Advanced Financial Inc.'s board of directors announced on Friday that the company needed bailing out.

The Shawnee, Kan.-based subprime lender and servicer, which does most of its business through its AFI Mortgage Corp., is looking to merge with another to address its troubled financial situation, the board said.

It also advised the Government National Mortgage Association that it was short $400,000 on a mortgage portfolio insured by the government agency.

The notification came as the company requested approval to sell off servicing rights for the portfolio, its only remaining significant asset.

It has been a long struggle for Advanced Financial, which began selling off its mortgage production operations a year and a half ago.

The decline may have started in March 1996, when president W. Ray Bell left the company, citing personal reasons. At that time, it had $480 million in servicing rights and was originating $10 million to $15 million in subprime loans monthly.

His successor, Norman Peterson, an Advanced Financial employee since 1988, left in December, to be succeeded by former Plaza Mortgage executive William Moffat. The position, Mr. Moffat said in an interview at the time, was only temporary.

At the time of his departure, Mr. Peterson said in a written statement that the company was "poised for substantial growth in the future."

Mr. Moffat indicated then that Advanced Financial was about to acquire a Southern California lender. Since that time, it has not indicated whether that acquisition was made.

Throughout its decline, Advanced Financial has had a hard time of it on Wall Street.

Trading of its stock was halted on Dec. 16. It had fallen below American Stock Exchange listing requirements, the exchange reported.

It resumed trading on March 24 on Nasdaq, then jumped back to the Amex on March 30. Last week, it was again delisted by the Amex. The stock hit a high of $1.68 last October and has traded at less than 50 cents for all of 1997.

First Mortgage Investment Corp., Kansas City, Kan., is a potential acquirer. In February, Mr. Moffat said the companies were discussing a merger.

Advanced's troubles come at a time when many other subprime lenders are thriving. But a rush of competition into the sector has also reduced the high profit margins.

Advanced Financial executives did not return phone calls.

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