Here we have a smaller financial services company that has quite the "risk assessment".

Don't think the economists are projecting anything like this to the press.

 AMRESCO INC - Quarterly Report (SEC form 10-Q)

The Company is a diversified financial services company with five principal segments: asset management, commercial mortgage banking, commercial finance, residential mortgage banking and home equity lending.

The Company reported a 78% decrease in revenues from $180.0 million to $39.9 million.
 

The Company's Year 2000 Initiative

The Company has been conducting a comprehensive Year 2000 initiative with respect to its internal business-critical systems since mid-1997. This initiative encompasses information technology ("IT") systems and applications, as well as non-IT systems and equipment with embedded technology, such as fax machines and telephone systems, which may be impacted by the Year 2000 problem. Business-critical systems encompass internal accounting systems, including general ledger, accounts payable and financial reporting applications; cash management systems; loan servicing systems; and decision support systems; as well as the underlying technology required to support the software. The initiative includes assessing, remediating or replacing, testing and upgrading the Company's business-critical IT systems with the assistance of a consulting firm that specializes in Year 2000 readiness. Based upon this initiative, and the testing done to date, the Company does not anticipate any material difficulties in achieving Year 2000 readiness with respect to its internal business-critical systems, and the Company achieved that Year 2000 readiness with respect to virtually all its internal business-critical systems by March 31, 1999.

In addition to its own internal IT systems and non-IT systems, the Company may be at risk from Year 2000 failures caused by or occurring to third parties. These third parties can be classified into two groups. The first group includes borrowers, significant business partners, lenders, vendors and other service providers with whom the Company has a direct contractual relationship. The second group, while encompassing certain members of the first group, is comprised of third parties providing services or functions to large segments of society, both domestically and internationally such as airlines, utilities and national stock exchanges.

As is the case with most other companies, the actions the Company can take to avoid any adverse effects from the failure of companies, particularly those in the second group, to become Year 2000 ready is extremely limited. However, the Company has communicated with those companies that have significant business relationships with the Company, particularly those in the first group, to determine their Year 2000 readiness status and the extent to which the Company could be affected by any of their Year 2000 readiness issues. In connection with this process, the Company has sought to obtain written representations and other independent confirmations of Year 2000 readiness from the third parties with whom the Company has material contracts. Responses from all third parties having material contracts with the Company have not been received. In addition to contacting these third parties, where there are direct interfaces between the Company's systems and the systems of these third parties in the first group, the Company conducted testing in the second quarter of 1999 in conformance with the guidelines of the Federal Financial Institutions Examination Council. Based on responses received and testing to date, it is not currently anticipated that the Company will be materially affected by any third party Year 2000 readiness issues.

For all business-critical systems interfaces, readiness was achieved by September 30, 1999. Replacement providers believed to be compliant have been identified for significant third party providers that did not complete their Year 2000 initiatives.

There can be no assurance that the systems of the Company or those of third parties will not experience adverse effects after December 31, 1999. Furthermore, there can be no assurance that a failure to convert by another company, or a conversion that is not compatible with the Company's systems or those of other companies on which the Company's systems rely, would not have a material adverse effect on the Company.

The Company has incurred approximately $1.0 million of costs related to its Year 2000 initiative through September 30, 1999 and does not anticipate incurring any significant additional costs. These cost estimates do not include costs associated with internal resources assigned to the initiative.

Potential Risks

In addition to the Company's internal systems and the systems and embedded technology of third parties with whom the Company does business, there is a general uncertainty regarding the overall success of global remediation efforts relating to the Year 2000 problem, including those efforts of providers of services to large segments of society, as described above in the second group. Due to the interrelationships on a global scale that may be impacted by the Year 2000 problem, there could be short-term disruptions in the capital or real estate markets or longer-term disruptions that would affect the overall economy.

Due to the general uncertainty with respect to how this issue will affect businesses and governments, it is not possible to list all potential problems or risks associated with the Year 2000 problem. However, some examples of problems or risks to the Company that could result from the failure by third parties to adequately deal with the Year 2000 problem include:

In the case of lenders, the potential for liquidity stress due to disruptions in funding flows;

in the case of exchanges and clearing agents, the potential for funding disruptions and settlement failures; and

in the case of vendors or providers, service failures or interruptions, such as failures of power, telecommunications and the embedded technology of building systems (such as HVAC, sprinkler and fire suppression, elevators, alarm monitoring and security, and building and parking garage access).

With respect to the Company's loan portfolios, risks due to the potential failure of third parties to be ready to deal with the Year 2000 problem include:

potential borrower defaults resulting from computer failures of retail systems of major tenants in retail commercial real estate properties such as shopping malls and strip shopping centers;

potential borrower defaults resulting from increased expenses or legal claims related to failures of embedded technology in building systems, such as HVAC, sprinkler and fire suppression, elevators, alarm monitoring and security, and building and parking garage access; and

delays in reaching projected occupancy levels due to construction delays, interruptions in service or other market factors.

These risks are also applicable to the Company's portfolios of mortgage backed securities, as these securities are dependent upon the pool of mortgage loans underlying them. If the investors in these types of securities demand higher returns in recognition of these potential risks, the market value of any future MBS portfolios of the Company also could be adversely affected.

Other problems that could result from the failure of the Company or third parties to achieve Year 2000 readiness include impairment of the Company's ability to report to investors and owners with respect to portfolio performance and collect and remit payments, including those with respect to return on investments, taxes and insurance. Furthermore, the Company's loan servicing operations rely on computers to process and manage loans. These operations are of such a volume and nature that manual processing would be time consuming and expensive. Therefore, a failure of the Company's own systems or the systems provided by third parties and used by the Company to be timely compliant could have a material adverse effect on the Company's loan servicing operations.

The Company believes that the risks most likely to affect the Company adversely relate to the failure of third parties, including its borrowers and sources of capital, to achieve Year 2000 readiness. If its borrowers' systems fail, the result could be a delay in making payments to the Company or the complete business failure of such borrowers. The failure, although believed to be unlikely, of the Company's sources of capital to achieve Year 2000 readiness could result in the Company being unable to obtain the funds necessary to continue its normal business operations.

Some of the risks associated with the Year 2000 problem may be mitigated through insurance maintained or purchased by the Company, its business partners, borrowers and vendors. However, the scope of insurance coverage in addressing these potential issues under existing policies has yet to be tested, and the economic impact on the solvency of the insurers has not been explored. Therefore, no assurance can be given that insurance coverage will be available or, if it is available, that it will be available on a cost-effective basis or that it will cover all or a significant portion of any potential loss.

-- Brian (imager@home.com), November 14, 1999

Answers

No stuck domino's here, thanks for your post Brian.

-- ** (karlacalif@aol.com), November 14, 1999.

This is our mortgage company. In January '99, we received a statement saying we were $4000 overdue! We called and they said a lot of people were receiving these erroneous messages. My husband had to be like a bulldog and ended up talking to a VP to get enough good info. Their customer service is horrible, one person said to him(which he reported to the VP) "You suck,sir". We finally got the statement cleared up! Have to wait 10 more months to refinance without paying a penalty, but I can hardly wait to get rid of this discusting company.

-- morgan (bitbybit@eoni.com), November 14, 1999.

Familiar isn't it...

"Responses from all third parties having material contracts with the Company have not been received....."

Problem: They didn't even bother with a percentage (let alone ratio) of business partner/vendor/key customer compliance.

Seems obvious then that the basis for the following is missing:

"Based on responses received and testing to date, it is not currently anticipated that the Company will be materially affected by any third party Year 2000 readiness issues."

This is absurd, yet the media feeds the masses an unhealthy dose of this kind of refuse every day.

Ho-hum all is well... Guess I'll by some AMRESCO stock. NOT!

TA

-- TA (sea_spur@yahoo.com), November 14, 1999.

As I said...the last 10-Q's of the year bear more pointedly on all the risks than the Happyface nonsense that went before.

-- K. Stevens (kstevens@ Can't wait for The Moment of Truth in January.com), November 14, 1999.

TA:

Come one now. You aren't even going through the motions here, you're jumping from an unjustified assumption to a foregone conclusion without traversing the space between. I know you can do better.

[Familiar isn't it...]

Yes, all too familiar. Make a better effort, OK?

[Responses from all third parties having material contracts with the Company have not been received....."

Problem: They didn't even bother with a percentage (let alone ratio) of business partner/vendor/key customer compliance.]

No, they don't provide numbers here. That's not their purpose here. Nobody gets 100% responses, not even the US Census! Now, have they made due effort to reached the *important* ones? Well, they say they have. How is that not good enough?

[Seems obvious then that the basis for the following is missing:

"Based on responses received and testing to date, it is not currently anticipated that the Company will be materially affected by any third party Year 2000 readiness issues."]

Not necessarily missing. You seem to be dismissing this claim out of hand, solely on the grounds that they failed to provide a list of all 3rd parties, the exposure each one represents, and details of every response. You do not seem to distinguish between "no basis" (your conclusion) and basis not detailed in this report. Once having failed to recognize the obvious, you conclude that of the two statements you have arbitrarily (and irrationally) set in conflict, the first is correct and the second is false. How can you know this? Give me a break.

[This is absurd, yet the media feeds the masses an unhealthy dose of this kind of refuse every day.]

And finally, you conclude what you'd decided in the first place. How very convenient.

Look, like most organizations, they are saying two things here:

1) The believe they've wrung the bugs out of their systems. They cannot guarantee it (nor can anyone). Seems fair enough.

2) They cannot control circumstances (3rd parties) beyond their control. This is *always* true, and a vulnerability any business faces. They have (according to their claim) done due diligence and they're satisfied with it. That seems fair enough as well.

Yes, I know, this is all boilerplate stuff. They make no claims that any business that has made a real effort can't claim. However, if I were to read any such report where they claim to be able to see not only their future but the future of everyone they deal with, my BS meter would get pegged in a hurry.

Really now, are you claiming to be unsatisfied by *anyone* who fails to provide written guarantees of the theoretically impossible? You have the Brass Balls to call this "likely case analysis"? Sheesh.

-- Flint (flintc@mindspring.com), November 14, 1999.