Mego Mortgage Corp., which is trying to rebuild its business, continues to suffer the consequences of its past strategies.
In a filing with the Securities and Exchange Commission last week, the Atlanta lender said it expects to report a $126 million pretax loss for fiscal 1998. It earned $24 million in fiscal 1997. Mego's fiscal year ends Aug. 31.
Mego also said it would have to delay its annual 10-K filing with the SEC because its accountant, Deloitte & Touche, needed more time to complete its audit.
The loss, Mego said, resulted from a writedown of the interest-only securities it retains from its securitizations and a slowdown in loan production in the first eight months of this year.
Deloitte needed more time to review Mego's financials because of a change in the lender's business strategy this year, Mego said. In an attached letter, the accounting firm attributed the delay to "unresolved accounting issues."
Mego's chairman and chief executive Edward B. "Champ" Meyercord declined to elaborate on the SEC filing. He said the company will issue its annual financial statement in two weeks.
In July, Mr. Meyercord was brought in from Greenwich Capital Markets, an investment bank, to turn around Mego, which has suffered from unexpectedly high prepayments and was teetering on the brink of bankruptcy.
Mego pooled its loans into securities and sold them in the capital markets. It retained the riskiest portions of these bond offerings and valued them based on assumptions about prepayments.
Those assumptions turned out to be wrong. Mego announced a $16 million writedown of the value of these residual securities last December, then took another writedown in May.
Some speculated that the "unresolved accounting issues" alluded to by Deloitte may pertain to valuation of the residuals. "With a subprime lender, the most common thing they'd be looking at would be how they price the interest-only strip," said Robert deLara, vice president at Performance Group, a Dallas consulting firm.
Under Mr. Meyercord's leadership, Mego has deemphasized correspondent lending in favor of brokers and retail branches and is looking at "a number of acquisition opportunities," he said.
