Investors' uncertainty about specialty finance firms and the accounting they use has stirred up a hornet's nest of controversy around Resource America Mortgage, a small nonconforming lender.

The company's shares have lost more than 80% of their value in the past three weeks, after the release of two reports questioning the lender's accounting and earnings.

The reports, both issued by Off Wall Street, a Cambridge, Mass., investment adviser, have prompted vehement rebuttals by Resource America and a bunch of strongly written analysts' reports supporting the stock. Short-sellers, hoping to stir up more doubt, have blanketed the investment community with copies of the hard-to-follow Financial Accounting Standards Board guidelines.

Nothing, not even a Standard & Poor's upgrading of Resource America debt Aug. 26, has boosted the stock. Even during Tuesday's 380.53-point rally in the Dow industrials, the finance company's stock closed down about 20% after Tower Hill Holdings Inc., a big investor, urged the company to sell if approached by a buyer.

At issue is the way that Resource America books gains for loans that it buys and then securitizes. Gain-on-sale accounting and FAS 125, the rule that governs it, have been the bane of specialty finance companies and investors, as several companies that miscalculated loan performance were forced to write down earnings.

Resource America, though, appears to be a unique case.

It buys nonperforming residential and commercial loans at a discount to their face value, then establishes a five-year forbearance agreement with the borrower. Resource America tries to collect monthly interest payments on the loan and, after five years, attempts to collect the principal.

The company hires a management firm to insure timely payments, said president Stephen Kessler. It then uses an outside appraiser to estimate the property's value after five years and books that appraised value as a gain up-front.

The loans, Mr. Kessler said, aren't always sold off at the end of five years and, when sold, don't necessarily fetch their appraised value.

This is what gives the critics pause.

"Perhaps it should restate its earnings based on cost" of the loan, said the second Off Wall Street report, which was published last Friday. "This would be the conservative thing to do, and if real gains came later, the company would then be able to book them."

The estimates, Mr. Kessler insisted, are legal under FASB's rules, and this is the method used by several other distressed-asset specialists, including Amresco Corp. and Ocwen Financial Corp. "The process of estimation is inherent in any accounting process," he said.

Officials at the Financial Accounting Standards Board said they would not comment on a particular company.

Some have called for abolishing gain-on-sale accounting. "It should be blown up," said Steve Eisman, an Oppenheimer analyst who is lobbying FASB to eliminate the method.

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