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Non-Tech : Aames Financial (AAM) - Undervalued or what??? -- Ignore unavailable to you. Want to Upgrade?

To: Bill De who wrote (344)	12/19/1997 1:14:00 AM
From: david wright	Read Replies (1) \| Respond to of 510

For a really good tutorial into this whole gain-on-sale accounting controversy I recommend: investor.msn.com I don't believe there is any more "risk" in the earnings estimates derrived from this accounting practice than in any of the methods analysts use to forecast earnings for other types of companies. The probability of default or prepayment is distributed over a large number of borrowers in the securitized pool. With sufficient reserves based on historical analysis and market conditions this risk can be hedged somewhat. Even if interest rates decline most of these B paper borrowers will need to refinance through a subprime lender like Aames because of their credit category which will generate loans for future pools. If the economy tanks and everbody starts declaring bankruptcy the servicing costs increase and the margins decrease but the underlying loans are secured by real estate. The risk of principal has been transfered to the pool investors. Now, is any of this more "risky" than the earnings estimates for semiconductor companies or disk drive makers which have been decimated by currency devaluations in Asia? At least Aames risk is tied to the domestic economy and not to the vagaries of some corrupt Asian cartel. With low unemployment, modestly appreciating real-estate markets, and stable to declining interest rates I'll take my chances with Aames even with gain-on-sale accounting.