The residential mortgage loan market is the largest consumer finance market in the United States. According to the September 17, 2004 forecast of the Mortgage Bankers Association of America (MBAA), the latest survey to include 2003 data, lenders in the United States originated over $3.81 trillion in single-family mortgage loans in 2003. According to the January 21, 2005 forecast of the MBAA, lenders are projected to have originated approximately $2.83 trillion in 2004 and to originate approximately $2.54 trillion in 2005. This decline from the 2003 levels will be primarily attributable to a reduction in refinancing of conforming loans as interest rates remain stable or rise.

The Company offers a wide variety of fixed-rate loans and adjustable rate mortgages, or ARMs, which include hybrid loans. In addition, while a substantial portion of the loans the Company makes are secured by first priority mortgage liens on the underlying property, the Company also offers loans secured by second priority liens.

The Company offers a variety of fixed-rate mortgage loans and ARMs to non-conforming borrowers. The Company considers a combination of factors in deciding whether to approve these loans, including the borrower's income documentation, the loan-to-value, or LTV, the borrower's mortgage and consumer credit payment history, the property type and the credit score necessary to qualify under a particular program.

The Company underwrites non-conforming loans to meet the specific guidelines of one of our six first-lien loan programs and, if applicable, one of the Company’s three second-lien loan programs. In practice, the Company closes virtually all second liens in conjunction with a first lien as a simultaneous closing. Each of the Company’s first-lien and second-lien programs has unique loan features.

The Company offers a variety of fixed-rate mortgage loans and ARMs to the conforming borrowers. The primary factors considered in approving these loans are the borrower's credit history, capacity, the value and adequacy of the collateral and the Fannie Mae and Freddie Mac criteria.

Net income decreased 27.0%, to $30.3 million, for the nine months ended September 30, 2004, from $41.5 million for the comparable period in 2003.

The provision for loan losses—loans held for investment increased to $14.9 million for the nine months ended September 30, 2004 from $0.1 million in the related period in 2003.

Gains on sale of mortgage loans, net, decreased 56.9%, to $41.4 million, for the nine months ended September 30, 2004, from $96.1 million for the comparable period in 2003.