FirstPlus Financial Group said Friday that it was nearly eliminating gain-on-sale accounting, a move that could force the entire home equity lending industry to rethink the way that it books profits.

Gain-on-sale accounting, which allows lenders to book profits from loans before they come in, has been the bane of the specialty finance industry in recent months.

Several large firms have needed to take massive writedowns when loans didn't perform as predicted.

"The Street's just not paying for gain-on-sale accounting," Daniel Phillips, chief executive of FirstPlus, said Thursday evening. That day FirstPlus' stock had fallen almost $6, to close at $29.0265.

On Friday the high-loan-to-value lender bit the bullet, announcing the accounting change that would make it a cash-flow-positive lender. FirstPlus cut its earnings projections virtually in half for 1998, to $2.50, and reduced 1999 projections from about $6 to $4.50.

"No company has the proverbial crystal ball to allow it to see future loan performance," Mr. Phillips told analyst and investors during a conference call. "We are going to record our gains as they are earned."

The company will increase its reliance on retail lending and hold more loans in its portfolio to make the change, Mr. Phillips said.

Currently, the company holds about $2 billion in loans in portfolio. That figure will increase to more than $4 billion during 1998, while retail originations will increase to more than half of the company's total originations.

FirstPlus had announced during an investor conference this month that it was considering reducing its reliance on gain-on-sale accounting. Analysts, who had been skeptical that the company would follow through, applauded Friday's announcement and predicted that other subprime lenders would follow suit.

"In the end, it's positive," said Steve Eisman, an analyst with CIBC Oppenheimer who has been notably critical of home equity companies' reluctance to disclose gain-on-sale assumptions.

But these companies are going to have to rely on other sources for capital, Mr. Eisman said, because the equity markets are not receptive now to additional stock offerings from them.

FirstPlus' Mr. Phillips said that the company has no immediate need to go to the equity markets.

FirstPlus' stock traded up on the news, despite the market's downswing Friday, to close up $4.5625, at $33.625. It was trading at $35 at midafternoon Monday.

Piper Jaffray lowered its 12-month target on FirstPlus from $80, to $40 to $45.

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