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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 September 30, 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)


---

|                                                                     |  |                                     
|-------------------------------------------------------------------- |  | ------------------------------------
|                                                                     |  |                                     
|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 Securities Exchange Act of 1934 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

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

At November 7, 2003, Registrant had 7,008,514 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 September 30,
      2003 (Unaudited) and June 30, 2003 (Audited)                      | 2  | 
|                |  |                                                                                                                                |    | 
|                |  | Condensed
      Consolidated Income Statements for the three months ended September 30,
      2003 and 2002 (Unaudited)        | 3  | 
|                |  |                                                                                                                                |    | 
|                |  | Condensed
      Consolidated Statements of Cash Flows for the three months ended September
      30, 2003 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                                    | 8  | 
|                |  |                                                                                                                                |    | 
|Item
      3.   |  | Quantitative
      and Qualitative Disclosures About Market Risk                                                               | 8  | 
|                |  |                                                                                                                                |    | 
|Item
      4.   |  | Controls and Procedures                                                                                                        | 36 | 
|                |  |                                                                                                                                |    | 
|                |  |                                                                                                                                |    | 
|                |  | PART
        II - OTHER INFORMATION                                                                                            |    | 
|                |  |                                                                                                                                |    | 
|Item
      1.   |  | Legal Proceedings                                                                                                              | 38 | 
|                |  |                                                                                                                                |    | 
|Item
      2.   |  | Changes in Securities and Use of Proceeds                                                                                      | 38 | 
|                |  |                                                                                                                                |    | 
|Item
        3. |  | Defaults
      Upon Senior Securities                                                                                          | 38 | 
|                |  |                                                                                                                                |    | 
|Item
        4. |  | Submission
      of Matters to a Vote of Security Holders                                                                      | 38 | 
|                |  |                                                                                                                                |    | 
|Item
        5. |  | Other
      Information                                                                                                        | 38 | 
|                |  |                                                                                                                                |    | 
|Item
      6.   |  | Exhibits
      and Reports on Form 8 K                                                                                         | 38 | 
|                |  |                                                                                                                                |    | 
|                |  | Signature
      Page                                                                                                           | 39 | 
|                |  |                                                                                                                                |    | 



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Table of Contents

Item 1. Financial Statements

**AAMES
  FINANCIAL CORPORATION AND SUBSIDIARIES
  CONDENSED CONSOLIDATED BALANCE SHEETS**

|                                                                               | September
      30, 2003
      (Unaudited) | June
      30, 2003
      (Audited)
|------------------------------------------------------------------------------ | ------------------------------------------ | -----------------------------------
|**ASSETS**                                                                    
|                                                                               |                                            |                                    
|Cash
      and cash equivalents                                                |                                            | $   14,322,000                     
|Loans
      held for sale, at lower of cost or market                          |                                            | 752,838,000                        
|Advances
      and other receivables                                           |                                            | 40,789,000                         
|Residual
      interests, at estimated fair value                              |                                            | 115,794,000                        
|Deferred
      income taxes                                                    |                                            | 14,748,000                         
|Equipment
      and improvements, net                                          |                                            | 8,381,000                          
|Prepaid
      and other                                                        |                                            | 16,780,000                         
|                                                                               |                                            |                                    
|Total
      assets                                                             |                                            | $ 963,652,000                      
|                                                                               |                                            |                                    
|**LIABILITIES
        AND STOCKHOLDERS' EQUITY**                              
|                                                                               |                                            |                                    
|Borrowings                                                                     |                                            | $ 125,240,000                      
|Revolving
      warehouse and repurchase facilities                            |                                            | 671,348,000                        
|Accounts
      payable and accrued expenses                                    |                                            | 34,191,000                         
|Accrued
      dividends on convertible preferred stock                         |                                            | 54,710,000                         
|Income
      taxes payable                                                     |                                            | --                                 
|                                                                               |                                            |                                    
|Total
      liabilities                                                        |                                            | 885,489,000                        
|                                                                               |                                            |                                    
|                                                                               |                                            |                                    
|Commitments
      and contingencies                                            |                                            |                                    
|Stockholders'
      equity:                                                    |                                            |                                    
|Series A
      Preferred Stock, par value $0.001 per share; 500,000 shares     |                                            |                                    
|authorized;
      none outstanding                                             |                                            | --                                 
|                                                                               |                                            |                                    
|Series B
      Convertible Preferred Stock, par value $0.001 per share;        |                                            |                                    
|29,704,000
      shares authorized; 26,704,000 shares outstanding              |                                            | 27,000                             
|                                                                               |                                            |                                    
|Series C
      Convertible Preferred Stock, par value $0.001 per share;        |                                            |                                    
|61,230,000
      shares authorized; 19,875,000 shares and 20,175,000 shares    |                                            |                                    
|outstanding                                                                    |                                            | 20,000                             
|                                                                               |                                            |                                    
|Series D
      Convertible Preferred Stock; par value $0.001 per share;        |                                            |                                    
|108,566,000
      shares authorized; 59,920,000 shares and 59,923,000 shares   |                                            |                                    
|outstanding                                                                    |                                            | 60,000                             
|                                                                               |                                            |                                    
|Common
      Stock, par value $0.001 per share; 400,000,000 shares authorized; |                                            |                                    
|7,006,000
      shares and 6,699,000 shares outstanding                        |                                            | 7,000                              
|                                                                               |                                            |                                    
|Additional
      paid-in capital                                               |                                            | 418,122,000                        
|Retained
      deficit                                                         |                                            | (340,073,000                       
|                                                                               |                                            |                                    
|Total
      stockholders' equity                                               |                                            | 78,163,000                         
|                                                                               |                                            |                                    
|Total
      liabilities and stockholders' equity                               |                                            | $ 963,652,000                      
|                                                                               |                                            |                                    

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 Ended
      September 30,
|------------------------------------------ | --------------------------------------------
|                                           |                                             
|                                           |                                             
|Revenue:                                   |                                             
|Gain
      on sale of loans                |                                             
|Origination
      fees                     |                                             
|Loan
      servicing                       |                                             
|Debt
      extinguishment income           |                                             
|Interest                                   |                                             
|                                           |                                             
|Total
      revenue                        |                                             
|                                           |                                             
|                                           |                                             
|Expenses:                                  |                                             
|Personnel                                  |                                             
|Production                                 |                                             
|General
      and administrative           |                                             
|Interest                                   |                                             
|                                           |                                             
|Total
      expenses                       |                                             
|                                           |                                             
|                                           |                                             
|Income
      before income taxes           |                                             
|Provision
      (benefit) for income taxes |                                             
|                                           |                                             
|Net
      income                           |                                             
|                                           |                                             
|Net
      income to common stockholders:   |                                             
|Basic                                      |                                             
|                                           |                                             
|Diluted                                    |                                             
|                                           |                                             
|Net
      income per common share:         |                                             
|Basic                                      |                                             
|                                           |                                             
|Diluted                                    |                                             
|                                           |                                             
|Weighted
      average number of common    |                                             
|shares
      outstanding:                  |                                             
|Basic                                      |                                             
|                                           |                                             
|Diluted                                    |                                             
|                                           |                                             

See accompanying
  notes to condensed consolidated financial statements.

3

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Table of Contents

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

|                                                                                    |  | **Three
        Months EndedSeptember 30,** |  
|----------------------------------------------------------------------------------- |  | ------------------------------------------- | -
|                                                                                    |  | **2003**                                    |  
|                                                                                    |  |                                             |  
|Operating
      activities:                                                         |  |                                             |  
|Net
      income                                                                    |  | $      28,663,000                           |  
|Adjustments
      to reconcile net income to net cash used in operating activities: |  |                                             |  
|Depreciation
      and amortization                                                 |  | 1,011,000                                   |  
|Accretion
      of residual interests                                               |  | (2,168,000                                  | )
|Debt
      extinguishment income                                                    |  | --                                          |  
|Deferred
      income taxes                                                         |  | (18,769,000                                 | )
|Changes
      in assets and liabilities:                                            |  |                                             |  
|Loans
      held for sale originated                                                |  | (1,497,409,000                              | )
|Proceeds
      from sale of loans held for sale                                     |  | 1,145,572,000                               |  
|Decrease
      (increase) in:                                                       |  |                                             |  
|Advances
      and other receivables                                                |  | 526,000                                     |  
|Residual
      interests                                                            |  | 15,606,000                                  |  
|Prepaid
      and other                                                             |  | 896,000                                     |  
|Increase
      in:                                                                  |  |                                             |  
|Accounts
      payable and accrued expenses                                         |  | 1,647,000                                   |  
|Income
      taxes                                                                  |  | 946,000                                     |  
|                                                                                    |  |                                             |  
|Net cash
      used in operating activities                                         |  | (323,479,000                                | )
|Investing
      activities:                                                         |  |                                             |  
|Purchases
      of equipment and improvements                                       |  | (464,000                                    | )
|                                                                                    |  |                                             |  
|Net cash
      used in investing activities                                         |  | (464,000                                    | )
|Financing
      activities:                                                         |  |                                             |  
|Reduction
      in borrowings                                                       |  | (13,272,000                                 | )
|Net
      proceeds from revolving warehouse and repurchase                          |  |                                             |  
|facilities                                                                          |  | 327,673,000                                 |  
|Proceeds
      from exercise of common stock options                                |  | 4,000                                       |  
|                                                                                    |  |                                             |  
|Net cash
      provided by financing activities                                     |  | 314,405,000                                 |  
|                                                                                    |  |                                             |  
|Net increase
      (decrease) in cash and cash equivalents                          |  | (9,538,000                                  | )
|Cash
      and cash equivalents at beginning of period                              |  | 23,860,000                                  |  
|                                                                                    |  |                                             |  
|Cash
      and cash equivalents at end of period                                    |  | $      14,322,000                           |  
|                                                                                    |  |                                             |  

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

The
condensed consolidated financial statements include the accounts of the Company
and all of its subsidiaries after eliminating all significant intercompany
transactions and reflect all normal, recurring adjustments which are, in the
opinion of management, necessary to present a fair statement of the results of
operations of the Company in conformity with accounting principles generally
accepted in the United States for the interim periods reported. The results of
operations for the Company for the three months ended September 30, 2003 are not
necessarily indicative of the results expected for the full fiscal year.

At
September 30, 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 preferred stock
representing approximately 43.3% of the Companys combined voting power in
the election of directors and approximately 90.1% 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:
Guaranty Arrangements

The
  Parent has guaranteed amounts outstanding under certain revolving warehouse
  and repurchase agreements pursuant to which certain of its wholly-owned operating
  subsidiaries are the contractual borrowers. The Parent has also guaranteed amounts
  outstanding under a borrowing facility, secured by one of the operating subsidiarys
  residual interests and certain of that subsidiarys advance receivables
  (the Financing Facility), pursuant to which that subsidiary is the
  contractual borrower. The Parent's guarantees are full, complete and unconditional.
  Capital Z is a limited guarantor under the Financing Facility.

5

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Note 3:
Per Share Data

The
following table sets forth information regarding basic and diluted net income
per common share for the three months ended September 30, 2003 and 2002 (amounts
in thousands, except per share data):

|                                                       |  |                                            
|------------------------------------------------------ |  | -------------------------------------------
|                                                       |  | **Three
        Months EndedSeptember 30,**
|                                                       |  | **2003**                                   
|**Basic
      net income per common share:**           |  |                                            
|Net
      income                                       |  | $   28,663                                 
|Less:
      Accrued dividends on Series B, C and D     |  |                                            
|Convertible
      Preferred Stock                      |  | (3,478                                     
|                                                       |  |                                            
|Basic
      net income to common stockholders          |  | $   25,185                                 
|                                                       |  |                                            
|Basic
      weighted average number of common          |  |                                            
|shares
      outstanding                               |  | 6,877                                      
|                                                       |  |                                            
|Basic
      net income per common share                |  | $       3.66                               
|**Diluted
      net income per common share:**         |  |                                            
|Basic
      net income to common                       |  |                                            
|stockholders                                           |  | $   25,185                                 
|Plus:
      Accrued dividends on Series B, C and D     |  |                                            
|Preferred
      Stock                                  |  | 3,478                                      
|Interest
      on 5.5% Convertible Subordinated        |  |                                            
|Debentures                                             |  | 885                                        
|                                                       |  |                                            
|Diluted
      net income to common stockholders        |  | $   29,548                                 
|                                                       |  |                                            
|Basic
      weighted average number of common shares   |  |                                            
|outstanding                                            |  | 6,877                                      
|Plus
      incremental shares from assumed:            |  |                                            
|Conversions
      of:                                  |  |                                            
|Series
      B, C and D Convertible Preferred Stock    |  | 85,439                                     
|5.5%
      Convertible Subordinated Debentures         |  | 824                                        
|Exercise
      of:                                     |  | --                                         
|Common
      stock options                             |  | 7,406                                      
|Warrants                                               |  | 3,178                                      
|                                                       |  |                                            
|Diluted
      weighted average number of common shares |  |                                            
|outstanding                                            |  | 103,724                                    
|                                                       |  |                                            
|Diluted
      net income per common share              |  | $       0.28                               
|                                                       |  |                                            

Note
4: 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 and basic and diluted income per common
share would have reflected the pro forma amounts indicated below (amounts in
thousands, except per share data):

6

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|                                                 |  | **Three
        Months EndedSeptember 30,** | 
|------------------------------------------------ |  | ------------------------------------------- | 
|                                                 |  | **2003**                                    | 
|Net
      income:                                |  |                                             | 
|As
      reported                                |  | $28,663                                     | 
|Pro
      forma                                  |  | 28,390                                      | 
|Basic
      net income to common stockholders:   |  |                                             | 
|As
      reported                                |  | $25,185                                     | 
|Pro
      forma                                  |  | 24,912                                      | 
|Diluted
      net income to common stockholders: |  |                                             | 
|As
      reported                                |  | $29,548                                     | 
|Pro
      forma                                  |  | 29,275                                      | 
|Basic
      net income per common share:         |  |                                             | 
|As
      reported                                |  | $    3.66                                   | 
|Pro
      forma                                  |  | 3.62                                        | 
|Diluted
      net income per common share:       |  |                                             | 
|As
      reported                                |  | $    0.28                                   | 
|Pro
      forma                                  |  | 0.28                                        | 

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 Ended
                                     September
        30,**
|                              |  | **2003**                                                                                 
|                              |  |                                                                                          
|Dividend
      yield          |  | 0                                                                                        
|Expected
      Volatility     |  | 118                                                                                      
|Risk-free
      interest rate |  | 3                                                                                        
|Expected
      life of option |  | 4.5
      ye                                                                             

The
pro forma stock based compensation cost, net of tax effect was $0.3 million and
$0.3 million for the three months ended September 30, 2003 and September 30,
2002, respectively.

Note
5: Income Taxes

Deferred
income tax assets and liabilities are recognized to reflect the future tax
consequences of net operating loss carry forwards and differences between the
tax basis and financial reporting basis of assets and liabilities.

At
  September 30, 2003, the Company had available for income tax purposes include
  gross federal and state operating loss carry forwards of approximately $195.0
  million which , after tax effects, approximate $53.3 million and which generally
  begin to expire in 2013. The investment in the Company by Capital Z resulted
  in a change of control for income tax purposes, thereby potentially limiting
  the Companys ability to utilize net operating loss carry forwards and
  certain other future deductions.

7

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The
Company has recognized that it is more likely than not that certain future tax
benefits, primarily federal net operating loss carry forwards, will be realized
as a result of current and future income. Accordingly, during the three months
ended September 30, 2003, the Company decreased the deferred tax valuation
allowance to recognize higher than previously anticipated net deferred tax
assets.

Note
6: Reclassifications

Certain
amounts in the fiscal 2003 financial statements have been reclassified to
conform to the fiscal 2004 presentation.

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

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

Special
Note Regarding Forward-Looking Information

From time to time the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.  In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements.  The risks and uncertainties that may affect the operations, performance and results of the Company's business include the following: increases in mortgage lending interest rates; adverse changes in the secondary market for mortgage loans; decline in real estate values; limited cash flow to fund operations; dependence on short-term financing facilities; concentration of operations in California, Florida and Texas; extensive government regulation; intense
competition in the mortgage lending industry and the condition of the U.S. economy and financial system.  For a more complete discussion of these risks and uncertainties, see "Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in the Company's Annual Report on Form 10-K for the year ended June 30, 2003 and subsequent filings by the Company with the United States Securities and Exchange Commission.

8

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General

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

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

The
Company originates loans through its retail and broker production channels. The
Companys retail channel produces loans through its retail branch network
and through the National Loan Centers, which produce loans primarily through
affiliations with sites on the Internet. The Companys broker channel
produces loans through account executives working throughout the United States,
including purchasing a limited amount of closed loans from mortgage brokers on a
continuous or flow basis, and by sourcing loans through
telemarketing and the Internet.

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

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

9

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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.

Maintaining
Adequate Liquidity and Access to the Capital Markets. The Company intends to
continue to increase and diversify its funding sources by expanding its current
funding relationships and identifying new funding sources. The Company intends
to continue to fund its operations by disposing of a majority of its loan
production for cash in the whole loan market, monetizing the
overcollateralization on the Companys portfolio of mortgage loans in
securitization trusts, monetizing residual interests, mortgage servicing rights
and the rights to prepayment fees on the mortgage loans in its new
securitizations, if any, monetizing servicing advances and developing new
sources for working capital.

The
strategies discussed above contain forward-looking statements. Such statements
are based on current expectations and are subject to risks, uncertainties and
assumptions, including those discussed under Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
OperationsRisk Factors included in the Companys Annual Report
on Form 10-K for the year ended June 30, 2003. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. Thus, no assurance can be given that the Company will be able to
accomplish the above strategies.

Recent
Events

On
  November 12, 2003, the Company called six securitization trusts (the November
  Trust Call) with an unpaid principal balance of $274.8 million of mortgage
  loans ($290.3 million at September 30, 2003). As master servicer of the mortgage
  loans in the securitization trusts, the Company has the right to call the securitization
  trusts when the remaining balance of the mortgage loans sold in the securitization
  trusts falls below 10.0% of the original mortgage loan balance. The principal
  benefit of calling securitization trusts is to improve the Companys liquidity
  position. When the Company calls any of the securitization trusts, the Company
  receives a majority of the overcollateralization balance in a combination of
  mortgage loans in the securitization trusts and in cash. On November 12, 2003,
  the Company simultaneously sold $265.8 million of mortgage loans from the six
  securitization trusts. As a result of the November Trust Call, the Company expects
  to receive approximately $77.0 million on November 17, 2003. As a result
  of the November Trust Call, the Company will be required to repay the financing
  facility secured by its residual interests and certain of its servicing advances
  (the Financing Facility) by approximately $33.0 million on that
  date. Upon paydown of the Financing Facility, the limited guaranty on the Financing
  Facility by Capital Z Financial Services Fund II, L.P., a Bermuda partnership
  (Capital Z), an affiliate of Specialty Finance Partners, the Companys
  largest stockholder (SFP) will be extinguished. The Company expects
  to use a portion or all of the remaining proceeds from the November Trust Call
  to finance, until their subsequent sale, the $9.0 million of mortgage loans
  from the trusts which were not sold and to pay a dividend on its Series B Convertible
  Preferred Stock, Series C Convertible Preferred Stock, and Series D Convertible
  Preferred Stock (collectively, the Preferred Stock). The Company
  is seeking waivers from certain lenders permitting the Company to pay a dividend
  on its Preferred Stock. The Company has not to date declared a dividend on its
  Preferred Stock and can give no assurance that it will obtain the necessary
  waivers. As a result of the November Trust Call, the Companys portfolio
  of mortgage loans in securitization trusts decreased by $274.8 million on November
  12, 2003, which loans were reflected in the loans serviced on an interim basis
  on that date.

10

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Of
the Companys remaining seven securitization trusts after the November
Trust Call, which had a mortgage loan balance of $410.4 million at September 30,
2003, four securitization trusts with a mortgage loan balance of $105.5 million
at September 30, 2003 are callable. If the Company calls any of these
securitization trusts, it might be required to write down the value of the
residual interests relating to the called securitization trusts. The Company
would also be required to prepay the Financing Facility from proceeds realized
from a call transaction in an amount equal to the amount ascribed to the called
residual interest and the servicing advances on mortgage loans in the
securitization trusts pledged to the lender under the Financing Facility.
Additionally, the Companys portfolio of mortgage loans serviced in
securitization trusts would be reduced.

During
the three months ended September 30, 2003, the Company recorded net income of
$28.7 million, which included an $18.2 million income tax benefit, compared
to $9.9 million of net income during the comparable three month period a year
ago.

Total
  revenue during the three months ended September 30, 2003 increased $5.8 million
  to $73.2 million from $67.4 million during the comparable period a year ago.
  Total revenue during the three months ended September 30, 2002 includes $1.1
  million of debt extinguishment income recognized in connection with the Companys
  $7.5 million extinguishment of its 9.125% Senior Notes due 2003 (the "Senior
  Notes") at a discount from par for $6.4 million of cash. The increase in
  total revenue during the three months ended September 30, 2003 over total revenue
  during the comparable three month period in 2002 was $7.0 million excluding
  the $1.1 million of debt extinguishment income during the three months ended
  September 30, 2002. The $7.0 million increase in total revenue was comprised
  of increases of $8.0 million and $3.1 million in gain on sale of loans and origination
  fees, respectively, partially offset by declines of $3.3 million and $0.8 million
  in interest and loan servicing income, respectively.

Total
expenses during the three months ended September 30, 2003 increased $6.0 million
to $62.8 million from $56.8 million during the three months ended September
30, 2002. The increase in expenses during the three months ended September 30,
2003 from expenses reported during the comparable three month period a year ago
was attributable primarily to increases of $6.8 million, $1.3 million and
$2.0 million in personnel, production and general and administrative
expense, respectively, partially offset by a decline of $4.1 million in
interest expense.

11

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As
previously disclosed, on October 21, 2003 the Company issued options pursuant to
its 2003 Series E Preferred Stock Option Plan to purchase 22,150,000 shares of
Series E Preferred Stock, par value $0.001 per share, to certain directors and
executive officers.

On
October 31, 2003, the Company renewed two of its warehouse lines with new
maturities of September 30, 2004 and October 30, 2004 and extended a third
line to November 30, 2003, maintaining its capacity under its revolving
warehouse and repurchase facilities at $1.2 billion ($1.1 billion committed and
$100.0 million uncommitted), unchanged from September 30, 2003.

Mortgage
Loan Production. The Company originates mortgage loans through its retail
and broker production channels. The Companys retail channel produces loans
through its retail branch network and through the National Loan Centers, which
produce loans primarily through affiliations with sites on the Internet. The
Companys broker channel produces loans through account executives working
throughout the United States, including purchasing a limited amount of closed
loans from mortgage brokers on a continuous or flow basis, and by
sourcing loans through telemarketing and the Internet. The Company generally
underwrites the loans it originates to its underwriting guidelines and, to a
lesser extent, to the underwriting guidelines of its investors in the secondary
markets, and appraises every loan it originates. The underwriting of a mortgage
loan to be originated by the Company generally includes a review of the
completed loan package, including the loan application, a current appraisal, a
preliminary title report and a credit report.

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

|                                             | Three
      Months Ended
|-------------------------------------------- | ------------------------
|                                             |                         
|                                             |                         
|Retail:                                      |                         
|Retail
      branch network                  |                         
|National
      Loan Centers                  |                         
|                                             |                         
|Total
      retail                           |                         
|                                             |                         
|Broker:                                      |                         
|Regional
      broker operations centers (1) |                         
|Telemarketing
      and Internet             |                         
|                                             |                         
|Total
      broker                           |                         
|                                             |                         
|Total
      production                       |                         
|                                             |                         



| | (1) | Includes
the purchase of closed loans on a flow basis from  correspondents  of $3.9 million,  $3.4
million and $8.9 million  during the three months ended September 30, 2003, 2002 and June
30, 2003, respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total
Loan Production. Total loan production during the three months ended September 30, 2003
increased $343.9 million, or 29.8%, to $1.5 billion over $1.2 billion reported
during the three months ended June 30, 2003, and increased $528.3 million, or 54.5%,
over the $969.2 million of total loan production reported during the three months ended
September 30, 2002. Total loan production during the three months ended September 30,
2003 increased over loan production during the three months ended June 30, 2003 and
September 30, 2002 due to the combination of realizing increased efficiencies in the
retail branch network and the broker regional operations centers, increased demand for
subprime products due to interest rate volatility in the prime mortgage market, and the
continuation of a generally favorable mortgage interest rate environment.

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

Retail
Production. The Company's total retail production was $576.8 million during the three
months ended September 30, 2003, an increase of $144.0 million, or 33.3%, over the
$432.8 million reported during the three months ended June 30, 2003, and an
increase of $124.6 million, or 27.6%, over the $452.2 million of total retail
production during the three months ended September 30, 2002.

Retail
Branch Network

The
Company's  retail branch network  production  was $457.7  million  during the three
months ended  September 30, 2003, an  increase of $106.4 million,  or 30.3%, over the
$351.3 million of retail branch network production  reported during the three months
ended June 30,  2003, and an increase of  $135.8 million,  or 42.2%,  over the $321.9
million reported during the three months ended  September 30, 2002.

National
Loan Centers

Mortgage
loan production from the Company's  National Loan Centers,  which primarily  originate
loans through  affiliations  with certain  Internet sites,  increased $37.6 million,  or
46.2% to $119.1 million during the three months ended September 30, 2003  over $81.5
million during the three months ended June 30, 2003, but decreased  $11.2  million,  or
8.6%,  from the $130.3 million of  loan production  reported  during the three months
ended  September 30, 2002. The decrease in the National Loan Centers'  production  during
the three months ended September 30, 2003 compared to their  production  during the three
months ended September 30, 2002 was  due to changes in processing  and  underwriting  in
the National Loan Centers  implemented  during the past year designed to improve
productivity and value in the channel over the long term, but which were disruptive to
loan production during implementation.

Broker
Production. The Company's total broker production increased $199.9 million, or 27.7%,
to $920.6 million during the three months ended September 30, 2003 over the $720.7
million of total broker production reported during the three months ended June 30,
2003, and increased $403.7 million, or 78.1%, over the $516.9 million reported during the
three months ended September 30, 2002.

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Regional
Broker Operations Centers

Mortgage
loan production from the regional broker  operations  centers during the three months
ended September 30, 2003 was  $751.7 million which increased  $137.9 million and $286.5
million,  or 22.5% and 61.6%,  respectively,  over the $613.8 million and  $465.2
million,  respectively,  of regional office network  production during the three months
ended June 30, 2003 and September 30,  2002, respectively.

Broker
Telemarketing and Internet

Broker
  mortgage loan production through telemarketing and the Internet was $168.9 million
  during the three months ended September 30, 2003, an increase of $62.0 million,
  or 58.0%, over the $106.9 million reported during the three months ended June
  30, 2003, and an increase of $117.1 million over the $51.8 million reported
  during the three months ended September 30, 2002.

The
following  table sets forth the number of retail  branches and broker  operations
centers  operated by the Company at  September 30, 2003 and 2002:

|                                         |  |   
|---------------------------------------- |  | --
|Retail
      branches                    |  | 91
|National
      Loan Centers              |  | 2 
|Regional
      broker operations centers |  | 4 

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 a securitization, the underlying pass-through
certificates or bonds are generally overcollateralized by the Company depositing
mortgage loans with a principal balance exceeding the principal balance of the
pass-through certificates or bonds. The upfront overcollateralization required
in securitizations is generally cash flow negative to the Company in the early
years of the securitization. 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.

14

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During
the three months ended September 30, 2003, total mortgage loan dispositions
increased $27.2 million, or 2.4%, to $1.2 billion over the total loan
dispositions reported during the three months ended June 30, 2003, and increased
$265.5 million, or 28.8%, over the $920.7 million of total loan dispositions
during the three months ended September 30, 2002. All of the Companys $1.2
billion and $920.7 million of loan dispositions during the three months ended
September 30, 2003 and 2002, respectively, were in the form of whole loan sales
for cash. The Companys sole reliance on whole loan sales as its loan
disposition strategy during the three months ended September 30, 2003 was
due to attractive pricing conditions prevailing in the whole loan sale markets.
Future adverse changes in the current interest rate environment and in the
current economic climate could affect the mix in the composition of the
Companys strategy of selling loans in the form of securitizations or whole
loan sales.

In
prior quarters, when the Company disposed of loans in securitization
transactions, each agreement that the Company entered into in connection with
such securitizations required 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, certain additional 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.

Loan
Servicing. The Companys servicing portfolio consists mainly of
mortgage loans securitized prior to January 1, 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. As a means to maximize cash flow from
securitizations, the Company has, since January 2000, been selling for cash the
servicing rights in securitizations. Moreover, the Company does not retain
servicing on loans it sells in whole loan sale markets.













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The
following table sets forth certain information regarding the Companys
servicing portfolio at September 30, 2003 and 2002 and June 30, 2003
(dollars in millions):

|                                         |  | **September
        30,** | **June 30,**
|---------------------------------------- |  | ------------------------- | ------------
|                                         |  | **2003**                  |             
|Mortgage
      loans serviced:           |  |                           |             
|Loans
      serviced on an interim basis |  | $   1,641.0               |             
|Loans
      in securitization trusts     |  | 622.0                     |             
|                                         |  |                           |             
|Serviced
      in-house                  |  | 2,263.0                   |             
|Loans
      in securitization trusts     |  |                           |             
|subserviced
      by others              |  | 79.0                      |             
|                                         |  |                           |             
|Total
      servicing portfolio          |  | $   2,342.0               |             
|                                         |  |                           |             
|Percentage
      serviced in-house       |  | 96.6                      | %           
|                                         |  |                           |             

Excluding
  loans serviced on an interim basis, the Company has not added any new loans
  to the servicing portfolio since January 1, 2000 due to the Companys sale
  of all of its mortgage loan production in whole loan sales and securitizations
  with servicing released since that time. The Companys total servicing
  portfolio at September 30, 2003 increased $602.0 million, or 34.6% over
  $1.7 billion at June 30, 2003, reflecting an increase in loans serviced
  on an interim basis partially offset by a decline in loans in securitization
  trusts due to the Companys call of certain securitization trusts and loan
  servicing portfolio runoff, in the form of principal amortization, prepayments
  and liquidations. The Companys portfolio of mortgage loans serviced on
  an interim basis increased $730.0 million, or 80.1%, to $1.6 billion at September 30,
  2003 over $911.0 million at June 30, 2003 and increased $536.0 million, or 48.5%,
  over the $1.1 billion of mortgage loans serviced on an interim basis at September 30,
  2002. The Companys portfolio of mortgage loans in securitization trusts
  serviced in-house, declined by $119.0 million, or 16.1%, to $622.0 million at
  September 30, 2003 from $741.0 million at June 30, 2003 and decreased by $445.0
  million, or 41.7%, from the $1.1 billion at September 30, 2002.

Contributing
  to the decline was the Companys call during the quarter of four securitization
  trusts with mortgage loans with a principal balance of $29.3 million. In addition,
  as a result of the November Trust Call, the Companys portfolio of mortgage
  loans in securitization trusts decreased by $274.8 million ($290.3 million at
  September 30, 2003) on November 12, 2003, which loans were reflected in the
  loans serviced on an interim basis on that date. In general, the Companys
  portfolio of mortgage loans in securitization trusts serviced in-house will
  continue to decline from run-off and as a result as all new mortgage loans are
  sold servicing released, and such decline may be exacerbated by the current
  mortgage interest rate environment which could accelerate prepayment activity.
  Moreover, four of the Companys seven securitization trusts remaining after
  the November Trust Call, which had a mortgage loan principal balance at September
  30, 2003 of $105.5 million out of $410.4 million in the total portfolio of mortgage
  loans in securitization trusts were callable at September 30, 2003. The
  Companys portfolio of mortgage loans in securitization trusts would be
  reduced further were the Company to decide to call any or all of these securitization
  trusts.

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

|                                                         | At
      or during the
|-------------------------------------------------------- | ----------------------
|                                                         |                       
|                                                         |                       
|                                                         |                       
|Percentage
      of dollar amount of delinquent loans to |                       
|loans
      serviced (period end)(1)(2):                 |                       
|One
      month                                          |                       
|Two
      months                                         |                       
|Three
      or more months:                              |                       
|Not
      foreclosed(3)                                  |                       
|Foreclosed(4)                                            |                       
|                                                         |                       
|Total                                                    |                       
|                                                         |                       
|                                                         |                       
|Percentage
      of total dollar amount of delinquent    |                       
|loans
      in:                                          |                       
|Loans
      serviced on an interim basis                 |                       
|Loans
      in securitization trusts serviced in-house   |                       
|and
      by other                                       |                       
|Percentage
      of dollar amount of loans foreclosed    |                       
|during
      the period to servicing portfolio(2)(6)     |                       
|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(5)    |                       
|Percentage
      of annualized losses to servicing       |                       
|portfolio(2)(6)                                          |                       
|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,  including loans serviced on an interim  basis of $1.6
billion and $1.1 billion at September 30, 2003 and 2002,  respectively,  and $911.0
million,  $991.0 million and  $722.0 million at June 30, 2003, 2002 and 2001,
respectively.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents
loans which are in foreclosure but as to which foreclosure proceedings have not concluded.
| | --- | -----------------------------------------------------------------------------------------------------

| | (4) | Represents
properties acquired following a foreclosure sale and still serviced by the Company at
period end.
| | --- | ------------------------------------------------------------------------------------------------------------

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| | (5) | Represents
losses,  net of gains, on properties sold through  foreclosed or other default management
activities during the  period indicated.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Company has historically experienced delinquency rates that are higher than
those prevailing in this industry due to the inclusion of lower credit grade
mortgage loans in the securitization trusts. Delinquent loans (by principal
balance) decreased at September 30, 2003 to $141.7 million from
$156.5 million at June 30, 2003 and from $205.0 million at September
30, 2002. Total delinquent loans in the Companys portfolio of
securitization trusts (serviced in-house and by others) were $127.8 million and
$144.3 million at September 30, 2003 and June 30, 2003, respectively, and were
$186.9 million at September 30, 2002. Total delinquent loans in the
Companys portfolio of loans serviced on an interim basis were $13.9
million and $12.2 million at September 30, 2003 and June 30, 2003, respectively,
and were $18.1 million at September 30, 2002.

The
  delinquency rate at September 30, 2003 was 6.1% compared to 9.0% at June 30,
  2003 and 9.0% at September 30, 2002. The delinquency rate at September 30, 2003
  declined from the delinquency rate at June 30, 2003, due to the fact that
  loans in the Companys portfolio of mortgage loans in securitization trusts,
  which contains the majority of delinquent loans, became a smaller part of the
  Companys total servicing portfolio. Due to the November Trust Call, the
  decline in total delinquent loans in the Companysportfolio of securitization
  trusts (serviced in-house and by others) will accelerate. A decline in delinquencies
  generally reduces the Companys servicing advance obligations. The Company
  expects the delinquency rate to continue to decline as the Companys portfolio
  of mortgage loans in securitization trusts (and the number of delinquent loans
  in such trusts) continues to decline and become a smaller component of the Companys
  total servicing portfolio.

During
the three months ended September 30, 2003, losses on loan liquidations decreased
to $5.2 million from $10.7 million during the comparable three month period
a year ago primarily due to the decrease in the number of loans liquidated.
Substantially all of the foreclosures and liquidations handled by the Company
occur in connection with the Companys portfolio of mortgage loans in
securitization trusts. The Company expects net losses on loan liquidations to
continue to decline as the Companys portfolio of mortgage loans in
securitization trusts (and the number of foreclosed loans in such trusts)
continues to decline.

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

18

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In
the case of securitizations credit-enhanced by monoline insurance, the
agreements also typically provide that the Company may be terminated as servicer
by the monoline insurance company (or by the trustee with the consent of the
monoline insurance company) upon certain events of default, including the
Companys failure to perform its obligations under the servicing agreement,
the rate of over 90-day delinquent loans (including properties acquired by
foreclosure and not sold) exceeding specified limits, losses on liquidation of
collateral exceeding certain limits, any payment being made by the monoline
insurance company under its policy, and events of bankruptcy or insolvency.
Pursuant to agreements relating to the Companys two 1999 securitization
trusts, the monoline insurer 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 those securitization trusts. Previously, the Company did not satisfy
the net worth test and, as a result, the monoline insurer could have terminated
the Company as servicer with respect to those securitization trusts. The
monoline insurer waived the Companys failure to satisfy the net worth test
and none of the servicing rights of the Company were terminated. At September
30, 2003, the Company met the specified net worth test.

The
table below illustrates certain information regarding those securitization
trusts that have exceeded delinquency and loss triggers at September 30, 2003
and the information at September 30, 2003 as adjusted for the Companys
call of the mortgage loans in six securitization trusts in the November Trust
Call (dollars in thousands):

|                                                  | Actual
      at September 30,
      2003 as Adjusted for the
      November Trust Call | Actual
      at
      September 30, 2003
|------------------------------------------------- | -------------------------------------------------------------------------------------- | ----------------------------------------
|Securitization
      trusts:                      |                                                                                        |                                         
|Number                                            |                                                                                        | 7                                       
|Total
      dollar amount of mortgage loans       |                                                                                        |                                         
|serviced
      in securitization trusts (in-house |                                                                                        |                                         
|and
      subserviced)                            |                                                                                        | $410,422                                
|Securitization
      trusts where the Company may |                                                                                        |                                         
|be
      terminated as servicer:                  |                                                                                        |                                         
|Number                                            |                                                                                        | 7                                       
|Dollar
      amount of mortgage loans serviced    |                                                                                        |                                         
|in
      securitization trusts (in-house and      |                                                                                        |                                         
|subserviced)                                      |                                                                                        | $410,422                                
|Percentage
      of total dollar amount of        |                                                                                        |                                         
|mortgage
      loans serviced in securitization   |                                                                                        |                                         
|trusts
      (in-house and subserviced)           |                                                                                        | 100%                                    

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

Critical
Accounting Policies

The
Company retained the residual interests created in all of the $7.0 billion of
securitizations which closed prior to and during the year ended June 30, 2000.
The Company did not retain residual interests created in any of its
securitizations since January 1, 2000. During the three months ended September
30, 2003, the Company did not dispose of any of its loans through a
securitization.

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

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

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

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

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

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

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

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

The
following table summarizes certain information about the securitization trusts
in which the Company had retained a residual interest at September 30, 2003 and
June 30, 2003 (dollars in thousands):

|                                                                            | September 30, 2003 | June 30, 2003
|--------------------------------------------------------------------------- | ------------------ | -------------
|Aggregate principal balances of securitized loans at the time of the        |                    | $7,016,205   
|securitizations                                                             |                    |              
|Outstanding
      principal balances of securitized loans                   |                    | $   700,693  
|Outstanding principal balances of pass-through certificates or bonds of the |                    |              
|securitization trusts                                                       |                    | $   565,230  
|Weighted average coupon rates of:                                           |                    |              
|Securitized
      loans                                                     |                    | 10.13        
|Pass-through certificates or bonds                                          |                    | 5.49         

The
  outstanding principal balances of securitized loans and the pass-through certificates
  of the securitization trusts at September 30, 2003 adjusted for the November
  Trust Call were $410.4 million and $343.1 million, respectively.

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Certain
historical data and key assumptions and estimates used by the Company in its
September 30, 2003 and June 30, 2003 review of the residual interests
retained by the Company were as follows:

|                                                                                      | September
      30, 2003 | June 30,
      2003  
|------------------------------------------------------------------------------------- | ------------------------ | ---------------------
|**Prepayments:**                                                                      |                          |                      
|Actual
      weighted average annual prepayment rate, as a percentage of outstanding  |                          |                      
|principal
      balances of securitized loans                                         |                          |                      
|Fixed
      rate loans                                                                |                          | 33.5                 
|Adjustable
      rate loans                                                           |                          | 33.1                 
|Estimated
      annual prepayment rates, as a percentage of outstanding principal     |                          |                      
|balances
      of securitized loans:                                                  |                          |                      
|Fixed
      rate loans                                                                |                          | 28.9%
        to 49.7
|Adjustable
      rate loans                                                           |                          | 19.4%
        to 50.0
|Estimated
      weighted average life of securitized loans                            |                          | 1.9
        years    
|**Credit
      losses:**                                                              |                          |                      
|Actual
      credit losses to date, as a percentage of original principal balances of |                          |                      
|securitized
      loans                                                               |                          | 5.3                  
|Future
      estimated credit losses, as a percentage of original principal balances  |                          |                      
|of
      securitized loans                                                            |                          | 0.5                  
|Total
      actual and estimated prospective credit losses, as a percentage of        |                          |                      
|original
      principal balance of securitized loans                                 |                          | 5.8                  
|Total
      actual credit losses to date and estimated prospective credit losses      |                          |                      
|(dollars
      in thousands)                                                          |                          | $
        351,685    
|**Weighted
      average discount rate:**                                             |                          | 13.8                 

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 3.9% to
7.0% at September 30, 2003 and 3.9% and 9.3% at June 30, 2003. Actual and
estimated credit losses vary between securitization trusts due to differing
credit quality, i.e., credit grade, production channel and other factors
considered by the Company when evaluating credit loss estimates.

The
Company has previously disclosed that if actual credit losses and actual
prepayment trends exceeded the Companys credit loss and prepayment rate
assumptions, it would be required to adjust earnings to reflect changes in its
credit loss and prepayment assumptions. In its regular quarterly review of its
residual interests during the three months ended September 30, 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 September 30, 2003
and 2002, no adjustment to the Companys assumptions (rate of prepayment,
credit loss and discount rate) was deemed warranted.

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Additionally,
  as master servicer of the mortgage loans in the securitization trusts, the Company
  has the right to call the securitization trusts when the remaining balance of
  the mortgage loans sold in the securitization trusts falls below 10.0% of the
  original mortgage loan balance. During the quarter ended September 30, 2003,
  the Company called four of the securitization trusts. In estimating the effects
  on the carrying value of the residual interests of calling those securitization
  trusts, the Company wrote down by $3.0 million the retained residual interests
  related to those four securitization trusts at June 30, 2003, and therefore
  calling those trusts did not materially affect the carrying value of the Companys
  retained residual interests at September 30, 2003. In addition, in the November
  Trust Call, the Company notified the trustee that it called six securitization
  trusts. In estimating the effects on the carrying value of the residual interests
  of the called securitization trusts in the November Trust Call, the Company
  believed that calling those trusts will not materially affect the carrying value
  of the Companys retained residual interests at September 30, 2003.

If
the Company calls any of the seven securitization trusts remaining after the
November Trust Call, it might be required to write down the value of the
residual interests relating to the called securitization trusts.

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

Mortgage
Servicing Rights.During the three months ended September 30, 2003 and 2002,
all of the Companys loan dispositions were on a servicing released basis;
therefore, the Company did not capitalize mortgage servicing rights
(MSRs). Prior to June 30, 2000, the Company capitalized MSRs based
on an allocation of the carrying amount of the loans securitized on a servicing
retained basis. The Companys MSRs were fully amortized at September 30,
2003.

Accounting
for Income Taxes. Taxes are provided on substantially all income and expense
items included in earnings, regardless of the period in which such items are
recognized for tax purposes. The Company uses an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Companys financing statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than the enactment of changes in the tax law or rates.

Deferred
income tax assets and liabilities are recognized to reflect the future tax
consequences of net operating loss carry forwards and differences between the
tax basis and financial reporting basis of assets and liabilities. The Company
has recognized that it is more likely than not that certain future tax benefits,
primarily federal net operating loss carry forwards, will be realized as a
result of current and future income. Accordingly, during the three months ended
September 30, 2003, the Company decreased the deferred tax valuation
allowance to recognize higher than previously anticipated net deferred tax
assets.

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Results
of OperationsThree Months Ended September 30, 2003 and 2002

The
following table sets forth information regarding the components of the
Companys revenue and expenses for the three months ended September 2003
and 2002:

|                                           | Three
      Months EndedSeptember 30,
|------------------------------------------ | -------------------------------------
|                                           |                                      
|Revenue:                                   |                                      
|Gain
      on sale of loans                |                                      
|Origination
      fees                     |                                      
|Loan
      servicing                       |                                      
|Debt
      extinguishment income           |                                      
|Interest                                   |                                      
|                                           |                                      
|Total
      revenue                        |                                      
|                                           |                                      
|Expenses:                                  |                                      
|Personnel                                  |                                      
|Production                                 |                                      
|General
      and administrative           |                                      
|Interest                                   |                                      
|                                           |                                      
|Total
      expenses                       |                                      
|                                           |                                      
|Income
      before provision for income   |                                      
|taxes                                      |                                      
|Provision
      (benefit) for income taxes |                                      
|                                           |                                      
|Net income                                 |                                      
|                                           |                                      

Revenue

General.
Total revenue during the three months ended September 30, 2003 increased
$5.8 million to $73.2 million from $67.4 million during the
comparable three month period a year ago. Total revenue during the three months
ended September 30, 2002 includes $1.1 million of debt extinguishment income
recognized in connection with the Companys extinguishment, at a discount
from par, of $7.5 million of its 9.125% Senior Notes due November 2003 (the
Senior Notes) for $6.4 million of cash. Excluding debt
extinguishment income, total revenue during the three months ended September 30,
2003 increased $7.0 million, or 10.6%, to $73.2 million over $66.3 million
during the same period a year ago. This increase was primarily due to increases
of $8.0 million and $3.1 million in gain on sale of loans and origination
fees, respectively, partially offset by declines of $3.3 million and $0.8
million in interest income and loan servicing income, respectively, during the
three months ended September 30, 2003 from amounts reported during the
comparable three month period during 2002.

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Gain
on Sale of Loans. Gain on sale of loans during the three months ended
September 30, 2003 increased $8.0 million to $39.5 million from
$31.5 million during the three months ended September 30, 2002. The
increase in gain on sale of loans resulted primarily from the
$265.5 million, or 28.8%, increase to $1.2 billion of total loan
dispositions during the three months ended September 30, 2003 over $920.7
million of total loan dispositions during the comparable three month period a
year ago partially offset by lower gain rates during the quarter ended
September 30, 2003 compared to a year ago. The increase in loan
dispositions was due primarily to increase production during the quarter ended
September 30, 2003, and, to a lesser extent, to quicker dispositions by the
Company of its loan production. During the three months ended September 30,
2003 and 2002 and June 30, 2003, the Company relied solely on whole loan
sales for cash as its loan disposition strategy based upon the Companys
review of market conditions, profitability and cash flow requirements.

The
gain on sale rates realized by the Company on whole loan sales were generally
lower during the three months ended September 30, 2003 compared to the gain on
sale rates for whole loan sales during the comparable three month period a year
ago due to generally less favorable conditions in the whole loan markets during
the September 2003 quarter when compared to market conditions during the
September 2002 quarter.

At
and during the three months ended September 30, 2003, the Company had no hedge
instruments in place. During the three months ended September 30, 2002, the
Company, as it has from time to time, entered into forward interest rate swap
agreements designed to mitigate interest rate exposure to mortgage loans in its
inventory and pipeline in anticipation of closing loan disposition transactions
during that period. Gain on sale of loans during the three months ended
September 30, 2002 included charges of $7.9 million of derivative related
losses which was comprised of $7.1 million of losses on hedge positions that
closed during the period and $0.8 million to mark open hedge positions at
September 30, 2002 to their estimated fair value.

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 fees
paid on such loans by the Company to referring brokers net of points and fees
received at origination.

Origination
  fees during the three months ended September 30, 2003 were $16.4 million as
  compared to $13.4 million during the three months ended September 30, 2002.
  The $3.1 million, or 22.9%, increase in origination fees during the three months
  ended September 30, 2003 from the amount reported during the comparable three
  month period during 2002 was attributable primarily to a $4.2 million, or 26.4%,
  increase in retail origination fees charged at the time of origination in the
  retail channel, partially offset by a $1.1 million, or 42.8%, increase in yield
  spread premium, net of points and fees paid by the broker channel. Retail origination
  fees increased $4.2 million to $19.9 million during the three months ended September
  30, 2003 from $15.7 million during the same three month period a year ago. The
  $4.2 million increase in retail origination fees is primarily due to the $124.6
  million, or 27.6%, increase in total retail mortgage loan production during
  the three months ended September 30, 2003 over total retail mortgage loan production
  during the three months ended September 30, 2002.

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Yield
spread premium, net of points and fees, increased $1.1 million to $3.6 million
during the three months ended September 30, 2003 from $2.5 million the same
three month period a year ago. The $1.1 million increase in yield spread
premium, net of fees, is primarily due to the $403.7 million, or 78.1%, increase
in total broker mortgage loan production during the three months ended
September 30, 2003 over such production during the same three month period
a year ago.

As
previously reported, the Company has, primarily in response to competitive
factors and, to a lesser extent, recent regulatory changes, reduced points and
fees charged to customers in numerous states and for certain loan products. The
weighted average points charged by the Companys retail channel during the
three months ended September 30, 2003 and 2002 were 3.45% and 3.48%,
respectively. The Company expects weighted average points charged to decline
further in calendar 2003 as the Company expects to continue to reduce points and
fees charged in response to increased competition in the current interest rate
environment. Yield spread premium, net of points and fees, expressed as a
percentage of total broker production was 0.39% and 0.49% during the three
months ended September 30, 2003 and 2002, respectively, and was 0.38% during the
three months ended June 30, 2003.

Loan
Servicing. Loan servicing revenue consists of prepayment fees, late charges
and other fees retained by the Company and servicing fees earned on securitized
pools, reduced by subservicing costs related to servicing advance arrangements
and amortization of the Companys MSRs. See Critical Accounting
Policies. Loan servicing revenue was $2.0 million during the three
months ended September 30, 2003 compared to $2.8 million during the comparable
three month period in 2002. During the three months ended September 30, 2003,
servicing, late and prepayment fees declined $1.4 million from amounts
reported during the comparable three month period a year ago. The decline was
due primarily to the $445.0 million decrease in the size of the Companys
portfolio of mortgage loans in securitization trusts serviced in-house at
September 30, 2003 compared to September 30, 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 $0.6 million
decline in subservicing related expenses and MSR amortization expense during the
three months ended September 30, 2003 from the amounts reported during the
three months ended September 30, 2002. The Company expects subservicing expense
to trend downward in future periods as the balance of loans subserviced declines
and expects to continue to sell all of its loan production on a servicing
released basis.

During
the three months ended September 30, 2003 and 2002, the Company had in place an
arrangement designed to reduce its servicing advance obligations pursuant to
which a loan servicing company purchased certain advances and agreed to make
future advances with respect to an aggregate $388.0 million ($79.0 million at
September 30, 2003) in principal amount of loans. As previously reported, the
Company had another arrangement in place which expired during the three months
ended September 30, 2002, pursuant to which an investment bank purchased certain
servicing related advances and agreed to undertake the obligation to make a
substantial portion of the Companys advance obligations.

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Excluding
loans serviced on an interim basis, the Company has not added any new loans to
the servicing portfolio 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. The Companys
total loan servicing portfolio at September 30, 2003 increased $602.0 million,
or 34.6%, to $2.3 billion over $1.7 billion at June 30, 2003, reflecting an
increase in loans serviced on an interim basis, offset by loan servicing
portfolio runoff during the period. Mortgage loans in securitization trusts
serviced by the Company in-house declined $119.0 million to $622.0 million at
September 30, 2003 from $741.0 million at June 30, 2003. Moreover, subsequent to
September 30, 2003, the Company transferred to the purchasers or their
designated servicers approximately $773.2 million of loans, which represented
loans sold in whole loan sales during the September 2003 quarter but subserviced
by the Company at September 30, 2003 on an interim basis. The Companys
servicing portfolio will continue to be impacted in the future by the
Companys dispositions of its loan production through whole loan sales and
securitizations on a servicing released basis, which has resulted in a smaller
servicing portfolio. Future loan servicing revenue will be negatively impacted
by continued run-off in the Companys portfolio of mortgage loans in
securitization trusts due to the Companys sale of mortgage loans on a
servicing released basis. Run-off in the Companys portfolio of mortgage
loans in securitization trusts could be further exacerbated by the current
mortgage interest rate environment which could accelerate prepayment activity of
loans. Furthermore, the Companys portfolio of mortgage loans in
securitization trusts will be reduced by the November Trust Call involving
$274.8 million of mortgage loans ($290.3 million at September 30, 2003).

Debt
Extinguishment Income. As previously reported, during the three months ended
September 30, 2002, the Company purchased $7.5 million face amount of its
Senior Notes for $6.4 million of cash and recognized $1.1 million of debt
extinguishment income. No debt extinguishment income was recognized during the
three months ended September 30, 2003.

Interest
  Income. Interest income includes interest on loans held for sale, discount
  accretion income associated with the Companys residual interests and interest
  on short-term overnight investments. Interest income during the three months
  ended September 30, 2003 decreased by $3.3 million to $15.3 million from
  $18.6 million during the three months ended September 30, 2002. The decrease
  in interest income during the three months ended September 30, 2003 from the
  amount reported during the comparable three month period a year ago was primarily
  due to a decline of $2.7 million in accretion to the Companys residual
  interests. The Companys residual interests were at lower balances during
  the three months ended September 30, 2003 when compared to residual interest
  levels during the same three month period a year ago. Coupled with the decrease
  in accretion income during the three months ended September 30, 2003 from amounts
  reported during the same period a year ago, was a decrease of $0.6 million in
  interest income on loans held for sale during the three months ended September
  30, 2003 from such interest income levels reported during the comparable period
  a year ago. The decrease in interest income on loans held for sale during the
  three months ended September 30, 2003 over the amount reported a year ago is
  attributable to lower weighted average coupon rates during the three months
  ended September 30, 2003 when compared to coupon rates during the same period
  a year ago, despite higher outstanding balances of loans held for sale.

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Expenses

General.
Total expenses during the three months ended September 30, 2003 were $62.8
million compared to $56.8 million during the three months ended September 30,
2002. The $6.0 million increase in total expenses during the three months ended
September 30, 2003 over total expenses during the comparable period in 2002 was
attributable to increases of $6.8 million, $1.3 million and $2.0 million in
personnel expense, production and general and administrative expense,
respectively, partially offset by a decline of $4.1 million in interest expense.

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 September 30, 2003 increased $6.8 million, or
21.8%, to $38.0 million from $31.2 million during the three months ended
September 30, 2002. The increase was comprised primarily of a $4.7 million
increase in commission compensation earned by retail and broker account
executives during the three months ended September 30, 2003 over the same period
a year ago due to the $528.3 million, or 54.5%, increase in total production
during the three months ended September 30, 2003 over total production during
the three months ended September 30, 2002. In addition, the increase was due to
$0.9 million of increased salaries resulting from increased staffing levels
during the three months ended September 30, 2003 over staffing levels during the
comparable period a year ago. Incentive compensation relative to senior
management increased $0.1 million during the three months ended September 30,
2003 over the three months ended September 30, 2002. Finally, payroll taxes,
medical and other benefit costs increased $1.1 million during the three months
ended September 30, 2003 over such expense amounts incurred during the three
months ended September 30, 2002.

Production.
Production expense, primarily advertising, outside appraisal costs, travel and
entertainment, and credit reporting fees increased $1.3 million, or 19.4%, to
$7.4 million during the three months ended September 30, 2003 over
$6.2 million during the three months ended September 30, 2002. The increase
in production expense during the three months ended September 30, 2003 from
the comparable three month period a year ago is due to increased advertising,
appraisal, and credit reporting expenses relative to the $528.3 million, or
54.5%, increase in the Companys loan origination volumes during the three
months ended September 30, 2003 over those during the comparable period a year
ago. Production expense expressed as a percentage of total loan origination
volume declined to 0.50% during the three months ended September 30, 2003
compared to 0.64% during the three months ended September 30, 2002 due to the
increase in total mortgage loan production during the September 2003 quarter
over mortgage loan production during the same period a year ago, despite the
increase in production expense during the September 2003 quarter.

General
and Administrative. General and administrative expenses were $12.7 million
during the three months ended September 30, 2003 compared to $10.7 million
during the three months ended September 30, 2002. The $2.0 million increase in
general and administrative expenses during the three months ended September 30,
2003 over such expenses during the three months ended September 30, 2002
was due primarily to increases of $0.8 million, $0.7 million, $0.3 million and
$0.2 million in miscellaneous, professional, corporate related insurance costs
and occupancy expenses, respectively. The $0.8 million increase in miscellaneous
expenses during the three months ended September 30, 2003 over such expenses
during the three months ended September 30, 2002 was due primarily to a
$0.5 million provision for estimated uncollectible servicing advances.

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

Interest
  Expense. Interest expense decreased $4.1 million to $4.7 million during
  the three months ended September 30, 2003, from $8.8 million during the three
  months ended September 30, 2002. The decrease in interest expense during
  the three months ended September 30, 2003 from levels reported during the comparable
  three month period a year ago resulted primarily from lower interest rates associated
  with the Companys revolving warehouse and repurchase facilities used to
  fund the origination of mortgage loans prior to their disposition despite increased
  average borrowings in the September 2003 quarter. To a lesser extent, the decrease
  in interest expense resulted from the extinguishment of the Companys Senior
  Notes and a $49.6 million decrease in the 2006 Debentures through the extinguishment
  of such debt by the Company during the year ended June 30, 2003. The Companys
  revolving warehouse and repurchase agreements bear interest rates that are indexed
  to the one-month LIBOR which, during the three months ended September 30,
  2003, declined from levels during the three months ended September 30, 2002.
  While the Companys interest costs on its revolving warehouse and repurchase
  facilities trended down during the three months ended September 30, 2003 from
  the comparable period a year ago, such interest expense is expected to increase
  in future periods due to the Companys continued reliance on external financing
  arrangements to fund mortgage loan production and expected continued upward
  pressure on one month LIBOR in coming quarters.

As
a result of extinguishing the remaining $127.9 million of Senior Notes with the
$74.1 million Financing Facility ($60.8 million at September 30, 2003) which
bears interest at a lower interest rate, the extinguishment of the remaining
$4.8 million of 5.5% Convertible Subordinated Debentures due 2012 and the $49.6
million decrease in the 2006 Debentures during the year ended June 30, 2003, the
Company expects its interest expense on its nonrevolving indebtedness will be
lower in fiscal 2004 compared to fiscal 2003.

Income
Taxes. During the three months ended September 30, 2003, the Company
recorded an income tax benefit of $18.2 million due to its determination that it
is more likely than not that certain future tax benefits, primarily federal net
operating loss carry forwards, will be realized as a result of current and
future income. Therefore, during the three months ended September 30, 2003,
the deferred tax valuation allowance was decreased to recognize higher than
previously anticipated net deferred tax assets. During the three months ended
September 30, 2002, the Company recorded an income tax provision of $0.6 million
which related primarily to taxes on excess inclusion income on the
Companys REMIC trusts and, to a lesser extent, to miscellaneous state tax
obligations. Such tax provisions reflect effective tax rates of 5.9% for the
three months ended September 30, 2002.

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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 potentially limiting future net operating loss and certain other future
deductions.

Financial
Condition

Loans
Held for Sale. The Companys portfolio of loans held for sale increased
to $752.8 million at September 30, 2003 from $401.0 million at
June 30, 2003 due primarily to total loan originations exceeding total loan
dispositions during the three months ended September 30, 2003.

Advances
and Other Receivables. Advances and other receivables are comprised of
interest and servicing advances; servicing and miscellaneous fees; cash due from
the securitization trusts; and accrued interest receivable and other
miscellaneous receivables. 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 Company funds advances on a
recurring basis not otherwise covered by financing arrangements and recovers
those advances on a periodic basis.

Advances
and other receivables decreased $0.5 million to $40.8 million at September
30, 2003 from $41.3 million at June 30, 2003. The decrease is
primarily attributable to decreases of $2.0 million and $0.1 million in interest
and servicing advances and servicing and miscellaneous fees receivable,
respectively, partially offset by increases of $1.6 million in accrued interest
and other receivables.

The
$2.0 million decrease in servicing and interest advances to the
securitization trusts at September 30, 2003 from June 30, 2003 is
comprised of $7.3 million of advances made by the Company in its role of
servicer of the mortgage loans in the securitization trusts, net of $9.3 million
of recoveries of such advances during the three months ended September 30, 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 $0.1 million decline in servicing and
miscellaneous fees receivable at September 30, 2003 from June 30, 2003 is
due primarily to declining servicing and late fees earned by the Company as a
consequence of the decrease in its portfolio of mortgage loans in securitization
trusts during the three months ended September 30, 2003. The
$1.6 million increase in accrued interest receivable and other receivables
at September 30, 2003 when compared to the balance at June 30, 2003 is due
primarily to a $1.2 million increase in accrued interest receivable at
September 30, 2003, coupled with a $0.4 million increase in amounts due from
counterparties on whole loan sales and other transactions.

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

Residual
Interests. Residual interests decreased to $115.8 million at September
30, 2003 from $129.2 million at June 30, 2003, reflecting $15.6
million of cash received from the securitization trusts, partially offset by
$2.2 million of accretion during the three months ended September 30, 2003.

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As
  a result of the November Trust Call, the Company called six securitization trusts
  with underlying residual interests of approximately $63.0 million at September
  30, 2003. Adjusted for the November Trust Call, the Companys residual
  interests were approximately $53.0 million at September 30, 2003.

Equipment
and Improvements, net. Equipment and improvements, net, decreased to
$8.4 million at September 30, 2003 from $8.9 million at June 30,
2003 reflecting depreciation and amortization outpacing the capitalization of
new equipment and improvement acquisitions during the three months ended
September 30, 2003.

Prepaid
and Other Assets. Prepaid and other assets decreased to $16.8 million
at September 30, 2003 from $17.7 million at June 30, 2003, reflecting
amortization of capitalized costs incurred for financing and other arrangements
entered into by the Company outpacing the capitalization of such items during
the three months ended September 30, 2003. Included in prepaids and other assets
at June 30, 2003 were $0.2 million of MSRs which were fully amortized at
September 30, 2003. During the three months ended September 30, 2003, the
Company did not capitalize any MSRs as all of the Companys $1.2 billion of
total loan dispositions were whole loan sales for cash with servicing released.

Borrowings.
  As previously reported, on June 30, 2003, the Company redeemed $127.9 million
  principal balance of its Senior Notes representing all remaining outstanding
  Senior Notes, at par plus accrued and unpaid interest. The Company funded the
  redemption of the Senior Notes by borrowing $74.1 million through the Financing
  Facility and paying the remaining $53.8 million in cash. Borrowings, comprised
  of $64.4 million outstanding under the Companys 5.5% Convertible Subordinated
  Debentures due 2006 (the 2006 Debentures) and $60.8 million outstanding
  under the Financing Facility, totaled $125.2 million at September 30, 2003.
  In comparison, amounts outstanding under the 2006 Debentures and the Financing
  Facility were $64.4 million and $74.1 million, respectively, or as total of
  $138.5 million at June 30, 2003. The $13.3 million decline in borrowings at
  September 30, 2003 from June 30, 2003, represents the Companys payments
  on the Financing Facility during the three months ended September 30, 2003.

Revolving
Warehouse Facilities. Amounts outstanding under revolving warehouse and
repurchase facilities increased to $671.3 million at September 30, 2003 from
$343.7 million at June 30, 2003 as the result of the increase in loans
held for sale due to loan originations during the three months ended September
30, 2003, partially offset by the Companys loan dispositions during the
period. Proceeds from whole loan sales and securitizations are used first to
reduce balances outstanding under the Companys revolving warehouse and
repurchase facilities, and then used to satisfy corporate operating
requirements.

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) the funding of mortgage loan originations and purchases prior to their
securitization and sale, (ii) fees, expenses and hedging costs, if any, incurred
in connection with the securitization and sale of loans, (iii) ongoing
administrative, operating, and tax expenses, (iv) interest and principal
payments and liquidity requirements under the Companys revolving warehouse
and repurchase facilities, and other existing indebtedness, (v) advances in
connection with the Companys servicing portfolio, and (vi)
overcollateralization requirements in connection with securitizations.

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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 and (iii) monetization of
the overcollateralization in the Companys portfolio of mortgage loans in
securitization trusts. As previously reported, at June 30, 2003, the Company
monetized its residual interests and its servicing advances through the
Financing Facility. 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 substantial
retained deficit, the Company does not expect to access to those capital
resources in the foreseeable future.

Warehouse
  and Repurchase Facilities. The Company generally relies on revolving warehouse
  and repurchase facilities to finance the origination or purchase of mortgage
  loans prior to securitization or sale. At September 30, 2003, the Company had
  total revolving warehouse and repurchase facilities in the amount of $1.2 billion,
  of which $1.1 billion and $100.0 million were committed and uncommitted, respectively.
  At September 30, 2003, amounts outstanding under the facilities were $671.3
  million. Of the $1.2 billion of revolving warehouse and repurchase facilities
  available to the Company at September 30, 2003, $200.0 million, $300.0 million,
  $200.0 million, $200.0 million and $300.0 million mature on November 30, 2003,
  June 30, 2004, August 27, 2004, September 30, 2004 and October 30, 2004,
  respectively. While no assurance can be given, the Company anticipates renewing
  the $200.0 million facility prior to the November 30, 2003 maturity on terms
  and conditions consistent with those currently in place on the facility.

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

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

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

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During
the three months ended September 30, 2003, the Company did not dispose of any of
its loans through securitizations and sold all of its $1.2 billion of loan
dispositions in whole loan sales for cash. All of the Companys $920.7
million of loan dispositions during the three months ended September 30,
2002 were sold in whole loan sales for cash. The gain on sale recognized by the
Company on securitizations and whole loan sales is affected by, among other
things, market conditions at the time of the loan disposition, and the
Companys assumptions used in securitizations. See Results of
OperationsRevenue.

In
  connection with securitization transactions, the Company is generally required
  to provide credit enhancements in the form of overcollateralization amounts
  or reserve accounts. In addition, during the life of the related securitization
  trusts, the Company subordinates a portion of the excess cash flow otherwise
  due it to the rights of holders of senior interests as a credit enhancement
  to support the sale of the senior interests. The terms of the securitization
  trusts generally require that all excess cash flow otherwise payable to the
  Company during the early months of the trusts be used to increase the cash reserve
  accounts or to repay the senior interests in order to increase overcollateralization
  to specified maximums. Overcollateralization requirements for certain pools
  increase up to approximately twice the level otherwise required when the delinquency
  rates or realized losses for those pools exceed the specified limit. At September
  30, 2003, an additional $56.4 million of overcollateralization was 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 September 30, 2003, the Company was required
  to maintain overcollateralization amounts of $140.3 million, which included
  the $56.4 million, of which $135.5 million was maintained. The remaining $4.9
  million is required to be added to the overcollateralization amounts from future
  spread income from the mortgage loans in the securitization trusts.

In
the Companys securitizations structured as a real estate mortgage
investment conduit (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.

Monetization
  of Overcollateralization in the Companys Portfolio of Mortgage Loan in
  Securitization Trusts. The Company had retained residual interests in 13
  securitization trusts which had overcollateralization balances of $135.5 million
  at September 30, 2003. As a result of the November Trust Call, the Company called
  six securitization trusts with overcollateralization balances at September 30,
  2003 of $68.1 million. Of the Companys remaining seven securitization
  trusts after the November Trust Call, which had overcollateralization balances
  at September 30, 2003 of $67.3 million, four securitization trusts with overcollateralization
  balances of $23.1 million at September 30, 2003 are callable. If the Company
  calls any additional securitization trusts, the Company receives a majority
  of the overcollateralization balance from the called trusts in a combination
  of mortgage loans in the trust and in cash.

Other
sources of cash previously used by the Company to fund its operations included
the monetization of residual interests and servicing advances and debt and
equity securities.

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Monetization
of Residual Interests. As previously reported, on June 30, 2003 the Company
borrowed $74.1 million ($60.8 million at September 30, 2003) through the
Financing Facility of which $49.2 million ($39.1 million at September 30, 2003)
was secured by all of its residual interests.

Monetization
of Servicing Advances. The Company pledged certain of its existing servicing
advances to collateralize $24.9 million ($21.7 million at September 30, 2003) of
the Financing Facility. Future servicing advances related to certain of the
Companys securitization trusts will also collateralize the Financing
Facility unless and until it is fully repaid.

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, the Companys substantial retained deficit has restricted its
ability to access its traditional equity and debt sources.

Since
February 1999, the Company has 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.
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.

On
June 30, 2003, the Company redeemed its Senior Notes through a $53.8 million
cash remittance and by borrowing $74.1 million pursuant to the Financing
Facility due December 31, 2004. Under the Financing Facility, 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. However, the Company has received a waiver
from the lender permitting the Company to pay dividends, if declared, on its
preferred stock accrued through December 31, 2003.

The
Company had cash and cash equivalents of approximately $14.3 million at
September 30, 2003.

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. If the Company is unable to maintain sufficient
liquidity, the Company would be restricted in the amount of loans that it will
be able to produce and sell which would negatively impact profitability and
jeopardize the Companys ability to continue to operate as a going concern.

Risk
Management

At
and during the three months ended September 30, 2003, the Company had no hedge
instruments in place. At September 30, 2002, the Company had notional amounts of
$220.0 million of forward interest rate swap agreements in place to hedge
exposure to its inventory and pipeline of loans held for sale.

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Gain
on sale of loans during the three months ended September 30, 2002 includes a
charge of $7.9 million related to the Companys hedging activities, of
which $7.1 million related to losses on closed forward interest rate swap
agreements and $0.8 million related to the Companys mark to the estimated
fair value of forward interest rate swap agreements open at September 30, 2002,
respectively. 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 charges to earnings on
future derivative contracts into which the Company may enter.

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

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

Rate
sensitive assets and liabilities. At September 30, 2003, the Companys
$752.8 million inventory of loans held for sale was comprised of
$353.3 million and $399.5 million of fixed and variable rate mortgage
loans, respectively, which had weighted average interest rates of 7.59% and
7.69%, respectively. The weighted average interest rate on the Companys
total inventory of loans held for sale was 7.64% at September 30, 2003. In
comparison, at June 30, 2003 the Companys $401.0 million
inventory of loans held for sale was comprised of $165.8 million and
$235.2 million of fixed and variable rate mortgage loans, respectively,
which had weighted average interest rates of 7.79% and 7.65%, respectively. The
weighted average interest rate on the Companys total inventory of loans
held for sale was 7.72% at June 30, 2003.

At
  September 30, 2003, the Company had aggregate outstanding funded indebtedness
  of $796.6 million, of which $732.2 million and $64.2 million bore
  variable and fixed interest rates, respectively. At September 30, 2003, the
  weighted average interest rate on the Companys $732.1 million of
  outstanding revolving warehouse and repurchase facilities and the Financing
  Facility was 2.33%. All of the Companys revolving warehouse and repurchase
  facilities and the Financing Facility were indexed to one-month LIBOR which,
  at September 30, 2003, was 1.12%. The weighted average interest rate on the
  Companys $64.4 million of outstanding fixed rate borrowings was 5.5%
  at September 30, 2003. In comparison, at June 30, 2003 the weighted average
  interest rate on the Companys $417.8 million of outstanding revolving
  warehouse and repurchase facilities and the Financing Facility was 2.52%. At
  June 30, 2003, the one-month LIBOR was 1.12%. The weighted average interest
  rate on the Companys $64.4 million of outstanding fixed rate borrowings
  was 5.5% at June 30, 2003.

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Residual
Interests and MSRs. The Company had residual interests of
$115.8 million and $129.2 million outstanding at September 30, 2003
and June 30, 2003, respectively. The Company had no MSRs outstanding at
September 30, 2003 and $0.2 million at June 30, 2003. Both of these instruments
were recorded at estimated fair value. The Company values these assets based on
the present value of estimated future cash flows using various assumptions. The
discount rates used to calculate the present value of the residual interests
were 13.8% and 13.5% at September 30, 2003 and June 30, 2003, respectively.
The weighted average life of the mortgage loans used for valuation was 1.9 years
at both September 30, 2003 and June 30, 2003.

The
residual interests 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, advances and other accounts receivables and
revolving warehouse and repurchase facilities. As these amounts are short term
in nature and/or generally bear market rates of interest, the carrying amounts
of these instruments are reasonable estimates of their fair values. The carrying
amount of the Companys revolving warehouse and repurchase agreements
approximates fair value when valued using available quoted market prices.

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

Warehousing
Exposure. The Company utilizes revolving warehouse and repurchase facilities
to facilitate the holding of mortgage loans prior to securitization or sale in
the whole loan markets. At September 30, 2003, the Company had total revolving
warehouse and repurchase facilities available in the amount of $1.2 billion, of
which $1.1 billion and $100.0 million was committed and uncommitted,
respectively, and the total amount outstanding on these facilities was $671.3
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. At the end of the period covered by this
  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-15. Based upon that evaluation, the Chief
  Executive Officer and Chief Financial Officer concluded that the Companys
  disclosure controls and procedures are effective in timely alerting them to
  material information relating to the Company (including its consolidated subsidiaries)
  required to be included in reports the Company files with the SEC pursuant to
  the Securities Exchange Act of 1934. Subsequent to the date of that evaluation,
  there have been no significant changes in the Companys internal controls
  or in other factors that could significantly affect the internal controls.





















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PART IIOTHER
INFORMATION

Item 1.
  Legal Proceedings

The
Company becomes involved, from time to time, in a variety of mortgage lending
related claims and other matters incidental to its business. 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
September 30, 2003:
| | --- | --------------------------------------------------------------------------------------------------------

| |  | On July
2, 2003, the Company filed a Form 8-K (dated May 31, 2003)  reporting  delinquency  and
loss statistics in the loan  servicing portfolio of Aames Capital Corporation, a wholly
owned subsidiary of the Company.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On July
2, 2003, the Company filed a Form 8-K (dated July 1, 2003) announcing the redemption
expiration date of its  Exchange Offer had been extended to 5:00 p.m., New York City
time, on Friday, July 19, 2002 of its outstanding 9.125%  Senior Notes due 2003 and
outstanding 5.5% Convertible Subordinated Debentures due 2012.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On July
30, 2003, the Company filed a Form 8-K (dated June 30, 2003)  reporting the  delinquency
and loss statistics in the  loan servicing portfolio of Aames Capital Corporation.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | On September
30, 2003, the Company filed a Form 8-K (dated September 29, 2003) reporting fiscal 2003
and fourth quarter  results.
| |  | ---------------------------------------------------------------------------------------------------------------------------------

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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:
        November 14, 2003 |     |                                                                                                       
|                                | By: | */s/Ronald J.
      Nicolas, Jr.*                                                                     
|                                |     |                                                                                                       
|                                |     | Ronald J. Nicolas,
      Jr.
      Executive Vice President--Finance and
      Chief Financial Officer
|                                |     |                                                                                                       













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# EXHIBIT INDEX

|3.1      | Amended
      and Restated 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 (3)                                                                                                                                                                                                                                                                    
|4.2      | Specimen certificate
      evidencing Series B Convertible Preferred Stock of Registrant (3)                                                                                                                                                                                                                                            
|4.3      | Certificate of Designations
      for Series B Convertible Preferred Stock of Registrant, as amended (1)                                                                                                                                                                                                                                
|4.4      | Specimen certificate
      evidencing Series C Convertible Preferred Stock of Registrant (3)                                                                                                                                                                                                                                            
|4.5      | Certificate of Designations
      for Series C Convertible Preferred Stock of Registrant, as amended (1)                                                                                                                                                                                                                                
|4.6      | Specimen certificate
      evidencing Series D Convertible Preferred Stock of Registrant (3)                                                                                                                                                                                                                                            
|4.7      | Certificate of Designations
      for Series D Convertible Preferred Stock of Registrant, as amended (1)                                                                                                                                                                                                                                
|4.8      | Certificate of Designations
      for Series E Preferred Stock of Registrant (1)                                                                                                                                                                                                                                                        
|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 (4)                                                                                                                                       
|10.33(g) | Amendment
      No. 9, dated as of October 31, 2003, with respect the Warehouse Loan and
      Security Agreement, dated as of February 10, 2000 as Amended and Restated
      to and including March 21, 2002, by and between Aames Capital Corporation,
      Aames Funding Corporation and Greenwich Capital Financial Products, Inc.
|10.35(c) | Notice
      of Extension, dated as of October 31, 2003, with respect to the Revolving
      Credit and Security Agreement dated as of July 1, 2003, between Aames Capital
      Corporation, Aames Funding Corporation and Countrywide Warehouse Lending                                                                               
|10.36(c) | Amendment
      No. 2, dated as of October 31, 2003, with respect the Master Loan and Security
      Agreement, dated as of July 22, 2003, between Aames Capital Corporation
      and Citigroup Global Markets Reality Corp.                                                                                                           
|11       | Computation
      of Basic and Diluted Income per Common Share                                                                                                                                                                                                                                                                          
|31.1     | Certification
      of A. Jay Meyerson pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002                                                                                                                                                                                                                                  
|31.2     | Certification
      of Ronald J. Nicolas, Jr. pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002                                                                                                                                                                                                                           
|32       | Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                           

_________________

| | (1) | Incorporated by reference from the registrant's registration statement
        on Form S-8, file number 333-108915, filed with the Commission on September
        18, 2003
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| | (2) | Incorporated by reference from registrant's annual report on Form 10-K
        for the year ended June 30, 1999, filed with the Commission on September
        3, 1999
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| | (3) | Incorporated by reference from the registrant's Form 10-K for the year
        ended June 30, 2000, filed with the Commission on September 28, 2000
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| | (4) | Incorporated by reference from registrant's quarterly report on Form 10-Q
        for the quarter ended March 31, 1996, filed with the Commission on July
        3, 1996
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