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Mortgage Firm Aames to Be Sold

In deal that may foreshadow a wave of consolidation among home lenders, the parent of Aames Home Loans said Thursday that it was being acquired by Accredited Home Lenders Holding Co. for $340 million in stock and cash.

Aames Investment Corp., a 50-year-old Los Angeles fixture, and Accredited, a San Diego firm founded in 1990, specialize in loans to risky borrowers, charging higher interest and fees to compensate.

That business boomed earlier this decade but has been pummeled by interest rate hikes, lagging demand by mortgage investors for the companies' riskiest loans and increased regulatory scrutiny.

James A. Konrath, Accredited's chief executive, said talks with Aames began late last year. Konrath would lead the combined company, which would operate under the Accredited name. Aames CEO A. Jay Meyerson would join its board.

Accredited plans "significant cost reductions" as it combines the two companies, Konrath said in a phone call with analysts.

Analysts said the sale could be the first of many as the mortgage industry contracts in the face of continuing rate hikes by the Federal Reserve. Higher rates have made it more expensive for homeowners to purchase homes and refinance their loans. A Mortgage Bankers Assn. survey released this week indicated that the volume of applications for home loans was down 23% from a year earlier.

"This deal will probably serve as a watershed event in the industry," said Richard Eckert, an analyst at Roth Capital Partners in Newport Beach. He said he expected that it would be just the first of many acquisitions.

Aames is well-known to longtime Southland residents, having bombarded the region with TV ads in the 1960s and 1970s.

With home prices high and many borrowers stretched to the limit, investors had become leery of one of its core products, which combined a loan for 80% of a home's value with a second high-interest loan for the remaining 20%, company executives said.

Both companies make direct-to-consumer

retail loans as well as wholesale loans through independent mortgage brokers.

Aames has bigger retail operations -- 76 branches to Accredited's 45 stores -- but Accredited has 15 regional wholesale stores to Aames' three.

The combined company would be the sixth-largest retail originator and the 12th-largest overall originator of "sub-prime" mortgages, the companies said.

Aames reported a greater-than-expected first-quarter loss of $13.5 million May 11. But its stock gained 71 cents that day to $5.75 when it reported a "significant probability" it would be sold to an undisclosed party.

However, investors proved to be overly optimistic about the sale prospects. The price being paid by Accredited worked out to about $5.35 a share as of the close of trading Wednesday.

On Thursday, shares of Accredited rose $1.35 to $53.29 as Aames fell 36 cents to $5.36.

The deal helped boost shares of other Southland mortgage lenders. New Century Financial Corp. of Irvine rose $1.54 to $46.34. Pasadena's IndyMac Bancorp gained $1.37 to $46.19 and Impac Mortgage Holdings of Newport Beach climbed 39 cents to $10.86.

Industry consultant David Olson of research firm Wholesale Access in Columbia, Md., said some companies might have a hard time finding buyers. In an interview, Olson said mortgage companies would rather hire key employees of competitors than buy entire operations in an industry that is not expected to hit bottom until next year.

To date, there have been more downsizings than sales. Home lenders ranging from Calabasas-based Countrywide Financial Corp., the largest mortgage lender, to ECC Capital Corp., a sub-prime niche player that went public only last year, have announced layoffs and office closures in recent months.

Three weeks ago, ACC Capital Corp., the Orange-based parent of Ameriquest Mortgage Co., said it would shut all 229 of its retail branches and eliminate 3,800 jobs in a streamlining. ACC was the largest sub-prime lender last year, but its volume is expected to drop significantly this year.


Category: Mortgage company

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