Aames Says Earnings Plunged 97%

Aames Financial Corp., a Los Angeles-based home equity lender, on Monday said its fiscal first-quarter earnings fell 97% and that it will stop selling its loans as securities, as funding for mortgage lenders dries up.

Aames also eliminated its quarterly dividend and said it expects to report a loss in the quarter ending Dec. 31. Demand for mortgage-backed securities, which lenders such as Aames use to fund their businesses, weakened in the third quarter as investors moved away from riskier investments after Russia defaulted on some of its debts.

Aames said it earned $448,000 in the quarter ended Sept. 30, or 1 cent a share, down from $13.1 million, or 40 cents, in the year-ago period. The lender said it won’t bundle its loans into securities and sell them to investors during the second quarter “in light of market conditions,” and doesn’t expect to turn its loans into market-traded securities in the near future, the company said in an SEC filing.

Mortgage lenders raise money to lend by packaging their loans into securities and selling them to investors. If lenders can’t raise money this way, they may instead opt to sell whole loans to other lenders or Wall Street firms that will turn its loans into market-traded securities.

Aames said it will begin selling whole loans, but that “prices currently being paid by whole loan purchasers are less than the company’s cost of production,” which “will result in a loss in the quarter ended Dec. 31.”

Aames has been looking to sell the company or find a partner to invest in it. Aames’ investment banker, Donaldson, Lufkin & Jenrette Securities Corp., has “contacted a number of major financial institutions to explore potential transactions” since June 1997, Aames said.

Aames shares were unchanged at $3.13. Its earnings were reported after U.S. markets closed.