First Alliance Blames $14-Million Loss on Bankruptcy

First Alliance Corp., the besieged mortgage lender that decided last month to liquidate under bankruptcy protection, said Friday that it lost $14.5 million and that revenue dropped 71% in the first three months of this year.

The Irvine lender attributed the loss, which amounted to 81 cents a share, primarily to a $7.7-million charge to cover bankruptcy expenses and its inability to complete the planned sale of about $85 million in loans because of the bankruptcy filing.

The company specialized in making sub-prime mortgages, which are high-cost home loans for borrowers with low-incomes or bad credit. The company had long been criticized for so-called predatory lending practices that resulted in high interest rates and loan fees that were double the typical fees for sub-prime loans.

But it was a rash of recent bad publicity and closer regulatory scrutiny over its lending practices that led First Alliance executives to decide last month to close and sell the company’s assets.

2News reports, for the first time, began questioning Wall Street’s role in selling securities based on the packages of sub-prime loans that First Alliance was offering for sale to investors.

The bankruptcy prevented the company from completing the planned sale of loans, leading to a loss.

However, First Alliance is far from broke. At the end of March, it had assets of $165.6 million and its net worth--assets minus debts--was $65.8 million. The biggest liability on its balance sheet is the $76.3 million it owes on its borrowings, a figure that has grown more than fivefold over the amount owed a year earlier.

Last year, the company reported a first-quarter net income of $2 million, or 11 cents a share. Revenue dropped to $5.6 million for the first three months from from $19.6 million for the year-earlier quarter.

The company’s losses were worsened by an increase in legal costs arising from the bankruptcy filing and from numerous lawsuits filed by borrowers and state regulators. Its quarterly results don’t factor in all future amounts spent on lawyers and on possible judgments or settlements.

Stock in First Alliance has dropped to 1 cent a share this week, down from about $2 a share in recent months. Earlier this month, the stock was removed from the Nasdaq market system.