 and 2002 includes $4.1 million and $7.6 million of cash  proceeds from the sale of mortgage  servicing  rights and
the  rights  to  prepayment  fee  income  that  were  sold  to  unaffiliated   independent  mortgage  servicing  companies  related  to
securitizations  which  closed  during the  periods.  Gain on sale of loans  during the nine  months  ended March 31, 2003 and 2002 was
reduced by $10.9 million and $1.6 million of hedge losses,  respectively.  Finally,  gain on sale of loans during the nine months ended
March 31, 2003 and 2002 was reduced by the  amortization  of costs related to obtaining the Residual  Facility of $0.7 million and $0.5
million, respectively, substantially all of which related to amortization of remaining capitalized facility fee paid to CZI.

Origination  Fees.  Origination  fees  are  primarily  comprised  of  points  and  other  fees,  which  include  appraisal  and  credit
investigation  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 fee paid on such loans by the Company to brokers.  Origination
fees during the three months ended March 31, 2003  declined to $12.4  million  from $12.5  million  during the three months ended March
31,  2002.  The $0.1  million,  or 0.4%,  decrease in  origination  fees during the three  months  ended March 31, 2003 from the amount
reported during the comparable  three month period a year ago is attributable to a $0.8 million  increase in yield spread premiums paid
in the broker channel due to the $219.1 million,  or 54.3%,  increase in broker loan production during the three months ended March 31,
2003, partially offset by a $0.7 million increase in retail points and fees.

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Retail  points  and fees were  $14.5  million  and $13.8  million  during  the three  months  ended  March 31,  2003 and 2002,
respectively.  The $0.7  million  increase  in retail  points and fees during the three  months  ended  March 31,  2003 over the amount
during the comparable three month period in 2002 was attributable to the $19.6 million,  or 5.2%,  increase in total retail  production
during the 2003 period over total retail production during the comparable 2002 period.  However,  retail points and fees,  expressed as
a percentage of volume remained unchanged at 3.69% during the three months ended March 31, 2003 and 2002,  respectively.  As previously
reported,  the Company has,  primarily in response to competitive  factors and, to a lesser extent,  due to recent regulatory  changes,
reduced  points and fees charged to customers in numerous  states and for certain loan  products.  Pending  legislation  and regulation
restricting points and fees may cause the Company to reduce points and fees charged in those states.

Yield spread premium,  net of points and fees, was $2.2 million and $1.4 million during the three months ended March 31,  2003
and 2002,  respectively.  The $0.8  million  increase in yield spread  premium  during the three months ended March 31, 2003 over yield
spread premium during the three months ended March 31, 2002 is  attributable  primarily to the $219.1  million,  or 54.3%,  increase in
total broker  production  during the 2003 period over total broker  production  during the 2002 period.  Yield spread  premium,  net of
points and fees,  expressed as a percentage of total broker production,  remained flat at 0.36% during the three months ended March 31,
2003 when compared to the percentage during the same three month period during 2002.

Origination  fees during the nine months ended March 31, 2003 were $40.1 million,  a decrease of $1.3 million,  or 3.1%,  from
the $41.4  million  reported  during the nine months ended March 31,  2002.  The decrease in  origination  fee revenue  during the nine
months ended March 31,  2003 from levels  reported  during the comparable nine month period a year ago is primarily  attributable to an
increase in yield spread  premium  paid by the broker  channel,  partially  offset by an increase in the points and fees charged at the
time of origination in the retail  channel.  Yield spread premium,  net of points and fees,  paid by the broker channel  increased $5.7
million to $8.8 million  during the nine months ended March 31,  2003,  from $3.1 million of yield spread  premium paid during the same
nine month period a year ago. The increase is primarily  attributable  to the increase in total broker  production  of $760.3  million,
or 65.0%,  during the nine months ended March 31, 2003 to $1.9 billion from $1.2 million  during the nine months ended  March 31,  2002
and, to a lesser  extent,  due to an increase in average yield spread  premium paid during the 2003 period over the 2002 period.  Yield
spread premium,  expressed as a percentage of total broker  production was 0.45% and 0.27% during the nine months ended March 31,  2003
and 2002,  respectively.  The increase in yield spread premium was partially  offset by a $4.4 million increase to $48.1 million during
the nine months ended  March 31,  2003 from $43.7 million during the comparable nine month period a year ago in points and fees charged
at the time of origination by the retail channel.  The increase in retail points and fees was  attributable  to the $196.7 million,  or
16.9%,  increase in total  retail  production  during the nine months ended  March 31,  2003 over total  retail  production  during the
comparable  2002 period.  However,  retail points and fees,  expressed as a percentage  of volume  decreased to 3.53% from 3.75% during
the nine months ended March 31, 2003 and 2002, respectively, due to competitive factors.

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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  $1.3 million  during the three months ended
March 31, 2003, a decline of $1.7 million,  or 56.7%,  from $3.0 million during the comparable  three month period in 2002.  During the
three  months ended March 31, 2003,  servicing,  late and  prepayment  fees  declined  $2.1 million  from amounts  reported  during the
comparable  three month period a year ago. The decline was due  primarily to the $478.3  million  decrease in the size of the Companys
portfolio of mortgage loans in securitization  trusts serviced  in-house at March 31,  2003 when compared to March 31,  2002,  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 $0.2 million  decline in MSR  amortization  expense  during the three months ended  March 31,  2003 from the
amount reported during the three months ended March 31, 2002. In addition,  subservicing  expenses and related  resolution,  set-up and
reperformance  expenses during the three months ended March 31, 2003 were  $0.1 million,  down  $0.1 million  from the  $0.2 million of
such expenses during the three months ended March 31, 2002. The subservicing  expenses are a result of certain arrangements  previously
entered into by the Company designed 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  ($96.2 million at March 31, 2003) in
principal  amount of loans.  The loan  servicing  revenue  during  the  quarter  ended  March 31,  2002 was also  affected  by a second
arrangement,  that has since matured,  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 portfolio of mortgage loans in securitization trusts serviced in-house decreases.

Loan servicing  revenue during the nine months ended March 31, 2003  decreased  $3.2 million,  or 33.7%,  to $6.3 million from
$9.5 million during the nine months ended March 31, 2002 due primarily to declines in servicing,  late and prepayment fees  aggregating
$5.1 million,  partially  offset by declines in subservicing  related  expenses and  amortization of mortgage  servicing rights of $1.2
million and $0.7 million,  respectively.  The declines in servicing,  late and  prepayment  fees during the nine months ended March 31,
2003 from the levels  reported  during the nine months ended March 31, 2002 are due to the $478.3  million  decrease in the size of the
Company's  portfolio of mortgage  loans in  securitization  trusts  serviced  in-house at March 31, 2003  compared to  March 31,  2002,
together with a decrease in prepayment fees due to the aging of mortgage loans in  securitization  trusts serviced  in-house beyond the
term of their  prepayment fee.  Subservicing  related  expenses and mortgage  servicing  amortization are declining due to the decrease
in the number of loans being subserviced and the portfolio of mortgage loans in securitization trusts serviced in-house, respectively.

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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 $478.3
million to $852.7  million at March 31, 2003 from $1.3 billion at March 31,  2002.  The  Companys  total loan  servicing  portfolio at
March 31, 2003 decreased $354.0 million,  or 14.7%, to $2.0 billion from $2.4 billion at March 31, 2002,  reflecting the $478.3 million
runoff in mortgage loans in securitization  trusts, and loan  dispositions,  partially offset by loan production during the intervening
year. The Companys loan  production,  which is included in the total servicing  portfolio,  is serviced by the Company until the loans
are sold. The Companys  servicing  portfolio will continue to be negatively  impacted in the future by the Companys  dispositions  of
its loan production  through whole loan sales and  securitizations  on a servicing  released basis.  Future loan servicing revenue will
be negatively  impacted by continuing  run-off in 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 March 31, 2003 of $16.5 million
  decreased by $3.1 million from $19.6 million during the three months ended March
  31, 2002. Interest income decreased by $7.4 million to $55.9 million during
  the nine months ended March 31, 2003 from $63.3 million during the nine
  months ended March 31, 2002. The decreases in interest income during the three
  and nine months ended March 31, 2003 from the amounts reported during the comparable
  three and nine month periods a year ago was primarily due to declines of $3.0 million
  and $10.7 million, respectively, in accretion to the Companys residual
  interests. The Companys residual interests were at lower balances during
  the three and nine months ended March 31, 2003 when compared to residual
  interest levels during the same three and nine month periods a year ago. Partially
  offsetting the decrease in accretion income during the nine months ended March
  31, 2003 from amounts reported during the same periods a year ago was an increase
  of $3.3 million in interest income on loans held for sale during the nine months
  ended March 31, 2003 over such interest income level reported during the
  comparable period a year ago. The increase in interest income on loans held
  for sale during the nine months ended March 31, 2003 over the amount reported
  a year ago is attributable to higher average outstanding balances of loans held
  for sale despite such loans having lower weighted average coupon rates during
  the nine months ended March 31, 2003 when compared to such balances and coupon
  rates during the same period a year ago. Included in interest income during
  the three and nine months ended March 31, 2003, is a $0.5 million charge
  to interest income for potential refunds to certain California customers that
  may be entitled to receive in excess of one days interest inadvertently
  charged prior to recordation of their mortgages.

Expenses

General.  Total  expenses  during the three months ended March 31, 2003 were $57.9 million  compared to $54.5 million  during the three
months  ended March 31,  2002.  The $3.4  million  increase in total  expenses  during the three months ended March 31, 2003 over total
expenses  during the  comparable  period in 2002 was  attributable  to  increases  of $2.8  million,  $1.2  million and $0.8 million in
personnel expense,  production and general and administrative expense,  respectively,  partially offset by a decline of $1.4 million in
interest  expense.  Total expenses  during the nine months ended March 31, 2003  increased  $16.5 million to $175.1 million from $158.6
million during the nine months ended March 31, 2002.  The increase in total  expenses  during the nine months ended March 31, 2003 over
total  expenses  during the same nine month period in 2002 was  attributable  to increases of $14.7  million,  $3.8  million,  and $3.0
million in  personnel,  production,  and general  and  administrative  expenses,  respectively,  partially  offset by a decline of $5.0
million in interest expense.

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Personnel.  Personnel  expense  includes  salaries,  payroll  taxes and medical and other  employee  benefits.  Personnel  expense also
includes  commissions 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 March 31, 2003 increased $2.8 million,  or 9.6%, to
$31.9 million from $29.1 million during the three months ended March 31, 2002. The $2.8 million  increase was comprised  primarily of a
$1.1 million  increase in contract  services  utilized by the Company in preparing  funded mortgage loans for sale to whole loan buyers
and, to a lesser extent, to increases of $0.9 million,  $0.7 million and $0.1 million in salaries,  incentive  compensation and payroll
taxes, medical and other benefit costs,  respectively,  during the three months ended March 31,  2003, over amounts reported during the
three months ended March 31, 2002.

Personnel  expense  during the nine months ended March 31, 2003 was $98.8  million,  and increase of $14.7  million,  over the
$84.1  million  during the nine months  ended  March 31,  2002.  Of the $14.7  million  increase,  salaries,  commissions,  bonuses and
incentives  increased $12.2 million,  or 17.0%,  during the nine months ended March 31, 2003 over the amounts  reported during the nine
months ended March 31, 2002.  The increase was  comprised  primarily of a $5.9 million  increase in commission  compensation  earned by
retail and broker account  executives during the nine months ended March 31,  2003 over the comparable nine month period in 2002 due to
the $956.9 million,  or 41.0%,  increase in production during the 2003 period over production during the 2002 period. In addition,  the
increase was due to $5.3 million of increased  salaries  resulting  from increased  staffing  levels during the nine months ended March
31, 2003 over the same period in 2002 due  primarily  to the impact on head count caused by the  acquisition  of the  Companys  second
National  Loan Center and, to a lesser  extent,  to other  employee  head count  growth.  The increase is also  attributable  to a $1.3
million  increase in contract  services  utilized in preparing  funded  mortgage  loans for sale to whole loan sale  buyers.  Incentive
compensation  relative to senior management  increased $1.0 million during the nine months ended March 31, 2003 over the same period in
2002.  To a lesser  extent,  the increase in  personnel  expense  during the nine months ended March 31, 2003 over the amount  reported
during the  comparable  nine month period a year ago is  attributable  to $1.2 million of increased  health,  medical and other benefit
costs.

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Production. Production expense,
  primarily advertising, appraisal costs, travel and entertainment, and credit
  reporting fees increased $1.2 million to $6.8 million during the three months
  ended March 31, 2003 from $5.6 million during the three months ended March 31,
  2002. The increase in production expense during the three months ended March
  31, 2003 over amounts reported during the comparable period a year ago was attributable
  to appraisal and credit report expenses relating to the Companys use of
  an outside appraisal verification service and an accrual for refunds to certain
  California customers on mortgage loans where the fees charged for appraisal
  and credit report services may have exceeded the invoice amount. Production
  expense for the nine months ended March 31, 2003 increased $3.8 million
  to $18.6 million over $14.8 million during the same nine month period during
  2002. The increase in production expense during the nine months ended March
  31, 2003 from the comparable nine month periods a year ago is due primarily
  to increased advertising expenses relative to the Company's increased loan origination
  volumes during the three and nine months ended March 31, 2003 over those during
  the comparable period a year ago. Production expense expressed as a percentage
  of total loan origination volume remained at 0.7% for the three months ended
  March 31, 2003 and during the three months ended March 31, 2002. Production
  expense expressed as a percentage of total loan origination volume during the
  nine months ended March 31, 2003 remained flat at 0.6%, when compared to the
  percentage during the comparable nine month period in 2002.

General and  Administrative.  General and  administrative  expenses  increased $0.8 million and $3.0 million to $12.1 million and $33.7
million  during both the three and nine months ended  March 31,  2003,  respectively,  from $11.3 million and $30.7 million  during the
three and nine months  ended  March 31,  2002,  respectively.  The  increase  during the three  months  ended  March 31,  2003 from the
comparable three month period a year ago was primarily  attributable to increases in professional and legal expenses,  partially offset
by declines in communication,  depreciation and occupancy  expenses.  The increase during the nine months ended March 31, 2003 from the
comparable  nine month period in 2002 was  primarily  due to  increases  in  professional  and legal  expenses,  offset by decreases in
occupancy,   communication  and  depreciation  expenses.  General  and  administrative  expenses  also  includes  the  amortization  of
capitalized  financing costs for revolving committed  warehouse  facilities entered into by the Company.  Amortization  expense related
to such facilities was $0.9 million and $2.7 million during the three and nine months ended March 31, 2003,  respectively,  compared to
$1.1 million and $3.5 million during the three and nine months ended March 31, 2002, respectively.

Interest  Expense.  Interest expense  decreased $1.5 million and $5.1 million during the three and nine months ended March 31, 2003, to
$7.0  million  and $23.9  million  from $8.5  million  and $29.0  million  during  the three  and nine  months  ended  March 31,  2002,
respectively.  The decrease in interest  expense  during the three and nine months ended  March 31,  2003 from interest  expense levels
reported  during the  comparable  three and nine month  periods a year ago  resulted  from lower  borrowing  rates under the  Companys
revolving  warehouse and  repurchase  facilities.  This decrease was due primarily to declines in the one-month  LIBOR during the three
and nine months ended March 31, 2003 despite  increased  average  borrowings during the three and nine months ended March 31, 2003 over
average  borrowings  during the comparable  periods 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  potential  increases in the general  interest rate
environment during calendar 2003.

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Income Taxes.  During the three and nine months ended March 31, 2003,  the Company  recorded  income tax provisions of $0.9 million and
$3.1  million,  respectively,  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 11.9% and 14.2% for the
three and nine months  ended March 31, 2003,  respectively.  The  Companys  regular  taxable  income is projected to be lower than its
excess inclusion  income  primarily due to utilization of net operating loss  carryforwards as well as partial reversal of the deferred
tax asset related to its residual interest  valuation  adjustments,  among other items.  Accordingly,  the Company provides for current
taxes on its  excess  inclusion  income as the excess  inclusion  tax is payable  unless  current  taxable  income  exceeds  the excess
inclusion  amounts.  During the three and nine months ended March 31, 2002, the Company  recorded income tax provisions of $1.0 million
and $2.4 million,  respectively,  which reflect effective tax rates of 30.8% and 35.1%,  respectively.  The provisions for income taxes
during the three and nine months ended March 31, 2002 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  decreased  to  $393.9  million  at  March  31,  2003  from
$462.1 million at June 30,  2002 due primarily to loan dispositions  exceeding loan originations during the nine months ended March 31,
2003.

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. At March 31, 2003, there were no amounts due to the Company from CZI under the Residual Facility.

Accounts  receivable  decreased  to $47.9  million at March 31, 2003 from  $61.3 million  at June 30,  2002.  The  decrease is
primarily  attributable to decreases of $11.7 million in interest and servicing  advances and a $1.7 million  decrease in servicing and
late fees receivable.

The $11.7 million  decrease in servicing and interest advances to the  securitization  trusts at March 31,  2003 from June 30,
2002 is  comprised  of  $26.2  million  of  advances  made by the  Company  in its  role  of  servicer  of the  mortgage  loans  in the
securitization  trusts,  net of $37.9 million of recoveries of such advances  during the nine months ended March 31, 2003. 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  $1.7 million  decline in servicing  and late fees  receivable  at March 31, 2003 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 serviced in-house during the nine months ended March 31, 2003.

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The Company  periodically  evaluates  its accounts  receivable  for  collectibility  and charges  earnings for amounts  deemed
uncollectible.

Residual  Interests.  Residual  interests  decreased  to  $145.1 million  at March  31,  2003 from  $197.3 million  at  June 30,  2002,
reflecting a write-off of $31.9  million,  $34.5 million of cash received from the  securitization  trusts,  partially  offset by $14.2
million of accretion  during the nine months ended March 31,  2003.  During the nine months ended March 31, 2003,  the Company sold for
cash to CZI the residual interest created in the securitization during the period.

Mortgage Servicing Rights,  net. MSRs, net,  decreased to $0.8 million at March 31, 2003 from $2.9 million at June 30,  2002 reflecting
amortization  of  $2.1 million  during the nine months ended March 31, 2003.  During the nine months ended March 31, 2003,  the Company
did not capitalize any MSRs as all of the Companys $1.2 billion of total loan dispositions were on a servicing released basis.

Equipment and Improvements,  net.  Equipment and improvements,  net,  decreased to $9.4 million at March 31, 2003 from $10.9 million at
June 30, 2002 due to depreciation and amortization  outpacing capitalized  expenditures for new equipment and improvement  acquisitions
during the nine months ended March 31, 2003.

Prepaid and Other Assets.  Prepaid and other assets decreased to $14.4 million at March 31, 2003 from  $14.7 million at June 30,  2002,
due to the  amortization  of  capitalized  costs  incurred for  financing  and other  arrangements  entered into by the Company  having
exceeded the capitalization of such items during the nine months ended March 31, 2003.

Borrowings.  Borrowings  were $197.1 million at March 31, 2003 compared to $264.0 million at June 30,  2002. The $66.9 million  decline
during the nine months  ended March 31, 2003 was  comprised of (i) the  Companys  purchase and  extinguishment  of $22.1  million face
amount of its 9.125% Senior Notes due November  2003,  (ii) the  Companys  $19.8  million  mandatory  sinking fund payment on its 2012
Debentures, and (iii) SFPs subsequent forgiveness of $25.0 million of 2012 Debentures.

Revolving Warehouse  Facilities.  Amounts outstanding under revolving warehouse and repurchase  facilities  decreased to $298.7 million
at March 31, 2003 from $383.1 million at June 30,  2002  primarily due to the decrease in loans held for sale due to loan  dispositions
during the nine months ended March 31, 2003,  partially offset by the Company's loan originations  during the period,  and, to a lesser
extent, as the result of the Companys  decreased reliance on its revolving  warehouse  facilities.  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 March 31, 2003 from  $8.6 million  at June 30,  2002
reflecting the net activity caused by the provision for income taxes offset by income tax  remittances  recorded during the nine months
ended March 31, 2003.

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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 or 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 $21.0 million at March 31, 2003.

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. While
  the Companys revolving warehouse and repurchase agreements traditionally
  have 364-day terms, because the Companys 9.125% Senior Notes are due November 1,
  2003, the Company does not expect the facility providers to renew their facilities
  beyond October 2003 unless and until the Company either extinguishes or refinances
  the 9.125% Senior Notes. At March 31, 2003, 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 March 31, 2003, $300.0 million, $300.0 million
  and $300.0 million expire on July 15, 2003, July 30, 2003 and September
  30, 2003, respectively.

On April 25, 2003, the Company executed a commitment  letter with Greenwich Capital Financial  Products,  Inc.  (Greenwich),
pursuant to which  Greenwich  agreed to provide the Company with a financing  facility of up to $82.9 million secured by certain of the
Companys  residual  interests and servicing  advances,  subject to certain  conditions,  including the  negotiation and execution of a
definitive loan  agreement.  The Company  intends to use the proceeds from this facility,  along with other corporate  funds, to redeem
the Companys  outstanding  9.125% Senior Notes due November  2003.  The Company  anticipates  completing  the financing with Greenwich
prior to the  maturity  of its 9.125%  Senior  Notes due  November  2003.  The Company  can give no  assurance  that it will be able to
successfully negotiate and execute a definitive loan agreement or satisfy any other conditions required to complete the financing.

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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,  which establish,  among other things, 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.

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.

The  Securitization  and Sale of Mortgage  Loans.  The  Company's  ability to sell its loans in the  secondary  markets 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  markets on  acceptable  terms is essential  for the  continuation  of the  Company's  loan
origination operations.

During the nine  months  ended  March 31,  2003,  the  Company  disposed  of $315.0  million  of its  mortgage  loans  through
securitizations  and sold $3.0 billion of mortgage loans in whole loan sales,  compared to $542.8 million of mortgage loans securitized
and $1.8 billion of mortgage 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,  for which the Company has retained a residual
interest,  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 March 31, 2003, an additional  $34.4 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.  At March 31,  2003,  the Company was required to maintain
overcollateralization  amounts of $169.3 million  (including the $34.4 million), of which $154.5 million was maintained.  The remaining
$14.8  million  is  required  to be  added to the  overcollateralization  amounts  from  future  spread  income  from the  loans in the
securitization trusts.

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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 has not  exercised  its  right to  terminate  the  Company  as  servicer  with  respect  to those
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 March 31, 2003, the Residual  Facility with CZI, an affiliate of Capital Z, the Companys  largest
shareholder, expired at which time the $0.2 million of remaining unamortized capitalized Residual Facility costs were written off.

Monetization of Advances to the Securitization
  Trusts.On April 25, 2003, the Company executed a commitment
  letter with Greenwich pursuant to which Greenwich agreed to provide the Company
  with a financing facility secured by certain of the Companys servicing
  advances, subject to certain conditions, including the negotiation and execution
  of a definitive loan agreement. See Recent Events. Moreover, 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.

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.

The Company has previously raised $180.2 million  through the sale of preferred stock in several phases,  consisting of $170.8
million to Capital Z and its designees,  $4.7 million  to certain  members of the Company's  management and  $4.7 million to holders of
the Company's common stock.  Capital Z invested  $75.0 million in February 1999,  $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 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 and
$0.5 million from the sale of Series C Convertible  Preferred  Stock to common  stockholders in a rights offering in February 2002. 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.

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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.  In December  2002,  the Company  completed a tender  offer  pursuant to which $49.6  million of 2006  Debentures  were
tendered and an equal amount of 2012  Debentures  were issued.  Subsequently  in December  2002,  the $49.6 million of 2012  Debentures
were reduced by $19.8 million and $25.0 million through a mandatory  sinking fund redemption and the forgiveness by SFP,  respectively,
leaving $4.8 million of 2012 Debentures  outstanding.  At March 31, 2003,  there were $4.8 million of 2012 Debentures  outstanding.  At
March 31, 2003, there were $64.4 million of 2006 Debentures  outstanding.  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 March 31,  2003,  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 March 31, 2003,  the Company,  as it has from time to time,  entered into  agreements  to hedge
interest  rate risk exposure to its loans held for sale. At March 31, 2003,  the Company had no forward  interest rate swap  agreements
in place to hedge exposure to its loans held for sale and pipeline of loans.

Gain on sale of loans  during the three  months  ended  March 31,  2003 and 2002  includes  charges of $0.2  million  and $1.3
million of derivative related gains,  respectively,  related to the Companys hedging activities. All of the $0.2 million charge during
the three months ended  March 31,  2003,  related to losses on closed  forward  interest  rate swap  agreements.  There were no forward
interest  rate swap  agreements  open at March 31, 2003.  Of the $1.3  million gain during the three months ended March 31, 2002,  $1.1
million  related to the Companys mark to the estimated fair value of forward  interest rate swap  agreements  open at March 31,  2002,
and $0.2 million of the gain  related to gains on closed  forward  interest  rate swap  agreements.  Gain on sale of loans for the nine
months ended  March 31,  2003 and 2002  includes  charges of $10.9  million and $1.6  million,  respectively,  related to the Companys
hedging  activities.  All of the $10.9 million charge during the nine months ended March 31,  2003, related to losses on closed forward
interest  rate swap  agreements  during the period.  Of the $1.6 million  charge  during the nine months  ended  March 31,  2002,  $1.9
million  related to losses on closed forward  interest rate swap  agreements,  which was offset by gains of $0.3 million related to the
Companys mark to the estimated fair value of forward  interest rate swap  agreements open at March 31,  2002. 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.

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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 March 31,  2003,  the  Company's  $393.9 million  inventory  of loans  held for sale was
comprised of  $192.0 million  and  $201.9 million of fixed and variable rate mortgage loans,  respectively,  which had weighted average
interest rates of 8.30% and 8.08%,  respectively.  The weighted  average  interest rate on the Company's  total inventory of loans held
for sale was 8.19% at March 31, 2003. 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 March 31, 2003, the Company had aggregate  outstanding funded indebtedness of $495.8 million,  of which  $197.1 million and
$298.7 million bore fixed and variable  interest  rates,  respectively.  At March 31, 2003, the weighted  average  interest rate on the
Company's  $298.7 million  of outstanding  revolving  warehouse and repurchase  facilities  was 2.36%.  All of the Company's  revolving
warehouse  and  repurchase  facilities  were indexed to one-month  LIBOR which,  at March 31,  2003,  was 1.30%.  The weighted  average
interest rate on the Company's  $197.1 million  of outstanding  fixed rate  borrowings  was 7.85% at March 31, 2003. 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.

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Residual  Interests and MSRs. The Company had residual  interests of $145.1 million  and  $197.3 million  outstanding at March 31, 2003
and  June 30,  2002,  respectively.  The  Company  also had MSRs  outstanding  at March 31,  2003 and  June 30,  2002 in the  amount of
$0.8 million  and  $2.9 million,  respectively.  Both of these  instruments are recorded at estimated fair value at March 31,  2003 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 both March 31, 2003 and June 30, 2002.  The weighted  average life of the mortgage  loans used for  valuation was 2.2
years at March 31, 2003 and 3.7 years 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 March 31,  2003, 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 $298.7
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.

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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 Disclosure Committee, 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.

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PART II - OTHER INFORMATION

Item 1. Legal
  Proceedings

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 prior 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 parties are presently engaged in mediation.  No trial has
been set.

Wilmington  Trust  Company,  as successor  indenture  trustee with respect to the Companys  9.125% Senior Notes due 2003 (the
Senior  Notes),  brought an action  against the Company  seeking to prevent the Company from  consummating  its offer to exchange all
outstanding 5.5% Convertible  Subordinated Debentures due 2006 for newly issued 5.5% Convertible  Subordinated Debentures due 2012 (the
Exchange  Offer).  On June 10, 2002,  the Supreme Court of the State of New York heard oral  arguments  relating 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 Trust Companys  request.  On July 12, 2002, the Company filed a motion to dismiss  Wilmington Trust 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
not constitute an event of default under the indenture  governing the Senior Notes.  On August 14,  2002, the Company filed a motion to
dismiss the amended  complaint and requested  declaratory  judgment  that the Exchange  Offer would not  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  Wilmington  Trust Company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.  On
November 21, 2002,  Wilmington Trust Company filed a notice of appeal from the declaratory  judgment.  On February 7, 2003, the Company
filed a brief in opposition to Wilmington  Trust Companys  appeal.  On March 21, 2003, the New York Supreme Court  Appellate  Division
heard oral arguments regarding this appeal.

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The Company cannot  predict the outcome of these matters.  The Company  intends to vigorously  defend these actions;  however,
the  Company  believes  that an  unfavorable  outcome of one or both of the above  cases  could have a material  adverse  effect on the
Company's consolidated financial position and results of operations.

The  Company  becomes  involved,  from time to time,  in a variety  of  mortgage  lending  related  claims  and other  matters
incidental to its business in addition to the matters  described  above. In the opinion of the Company,  the resolution of any of these
pending  incidental  matters is not expected to have a material  adverse effect on its 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 Form 8 - K                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                
|(a)     | Exhibits: See Exhibit Index                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                
|(b)     | The Company filed
      the following Current Reports on Form 8-K during the quarter ended
      March 31, 2002:                                                                                                                               
|        |                                                                                                                                                                                                                                                
|        | On January 24, 2003,
      the Company filed a Form 8-K (dated November 30, 2002) reporting delinquency
      and loss statistics in the loan servicing portfolio of Aames Capital Corporation,
      a wholly owned subsidiary of the Company.
|        |                                                                                                                                                                                                                                                
|        | On January 24, 2003,
      the Company filed a Form 8-K (dated December 31, 2002) reporting delinquency
      and loss statistics in the loan servicing portfolio of Aames Capital Corporation.                                                
|        |                                                                                                                                                                                                                                                
|        | On February 6, 2003,
      the Company filed a Form 8-K (dated February 6, 2003) reporting results
      for the quarter ended December 31, 2002 and presentation materials for the
      ABS West 2003 conference.                            
|        |                                                                                                                                                                                                                                                
|        | On March 13, 2003,
      the Company filed a Form 8-K (dated January 31, 2003) reporting delinquency
      and loss statistics in the loan servicing portfolio of Aames Capital Corporation.                                                   

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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 Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

|                   |     |                                         
|------------------ | --- | ----------------------------------------
|                   |     |                                         
|                   |     | AAMES FINANCIAL CORPORATION             
|Date: May 14, 2003 |     |                                         
|                   |     |                                         
|                   | By: |                                         
|                   |     | */s/ Ronald J. Nicolas, Jr.*            
|                   |     | Ronald J. Nicolas, Jr.                  
|                   |     | *Executive Vice President - Finance and*
|                   |     | *Chief Financial Officer*               

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**CERTIFICATIONS**

|I, A.
      Jay Meyerson, certify that:
|---------------------------------------
|                                       
|1.                                     
|                                       
|2.                                     
|                                       
|3.                                     
|                                       
|4.                                     
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|5.                                     
|                                       
|                                       
|                                       

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|   | 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:
        May 14, 2003 |  |                                    
|-------------------------- |  | -----------------------------------
|                           |  |                                    
|                           |  |                                    
|                           |  | /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 Form 10-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)                                                                                                                                                                                                                                                                                                                                                           | designed such disclosure
      controls and procedures to ensure that material information relating to
      the registrant, including its consolidated subsidiaries, is made known to
      us by others within those entities, particularly during the period in which
      this quarterly report is being prepared;





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|   | 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:
        May 14, 2003 |  |                                    
|-------------------------- |  | -----------------------------------
|                           |  |                                    
|                           |  |                                    
|                           |  | /s/ Ronald J. Nicolas,
      Jr.   
|                           |  |                                    
|                           |  | Ronald J. Nicolas,
      Jr.       
|                           |  | Chief Financial Officer            
|                           |  | (Principal Financial
      Officer)

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**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)4.10
      
      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 (7)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 (7)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 (8)4.12
      
      Indenture, dated
        as of December 13, 2002, between Registrant and Wells Fargo Bank Minnesota,
        N.A., relating to
        Registrant's 5.5% Convertible Subordinated Debentures due 2012 (9)10.31(d)
      
      Amendment
        No. 5 to the Amended and Restated Master Loan and Security Agreement,
        dated as of May 15, 2003, among Aames Capital Corporation, Aames Funding
        Corporation and Morgan Stanley Mortgage Capital, Inc.10.33(e)
      
      Amendment
        No. 6, dated as of May 14, 2003, to the Warehouse Loan and Security Agreement,
        dated as of February 10, 2000 as Amended and Restated to and including
        March 21, 2002, by and among Aames Capital Corporation, Aames Funding
        Corporation and Greenwich Capital Financial Products, Inc.11
      
      Computation
        of Net Income (Loss) Per Common Share    (1)
      
      Incorporated by
        reference from Registrants Annual Report on Form 10-K for the year
        ended June 30, 2000 and filed with the Commission on
        September 28, 2000(2)
      
      Incorporated by reference from
        Registrant's Annual Report on Form 10-K for the year ended
        June 30, 1999 and filed with the Commission on September 3,
        1999




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|(3) |  | Included in Exhibit
        3.1                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                       
|(4) |  | Incorporated
      by reference from Registrant's Registration Statement on Form 8-A, file
      no. 33-13660, filed with the Commission on July 12, 1996                             
|    |  |                                                                                                                                                                                       
|(5) |  | Incorporated by reference
      from Registrant's Amendment No. 1 to the Registration Statement on Form 8-A
      dated as of, and filed with the Commission on, April 27, 1998       
|    |  |                                                                                                                                                                                       
|(6) |  | Incorporated by reference
      from Registrant's Current Report on Form 8-K dated as of December 23,
      1998 and filed with the Commission on December 31, 1999                   
|    |  |                                                                                                                                                                                       
|(7) |  | 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              
|    |  |                                                                                                                                                                                       
|(8) |  | 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
|    |  |                                                                                                                                                                                       
|(9) |  | Incorporated by reference
      from Registrants Amendment No. 1 to the Registration Statement on
      Form T-3, file no. 022-28600, filed December 12, 2002                        
|    |  |                                                                                                                                                                                       
|    |  |                                                                                                                                                                                       
|    |  |                                                                                                                                                                                       



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