Two subprime lenders turned in strong earnings this week, in contrast to many of the sector.

Long Beach Financial Corp., Orange, Calif., reported earnings for the three months that ended Sept. 30 of $8.3 million, or 34 cents per share, versus $7.9 million, or 30 cents per share a year earlier.

BNC Mortgage Inc., Irvine, Calif., reported earnings of $2.5 million or 42 cents a share for the same period, versus $1.7 million or 41 cents a share a year earlier.

Both companies sell loans to other lenders, rather than securitizing, and are less affected by recent turmoil in the asset-backed securities market.

Both also repurchased shares of common stock during the quarter, driving up earnings per share. Long Beach bought 1.5 million, while BNC bought back 344,000.

Long Beach originated a record $674 million in loans during the quarter and $1.8 billion for the first nine months of 1998, a 57% increase over the period a year earlier.

BNC originated a record $283.4 million loans during the quarter, up more than 70% from a year earlier.

Earlier this fall, Long Beach secured a commitment from a Wall Street firm to buy its loans through March 1999. Such commitments can give loan issuers lower profits than securitization when the market for asset-backed securities is strong, but provide more financial stability when that market is weak.

"We've said for a long time that a capital crunch was coming," said chief executive Jack Mayesh, speaking at a Long Beach reception during last week's Mortgage Bankers Association of America conference in Chicago. "We paid a little more to create a stable business."

He also said he is "one of the few" subprime lenders to welcome Freddie Mac and Fannie Mae to the market. The two government-sponsored enterprises could "bring standardization and conformity to a fragmented business," Mr. Mayesh said.

Mr. Mayesh blames much of the subprime industry's woes on accounting methods that securitizers are required to use.

He said the methods, know as gain-on-sale accounting, are "the root" of many problems lenders have experienced and are responsible for the ensuing industrywide capital crunch.

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