A surge in mortgage refinancings is taking a heavy toll on United Companies Financial Corp., a national leader in subprime lending.

The company, based in Baton Rouge, La., said Tuesday that it is seeking a "strategic partnership" as mortgage prepayments batter earnings. Analysts said an outright sale of the company could well be in store.

United, which operates in 42 states and has a market value of $480 million, said its second-quarter earnings would plunge to as low as $3 million, from $23.8 million a year earlier. The decline reflects a writedown of certain mortgage securities to reflect prepayments that "are higher than we have historically experienced," the company said.

The disclosures highlight how this year's surge in refinancings is buffeting some lenders. As homeowners pay off loans to take out new ones at low interest rates, lenders and investors holding securities backed by the old loans can suffer big losses.

Subprime companies have been especially hard hit because of heavy competition in the field. Companies have been actively soliciting each other's customers to refinance, driving up prepayment rates.

United wrote down the value of "interest-only strips," which pay only the interest portion from a pool of loans. Such payments stop abruptly when loans are prepaid.

The company said it has retained Salomon Smith Barney to explore a partnership that could improve its ability to access capital and grow. United, which said the action followed a five-month review, said the options include a sale or a partnership with another company.

"We came to the conclusion that if we were going to make this as big as it needs to be, and get the growth that we want, our cost of capital is going to impede ability to do that," said J. Terrell Brown, chief executive officer.

United Companies "really needs to be with someone that is strongly capitalized, with a strong investment-grade rating," he said. The company's own debt was downgraded to BB-plus by Standard & Poor's Corp. this spring, from BBB-minus, because of falling credit quality and increased competition.

A number of finance companies have sold themselves this year. For example, Money Store Inc. was sold to First Union Corp., and Green Tree Financial Corp. to Conseco Inc.

IMC Mortgage Corp., meanwhile, formed a partnership with Travelers Inc., and Aames Financial won a cash infusion from investors Ronald Perelman and Gerald Ford. Southern Pacific Funding Corp. has been recently rumored to be searching for a bank buyer.

"With the industry in such turmoil, everyone is in play," said Brian Chisick, chief executive of First Alliance Corp., Irvine, Calif.

Investors appeared to welcome the prospect of United Companies' selling or finding a partner. The company's shares rose $1.437 on Tuesday, to $15.875.

And United officials expressed confidence in the company's ability to attract partners.

"Our potential strategic partners are desperate for high-yield assets," said John D. Dienes, chief operating officer. "We provide those in spades."

A partner with a large credit card base would be a perfect match, he said, because of cross-selling opportunities.

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