x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Maryland
|
74-2830661
|
(State
or Other Jurisdiction of Incorporation or
Organization)
|
(I.R.S.
Employer Identification No.)
|
2114
Central Street, Suite 600, Kansas City, MO
|
64108
|
(Address
of Principal Executive Office)
|
(Zip
Code)
|
Large accelerated filer o
|
Accelerated filer x
|
Non-accelerated filer o
|
Smaller reporting company o
|
Part
I
|
Financial
Information
|
|
Explanatory
Note
|
1
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
2
|
Condensed
Consolidated Balance Sheets
|
2
|
|
Condensed
Consolidated Statements of Operations
|
3
|
|
Condensed
Consolidated Statement of Shareholders’ Deficit
|
4
|
|
Condensed
Consolidated Statements of Cash Flows
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
30
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
51
|
Item
4.
|
Controls
and Procedures
|
53
|
Part
II
|
Other
Information
|
|
Item
1.
|
Legal
Proceedings
|
54
|
Item
1A.
|
Risk
Factors
|
56
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
64
|
Item
3.
|
Defaults
Upon Senior Securities
|
64
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
65
|
Item
5.
|
Other
Information
|
65
|
Item
6.
|
Exhibits
|
65
|
June
30,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
(Restated)
|
||||||||
Assets
|
||||||||
Unrestricted
cash and cash equivalents
|
$ | 10,269 | $ | 25,364 | ||||
Restricted
cash
|
7,181 | 8,998 | ||||||
Mortgage
loans – held-in-portfolio, net of allowance of $616,690 and $230,138,
respectively
|
2,161,720 | 2,870,013 | ||||||
Mortgage
securities -
trading
|
25,275 | 109,203 | ||||||
Mortgage
securities -
available-for-sale
|
9,167 | 33,371 | ||||||
Real
estate owned
|
66,539 | 76,614 | ||||||
Accrued
interest receivable
|
66,039 | 61,704 | ||||||
Other
assets
|
5,875 | 37,244 | ||||||
Assets
of discontinued operations
|
2,477 | 8,255 | ||||||
Total
assets
|
$ | 2,354,542 | $ | 3,230,766 | ||||
Liabilities
and Shareholders’ Deficit
|
||||||||
Liabilities:
|
||||||||
Asset-backed
bonds secured by mortgage loans
|
$ | 2,784,301 | $ | 3,065,746 | ||||
Asset-backed
bonds secured by mortgage securities
|
18,630 | 74,385 | ||||||
Short-term
borrowings secured by mortgage securities
|
- | 45,488 | ||||||
Junior
subordinated debentures
|
77,077 | 83,561 | ||||||
Due
to servicer
|
77,165 | 56,450 | ||||||
Derivative
instruments, net
|
10,574 | 6,896 | ||||||
Dividends
payable
|
10,473 | 3,816 | ||||||
Accounts
payable and other liabilities
|
25,411 | 53,392 | ||||||
Liabilities
of discontinued operations
|
47,608 | 59,416 | ||||||
Total
liabilities
|
3,051,239 | 3,442,254 | ||||||
Commitments
and contingencies (Note 7)
|
||||||||
Shareholders’
deficit:
|
||||||||
Capital stock, $0.01 par value, 50,000,000 shares
authorized:
|
||||||||
Redeemable
preferred stock, $25 liquidating preference per share; 2,990,000 shares,
issued and outstanding
|
30 | 30 | ||||||
Convertible
participating preferred stock, $25 liquidating preference per share;
2,100,000 shares, issued and outstanding
|
21 | 21 | ||||||
Common
stock, 9,391,341 and 9,439,273 shares, issued and outstanding,
respectively
|
94 | 94 | ||||||
Additional
paid-in capital
|
786,440 | 786,342 | ||||||
Accumulated
deficit
|
(1,482,862 | ) | (996,649 | ) | ||||
Accumulated
other comprehensive loss
|
(246 | ) | (1,117 | ) | ||||
Other
|
(174 | ) | (209 | ) | ||||
Total
shareholders’ deficit
|
(696,697 | ) | (211,488 | ) | ||||
Total
liabilities and shareholders’ deficit
|
$ | 2,354,542 | $ | 3,230,766 |
For
the Six Months
Ended
June 30,
|
For
the Three Months
Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
(Restated)
|
(Restated)
|
|||||||||||||||
Interest
income
|
$ | 131,008 | $ | 187,755 | $ | 59,542 | $ | 104,095 | ||||||||
Interest
expense
|
65,283 | 115,676 | 29,001 | 65,901 | ||||||||||||
Net
interest income before provision for credit losses
|
65,725 | 72,079 | 30,541 | 38,194 | ||||||||||||
Provision
for credit losses
|
461,436 | 93,167 | 212,120 | 73,254 | ||||||||||||
Net
interest loss after provision for credit losses
|
(395,711 | ) | (21,088 | ) | (181,579 | ) | (35,060 | ) | ||||||||
Other
operating expense:
|
||||||||||||||||
(Losses)
gains on derivative instruments
|
(10,613 | ) | 6,506 | 4,974 | 6,128 | |||||||||||
Gains
on debt extinguishment
|
6,418 | - | 6,418 | - | ||||||||||||
Fair
value adjustments
|
(22,669 | ) | (26,233 | ) | (9,952 | ) | (16,741 | ) | ||||||||
Impairment
on mortgage securities – available-for-sale
|
(21,229 | ) | (25,993 | ) | (1,848 | ) | (22,569 | ) | ||||||||
Premiums
for mortgage loan insurance
|
(8,317 | ) | (7,606 | ) | (4,043 | ) | (4,798 | ) | ||||||||
Servicing
fee expense
|
(7,093 | ) | - | (3,397 | ) | - | ||||||||||
Other
income (expense), net
|
80 | (213 | ) | 69 | (223 | ) | ||||||||||
Total
other operating expense
|
(63,423 | ) | (53,539 | ) | (7,779 | ) | (38,203 | ) | ||||||||
General
and administrative expenses:
|
||||||||||||||||
Compensation
and benefits
|
3,479 | 16,900 | 930 | 8,151 | ||||||||||||
Office
administration
|
4,553 | 5,948 | 2,284 | 2,870 | ||||||||||||
Professional
and outside services
|
3,887 | 13,168 | 1,976 | 5,449 | ||||||||||||
Marketing
|
- | 57 | - | 57 | ||||||||||||
Travel
and other
|
370 | 4,040 | 226 | 1,174 | ||||||||||||
Total
general and administrative expenses
|
12,289 | 40,113 | 5,416 | 17,701 | ||||||||||||
Loss
from continuing operations before income tax expense
(benefit)
|
(471,423 | ) | (114,740 | ) | (194,774 | ) | (90,964 | ) | ||||||||
Income
tax expense (benefit)
|
1,084 | (186,582 | ) | 433 | (71,206 | ) | ||||||||||
(Loss)
income from continuing operations
|
(472,507 | ) | 71,842 | (195,207 | ) | (19,758 | ) | |||||||||
Loss
from discontinued operations, net of income tax
|
(7,347 | ) | (78,706 | ) | (1,977 | ) | (33,120 | ) | ||||||||
Net
loss
|
(479,854 | ) | (6,864 | ) | (197,184 | ) | (52,878 | ) | ||||||||
Basic
earnings per share:
|
||||||||||||||||
Loss
from continuing operations available to common
shareholders
|
$ | (51.31 | ) | $ | 7.34 | $ | (21.27 | ) | $ | (2.29 | ) | |||||
Loss
from discontinued operations, net of income tax
|
(0.79 | ) | (8.43 | ) | (0.21 | ) | (3.55 | ) | ||||||||
Net
loss available to common shareholders
|
$ | (52.10 | ) | $ | (1.09 | ) | $ | (21.48 | ) | $ | (5.84 | ) | ||||
Diluted
earnings per share:
|
||||||||||||||||
Loss
from continuing operations available to common
shareholders
|
$ | (51.31 | ) | $ | 7.34 | $ | (21.27 | ) | $ | (2.29 | ) | |||||
Loss
from discontinued operations, net of income tax
|
(0.79 | ) | (8.43 | ) | (0.21 | ) | (3.55 | ) | ||||||||
Net
loss available to common shareholders
|
$ | (52.10 | ) | $ | (1.09 | ) | $ | (21.48 | ) | $ | (5.84 | ) | ||||
Weighted
average basic shares outstanding
|
9,337,427 | 9,328,679 | 9,337,695 | 9,336,655 | ||||||||||||
Weighted
average diluted shares outstanding
|
9,337,427 | 9,328,679 | 9,337,695 | 9,336,655 |
Redeemable
Preferred
Stock
|
Convertible
Participating
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Loss
|
Other
|
Total
Shareholders’
Deficit
|
|||||||||||||||||||||||||
Balance,
January 1, 2008
|
$ | 30 | $ | 21 | $ | 94 | $ | 786,342 | $ | (996,649 | ) | $ | (1,117 | ) | $ | (209 | ) | $ | (211,488 | ) | ||||||||||||
Forgiveness
of founder’s notes receivable
|
- | - | - | - | - | - | 35 | 35 | ||||||||||||||||||||||||
Compensation
recognized under stock compensation plans
|
- | - | - | 97 | - | - | - | 97 | ||||||||||||||||||||||||
Accumulating
dividends on preferred stock
|
- | - | - | - | (6,657 | ) | - | - | (6,657 | ) | ||||||||||||||||||||||
Other
|
- | - | - | 1 | 298 | - | - | 299 | ||||||||||||||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||
Net
loss (as restated)
|
(479,854 | ) | (479,854 | ) | ||||||||||||||||||||||||||||
Other
comprehensive income
|
871 | 871 | ||||||||||||||||||||||||||||||
Total
comprehensive loss (as restated)
|
(478,983 | ) | ||||||||||||||||||||||||||||||
Balance,
June 30, 2008
|
$ | 30 | $ | 21 | $ | 94 | $ | 786,440 | $ | (1,482,862 | ) | $ | (246 | ) | $ | (174 | ) | $ | (696,697 | ) |
For
the Six Months Ended June 30,
|
||||||||
2008
|
2007
|
|||||||
(Restated)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (479,854 | ) | $ | (6,864 | ) | ||
Loss
from discontinued operations
|
(7,347 | ) | (78,706 | ) | ||||
(Loss)
income from continuing operations
|
(472,507 | ) | 71,842 | |||||
Adjustments
to reconcile (loss) income from continuing operations to net cash used in
operating activities:
|
||||||||
Impairment
on mortgage securities – available-for-sale
|
21,229 | 25,993 | ||||||
Gains
(losses) on derivative instruments
|
10,613 | (6,505 | ) | |||||
Depreciation
expense
|
519 | 1,316 | ||||||
Amortization
of deferred debt issuance costs
|
1,887 | 4,210 | ||||||
Compensation
recognized under stock compensation plans
|
97 | 686 | ||||||
Provision
for credit losses
|
461,436 | 93,167 | ||||||
Amortization
of premiums on mortgage loans
|
10,153 | 8,826 | ||||||
Interest
capitalized on loans held-in-portfolio
|
(14,355 | ) | (23,065 | ) | ||||
Forgiveness
of founders’ promissory notes
|
35 | 70 | ||||||
Provision
for deferred income taxes
|
- | (192,889 | ) | |||||
Fair
value adjustments
|
22,669 | 26,238 | ||||||
Accretion
of available-for-sale and trading securities
|
(26,758 | ) | (57,630 | ) | ||||
Losses
on sales of mortgage assets
|
- | 212 | ||||||
Gains
on debt extinguishment
|
(6,418 | ) | - | |||||
Changes
in:
|
||||||||
Accrued
interest receivable
|
(4,336 | ) | (9,849 | ) | ||||
Derivative
instruments, net
|
546 | 1,787 | ||||||
Other
assets
|
5,903 | 24,898 | ||||||
Due
to servicer
|
20,715 | - | ||||||
Accounts
payable and other liabilities
|
(18,792 | ) | 40,874 | |||||
Net
cash provided by operating activities from continuing
operations
|
12,636 | 10,181 | ||||||
Net
cash used in operating activities from discontinued
operations
|
(15,183 | ) | (755,891 | ) | ||||
Net
cash used in operating activities
|
(2,547 | ) | (745,710 | ) | ||||
Continued
|
Cash
flows from investing activities:
|
||||||||
Proceeds
from paydowns on mortgage securities – available-for-sale
|
19,226 | 108,299 | ||||||
Proceeds
from paydowns of mortgage securities - trading
|
36,127 | 14,604 | ||||||
Purchase
of mortgage securities - trading
|
- | (21,957 | ) | |||||
Proceeds
from sale of mortgage securities - trading
|
- | 7,413 | ||||||
Proceeds
from repayments of mortgage loans held-in-portfolio
|
194,022 | 471,694 | ||||||
Proceeds
from sales of assets acquired through foreclosure
|
67,113 | 2,079 | ||||||
Restricted
cash proceeds (payments)
|
1,817 | (8,844 | ) | |||||
Purchases
of property and equipment
|
- | (2,929 | ) | |||||
Net
cash provided by investing activities
|
318,305 | 570,359 | ||||||
Net
cash provided by investing activities from discontinued
operations
|
1,826 | 9,155 | ||||||
Net
cash provided by investing activities
|
320,131 | 579,514 | ||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of asset-backed bonds
|
- | 2,111,415 | ||||||
Payments
on asset-backed bonds
|
(286,622 | ) | (474,578 | ) | ||||
Proceeds
from issuance of capital stock and exercise of equity instruments, net of
offering costs
|
- | 3,150 | ||||||
Net
change in short-term borrowings
|
(45,488 | ) | (236,608 | ) | ||||
Repurchase
of trust preferred debt
|
(550 | ) | - | |||||
Dividends
paid on vested options
|
- | (499 | ) | |||||
Dividends
paid on preferred stock
|
- | (3,326 | ) | |||||
Net
cash (used in) provided by financing activities from continuing
operations
|
(332,660 | ) | 1,399,554 | |||||
Net
cash used in financing activities from discontinued
operations
|
(19 | ) | (1,286,008 | ) | ||||
Net
cash (used in) provided by financing activities
|
(332,679 | ) | 113,546 | |||||
Net
decrease in cash and cash equivalents
|
(15,095 | ) | (52,650 | ) | ||||
Cash
and cash equivalents, beginning of period
|
25,364 | 150,522 | ||||||
Cash
and cash equivalents, end of period
|
$ | 10,269 | $ | 97,872 | ||||
Continued
|
For
the Six Months Ended June 30,
|
||||||||
2008
|
2007
|
|||||||
(Restated)
|
||||||||
Cash
paid for interest
|
$ | 64,906 | $ | 160,508 | ||||
Cash
paid for income taxes
|
2,871 | 330 | ||||||
Cash
received on mortgage securities – available-for-sale with no cost
basis
|
- | 3,296 | ||||||
Non-cash
operating, investing and financing activities:
|
||||||||
Transfer
of loans to held-in-portfolio from held-for-sale
|
- | 1,880,340 | ||||||
Transfer
of mortgage securities from available-for-sale to trading
(A)
|
46,383 | |||||||
Assets
acquired through foreclosure
|
67,113 | 2,079 | ||||||
Dividends
payable
|
10,473 | 1,663 | ||||||
(A) Transfer
was made upon adoption of SFAS 159.
See
notes to condensed consolidated financial statements.
|
|
·
|
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No.
144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the
Company has reclassified the operating results of its mortgage lending
segment and loan servicing segment as discontinued operations in the
condensed consolidated statements of operations for the six and three
months ended June 30, 2007.
|
|
·
|
The
Board of Directors declared a one-for-four reverse stock split of the
Company’s common stock, providing shareholders of record as of July 27,
2007, with one share of common stock in exchange for each four shares
owned. The reduction in shares resulting from the split was
effective on July 27, 2007 decreasing the number of common shares
outstanding to 9.5 million. Current and prior year share
amounts and earnings per share disclosures have been retrospectively
adjusted to reflect the reverse stock
split.
|
|
·
|
The
Company created a new line item on the condensed consolidated balance
sheet named “Derivative instruments, net” to separate balances related to
its derivative instruments which were previously reported in the “Accounts
payable and other liabilities” line item as of December 31,
2007. The line item was created due to the materiality of the
amounts recorded as of June 30,
2008.
|
June
30, 2008
|
December
31,
2007
|
|||||||
Mortgage
loans – held-in-portfolio:
|
||||||||
Outstanding
principal
|
$ | 2,756,149 | $ | 3,067,737 | ||||
Net
unamortized deferred origination costs
|
22,261 | 32,414 | ||||||
Amortized
cost
|
2,778,410 | 3,100,151 | ||||||
Allowance
for credit losses
|
(616,690 | ) | (230,138 | ) | ||||
Mortgage
loans – held-in-portfolio
|
$ | 2,161,720 | $ | 2,870,013 | ||||
Weighted
average coupon
|
8.62 | % | 8.59 | % | ||||
For
the Six Months Ended
June
30,
|
For
the Three Months Ended
June
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Balance,
beginning of period
|
$ | 230,138 | $ | 22,452 | $ | 445,120 | $ | 34,911 | ||||||||
Provision
for credit losses
|
461,436 | 93,167 | 212,120 | 73,254 | ||||||||||||
Charge-offs,
net of recoveries
|
(74,884 | ) | (15,523 | ) | (40,550 | ) | (8,069 | ) | ||||||||
Balance,
end of period
|
$ | 616,690 | $ | 100,096 | $ | 616,690 | $ | 100,096 | ||||||||
Cost
Basis
|
Unrealized
Gain
|
Unrealized
Losses
Less
Than Twelve
Months
|
Estimated
Fair
Value
|
Average
Yield
(A)
|
||||||||||||||||
As
of June 30, 2008
|
$ | 8,434 | $ | 733 | $ | - | $ | 9,167 | 33.36 | % | ||||||||||
As
of December 31, 2007
|
33,302 | 69 | - | 33,371 | 26.94 | % | ||||||||||||||
(A)
|
The
average yield is calculated from the cost basis of the mortgage securities
and does not give effect to changes in fair value that are reflected as a
component of shareholders’ equity.
|
Original
Face
|
Amortized
Cost
Basis
|
Fair
Value
|
Average
Yield
(A)
|
|||||||||||||
As
of June 30, 2008
|
||||||||||||||||
Subordinated
securities pledged to CDO
|
$ | 332,489 | $ | 318,907 | $ | 15,827 | ||||||||||
Other
subordinated securities
|
102,625 | 95,174 | 2,895 | |||||||||||||
Residual
securities
|
N/A | 24,227 | 6,553 | |||||||||||||
Total
|
$ | 435,114 | $ | 438,308 | $ | 25,275 | 11.05 | % | ||||||||
As
of December 31, 2007
|
$ | 435,114 | $ | 447,370 | $ | 109,203 | 13.85 | % | ||||||||
For the Six Months Ended
June 30,
|
For the Three Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Net
loss
|
$ | (479,854 | ) | $ | (6,864 | ) | $ | (197,184 | ) | $ | (52,878 | ) | ||||
Other
comprehensive income (loss):
|
||||||||||||||||
Change
in unrealized loss on mortgage securities
– available-for-sale
|
(20,565 | ) | (59,638 | ) | (4,437 | ) | (50,052 | ) | ||||||||
Change
in unrealized gain on derivative instruments used in cash flow
hedges
|
1,354 | 715 | 599 | 800 | ||||||||||||
Impairment
on mortgage securities - available-for-sale reclassified to
earnings
|
21,229 | 25,993 | 1,848 | 22,569 | ||||||||||||
Valuation
allowance for deferred taxes
|
- | 6,560 | - | 5,861 | ||||||||||||
Net
settlements of derivative instruments used in cash flow hedges
reclassified to earnings
|
(1,147 | ) | (339 | ) | 272 | (209 | ) | |||||||||
Other
comprehensive income (loss)
|
871 | (26,709 | ) | (1,718 | ) | (21,031 | ) | |||||||||
Total
comprehensive loss
|
$ | (478,983 | ) | $ | (33,573 | ) | $ | (198,902 | ) | $ | (73,909 | ) | ||||
|
·
|
Level
1—Quoted prices for identical instruments in active
markets
|
|
·
|
Level
2—Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant
value drivers are observable.
|
|
·
|
Level
3—Instruments whose significant value drivers are
unobservable.
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
Description
|
Fair Value at
6/30/2008
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant Other
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Assets:
|
||||||||||||||||
Mortgage
securities -trading
|
$ | 25,275 | $ | - | $ | 18,722 | $ | 6,553 | ||||||||
Mortgage
securities – available-for-sale
|
9,167 | - | - | 9,167 | ||||||||||||
Derivative
instruments
|
891 | - | 891 | - | ||||||||||||
Total
assets
|
$ | 35,333 | $ | - | $ | 19,613 | $ | 15,720 | ||||||||
Liabilities:
|
||||||||||||||||
Asset-backed
bonds secured by mortgage securities
|
$ | 18,630 | $ | - | $ | 18,630 | $ | - | ||||||||
Derivative
instruments, net
|
10,574 | - | 10,574 | - | ||||||||||||
Total
liabilities
|
$ | 29,204 | $ | - | $ | 29,204 | $ | - |
Cost
Basis
|
Unrealized
Loss
|
Estimated
Fair Value of
Mortgage
Securities
|
||||||||||
As
of December 31, 2007
|
$ | 41,275 | $ | (16,534 | ) | $ | 24,741 | |||||
Increases
(decreases) to mortgage securities-trading:
|
||||||||||||
Accretion
of income
|
4,640 | - | 4,640 | |||||||||
Proceeds
from paydowns of securities
|
(21,687 | ) | - | (21,687 | ) | |||||||
Mark-to-market
value adjustment
|
- | (1,141 | ) | (1,141 | ) | |||||||
Net
decrease to mortgage securities
|
(17,047 | ) | (1,141 | ) | (18,188 | ) | ||||||
As
of June 30, 2008
|
$ | 24,228 | $ | (17,675 | ) | $ | 6,553 | |||||
Cost
Basis
|
Unrealized
Gain
(Loss)
|
Estimated
Fair Value of
Mortgage
Securities
|
||||||||||
As
of December 31, 2006
|
$ | - | $ | - | $ | - | ||||||
Increases
(decreases) to mortgage securities-trading:
|
||||||||||||
New
securities retained in securitizations
|
56,387 | 226 | 56,613 | |||||||||
Accretion
of income
|
654 | - | 654 | |||||||||
Proceeds
from paydowns of securities
|
(2,303 | ) | - | (2,303 | ) | |||||||
Mark-to-market
value adjustment
|
- | (48 | ) | (48 | ) | |||||||
Net
increase to mortgage securities
|
54,738 | 178 | 54,916 | |||||||||
As
of June 30, 2007
|
$ | 54,738 | $ | 178 | $ | 54,916 | ||||||
Cost
Basis
|
Unrealized
Gain
(Loss)
|
Estimated
Fair Value of
Mortgage
Securities
|
||||||||||
As
of December 31, 2007
|
$ | 33,302 | $ | 69 | $ | 33,371 | ||||||
Increases
(decreases) to mortgage securities:
|
||||||||||||
Accretion
of income (A)
|
3,359 | - | 3,359 | |||||||||
Proceeds
from paydowns of securities (A) (B)
|
(6,998 | ) | - | (6,998 | ) | |||||||
Impairment
on mortgage securities - available-for-sale
|
(21,229 | ) | 21,229 | - | ||||||||
Mark-to-market
value adjustment
|
- | (20,565 | ) | (20,565 | ) | |||||||
Net
(decrease) increase to mortgage securities
|
(24,868 | ) | 664 | (24,204 | ) | |||||||
As
of June 30, 2008
|
$ | 8,434 | $ | 733 | $ | 9,167 | ||||||
(A)
|
Cash
received on mortgage securities with no cost basis was $1.5 million for
the six months ended June 30, 2008.
|
(B)
|
For
mortgage securities with a remaining cost basis, the Company reduces the
cost basis by the amount of cash that is contractually due from the
securitization trusts. In contrast, for mortgage securities in which the
cost basis has previously reached zero, the Company records in interest
income the amount of cash that is contractually due from the
securitization trusts. In both cases, there are instances where the
Company may not receive a portion of this cash until after the balance
sheet reporting date. Therefore, these amounts are recorded as receivables
from the securitization trusts. As of June 30, 2008 and December 31, 2007
the Company had receivables from securitization trusts of $0.3 million and
$12.5 million, respectively, related to mortgage securities
available-for-sale with a remaining cost
basis.
|
Cost
Basis
|
Unrealized
Gain
(Loss)
|
Estimated
Fair Value of
Mortgage
Securities
|
||||||||||
As
of December 31, 2006
|
$ | 310,760 | $ | 38,552 | $ | 349,312 | ||||||
Increases
(decreases) to mortgage securities:
|
||||||||||||
Transfer
to mortgage securities – trading upon adoption of SFAS 159
|
(47,814 | ) | 1,131 | (46,683 | ) | |||||||
Accretion
of income (A)
|
34,689 | - | 34,689 | |||||||||
Proceeds
from paydowns of securities (A) (B)
|
(108,765 | ) | - | (108,765 | ) | |||||||
Impairment
on mortgage securities - available-for-sale
|
(25,993 | ) | 25,993 | - | ||||||||
Mark-to-market
value adjustment
|
- | (59,638 | ) | (59,638 | ) | |||||||
Net
decrease to mortgage securities
|
(147,883 | ) | (32,514 | ) | (180,397 | ) | ||||||
As
of June 30, 2007
|
$ | 162,877 | $ | 6,038 | $ | 168,915 | ||||||
(A)
|
Cash
received on mortgage securities with no cost basis was $3.3 million for
the six months ended June 30,
2007.
|
(B)
|
As
of June 30, 2007 the Company had receivables from securitization trusts of
$21.7 million, related to mortgage securities available-for-sale with a
remaining cost basis. Also the Company had receivables from securitization
trusts of $0.2 million related to mortgage securities with a zero cost
basis as of June 30, 2007.
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
Description
|
Fair Value at
6/30/2008
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Real
estate owned
|
66,539 | - | - | 66,539 | ||||||||||||
Total
|
$ | 66,539 | $ | - | $ | - | $ | 66,539 | ||||||||
Fair Value
Adjustments For
the Six Months
Ended June 30
|
Fair Value
Adjustments For
the Three Months
Ended June 30
|
||||||||||||||||||
Asset or Liability
Measured at Fair Value
|
Fair Value
Measurement
Frequency
|
2008
|
2007
|
2008
|
2007
|
Statement of Operations Line
Item Impacted
|
|||||||||||||
Mortgage
securities - trading
|
Recurring
|
$ | (74,866 | ) | $ | (89,740 | ) | $ | (23,261 | ) | $ | (39,681 | ) |
Fair
value adjustments
|
|||||
Mortgage
securities – available-for-sale
|
Recurring
|
(21,229 | ) | (25,993 | ) | (1,848 | ) | (22,569 | ) |
Impairment
on mortgage securities – available-for-sale
|
|||||||||
Derivative
instruments, net
|
Recurring
|
(10,613 | ) | 6,506 | 4,974 | 6,128 |
(Losses)
gains on derivative instruments
|
||||||||||||
Asset-backed
bonds secured by mortgage securities
|
Recurring
|
52,197 | 63,508 | 13,309 | 22,940 |
Fair
value adjustments
|
|||||||||||||
Total
fair value losses
|
$ | (54,511 | ) | $ | (45,719 | ) | $ | (6,826 | ) | $ | (33,182 | ) | |||||||
Description
|
Unpaid Principal Balance
as of June 30, 2008
|
Gain
Recognized
|
Balance at Fair Value
|
|||||||||
Asset-backed
bonds secured by mortgage securities
|
$ | 343,642 | $ | 52,197 | $ | 18,630 | ||||||
For the Six Months Ended
June 30,
|
For the Three Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Interest
Income:
|
||||||||||||||||
Mortgage
securities
|
$ | 26,758 | $ | 60,348 | $ | 12,028 | $ | 28,634 | ||||||||
Mortgage
loans held-in-portfolio
|
103,312 | 123,740 | 47,287 | 73,760 | ||||||||||||
Other
interest income (A)
|
938 | 3,667 | 227 | 1,701 | ||||||||||||
Total
interest income
|
$ | 131,008 | $ | 187,755 | $ | 59,542 | $ | 104,095 | ||||||||
(A)
|
Other
interest income includes interest from corporate operating cash. During
the six and three months ended June 30, 2007 other interest income also
included interest earned on funds the Company held as custodian and the
Company’s warehouse notes
receivable.
|
For the Six Months Ended
June 30,
|
For the Three Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Interest
Expense:
|
||||||||||||||||
Short-term
borrowings secured by mortgage securities
|
$ | 434 | $ | 12,446 | $ | 58 | $ | 6,159 | ||||||||
Asset-backed
bonds secured by mortgage loans
|
54,929 | 91,306 | 24,569 | 52,555 | ||||||||||||
Asset-backed
bonds secured by mortgage securities
|
6,606 | 7,867 | 2,921 | 5,152 | ||||||||||||
Junior
subordinated debentures
|
3,314 | 4,057 | 1,453 | 2,035 | ||||||||||||
Total
interest expense
|
$ | 65,283 | $ | 115,676 | $ | 29,001 | $ | 65,901 | ||||||||
June 30,
|
December 31,
|
|||||||
2008
|
2007
|
|||||||
Assets
|
||||||||
Mortgage
loans -
held-for-sale
|
$ | 1,710 | $ | 5,253 | ||||
Real
estate owned
|
767 | 2,574 | ||||||
Other
assets
|
- | 428 | ||||||
Total
assets
|
$ | 2,477 | $ | 8,255 | ||||
Liabilities
|
||||||||
Short-term
borrowings secured by mortgage loans
|
$ | - | $ | 19 | ||||
Accounts
payable and other liabilities (A)
|
47,608 | 59,397 | ||||||
Total
liabilities
|
$ | 47,608 | $ | 59,416 |
(A)
|
Includes
a $45.2 million liability recorded in connection with the judgment
rendered against NHMI in the California Action by AIM, the settlement of
which is currently pending, subject to certain
contingencies.
|
For the Six Months Ended
June
30,
|
For the Three Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Interest
income
|
$ | 822 | $ | 73,761 | $ | 389 | $ | 26,384 | ||||||||
Interest
expense
|
(15 | ) | 45,088 | 2 | 15,982 | |||||||||||
Net
interest income
|
837 | 28,673 | 387 | 10,402 | ||||||||||||
Other
operating expense:
|
||||||||||||||||
Gains
(losses) on sales of mortgage assets
|
410 | (12,182 | ) | (36 | ) | (5,880 | ) | |||||||||
Gains
(losses) on derivative instruments
|
- | (781 | ) | - | 2,269 | |||||||||||
Valuation
adjustment on mortgage loans – held-for-sale
|
(3,273 | ) | (24,560 | ) | 2 | (4,363 | ) | |||||||||
Fee
income
|
902 | 11,162 | - | 5,131 | ||||||||||||
Premiums
for mortgage loan insurance
|
- | (2,656 | ) | - | (342 | ) | ||||||||||
Other
income
|
240 | 1,623 | 17 | (2,358 | ) | |||||||||||
Total
other operating expense
|
(1,721 | ) | (27,394 | ) | (17 | ) | (5,543 | ) | ||||||||
General
and administrative expenses
|
6,463 | 79,985 | 2,347 | 37,979 | ||||||||||||
Loss
from discontinued operations
|
$ | (7,347 | ) | $ | (78,706 | ) | $ | (1,977 | ) | $ | (33,120 | ) | ||||
June 30,
2008
|
December 31,
2007
|
|||||||
Mortgage
loans – held-for-sale:
|
||||||||
Outstanding
principal
|
$ | 16,205 | $ | 17,545 | ||||
Allowance
for the lower of cost or fair value
|
(14,495 | ) | (12,292 | ) | ||||
Mortgage
loans – held-for-sale
|
$ | 1,710 | $ | 5,253 | ||||
Weighted
average coupon
|
10.17 | % | 10.23 | % | ||||
For the Six Months Ended
June 30,
|
For the Three Months Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Balance,
beginning of period
|
$ | 12,292 | $ | 5,006 | $ | 14,646 | $ | 25,872 | ||||||||
Valuation
adjustment on mortgage loans held-for-sale
|
3,273 | 24,560 | (2 | ) | 4,363 | |||||||||||
Transfer
from the reserve for loan repurchases
|
- | 22,329 | - | 3,806 | ||||||||||||
Transfer
to cost basis of mortgage loans – held-in-portfolio
|
- | (14,843 | ) | - | - | |||||||||||
Reduction
due to loans securitized or sold to third parties
|
- | (3,259 | ) | - | (3,259 | ) | ||||||||||
Transfers
to real estate owned
|
569 | (10,075 | ) | 1,305 | (7,064 | ) | ||||||||||
Charge-offs,
net of recoveries
|
(1,639 | ) | - | (1,454 | ) | - | ||||||||||
Balance,
end of period
|
$ | 14,495 | $ | 23,718 | $ | 14,495 | $ | 23,718 | ||||||||
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
Description
|
Fair Value at
6/30/2008
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
||||||||||||
Mortgage
loans-held-for-sale
|
$ | 1,710 | $ | - | $ | - | $ | 1,710 | ||||||||
Real
estate owned
|
767 | - | - | 767 | ||||||||||||
Total
|
$ | 2,477 | $ | - | $ | - | $ | 2,477 | ||||||||
Fair Value
Adjustments For the
Six Months Ended
June 30
|
Fair Value
Adjustments For
the Three Months
Ended June 30
|
||||||||||||||||||
Asset or Liability
Measured at Fair
Value
|
Fair Value
Measurement
Frequency
|
2008
|
2007
|
2008
|
2007
|
Statement of Discontinued
Operations Line Item Impacted
|
|||||||||||||
Mortgage
loans – held-for-sale
|
Nonrecurring
|
$ | (3,273 | ) | $ | (24,560 | ) | $ | 2 | $ | (4,363 | ) |
Valuation
adjustment on mortgage loans – held-for-sale
|
||||||
Real
estate owned
|
Nonrecurring
|
(165 | ) | (2,955 | ) | 109 | (428 | ) |
Gains
(losses) on sales of mortgage assets
|
||||||||||
Total
fair value losses
|
$ | (3,438 | ) | $ | (27,515 | ) | $ | 111 | $ | (4,791 | ) | ||||||||
For the Six Months Ended
June 30,
|
For the Three Months
Ended June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Numerator:
|
||||||||||||||||
(Loss)
income from continuing operations
|
$ | (472,507 | ) | $ | 71,842 | $ | (195,207 | ) | $ | (19,758 | ) | |||||
Dividends
on preferred shares
|
(6,657 | ) | (3,326 | ) | (3,369 | ) | (1,663 | ) | ||||||||
Loss
from continuing operations available to common
shareholders
|
(479,164 | ) | 68,516 | (198,576 | ) | (21,421 | ) | |||||||||
Loss
from discontinued operations, net of income tax
|
(7,347 | ) | (78,706 | ) | (1,977 | ) | (33,120 | ) | ||||||||
Net
loss available to common shareholders
|
$ | (486,511 | ) | $ | (10,190 | ) | $ | (200,553 | ) | $ | (54,541 | ) | ||||
Denominator:
|
||||||||||||||||
Weighted
average common shares outstanding – basic
|
9,337,427 | 9,328,679 | 9,337,695 | 9,336,655 | ||||||||||||
Weighted
average common shares outstanding – dilutive:
|
||||||||||||||||
Weighted
average common shares outstanding – basic
|
9,337,427 | 9,328,679 | 9,337,695 | 9,336,655 | ||||||||||||
Stock
options
|
- | - | - | - | ||||||||||||
Restricted
stock
|
- | - | - | - | ||||||||||||
Weighted
average common shares outstanding – dilutive
|
9,337,427 | 9,328,679 | 9,337,695 | 9,336,655 | ||||||||||||
Basic
earnings per share:
|
||||||||||||||||
(Loss)
income from continuing operations
|
$ | (50.60 | ) | $ | 7.70 | $ | (20.91 | ) | $ | (2.11 | ) | |||||
Dividends
on preferred shares
|
(0.71 | ) | (0.36 | ) | (0.36 | ) | (0.18 | ) | ||||||||
(Loss)
income from continuing operations available to common
shareholders
|
(51.31 | ) | 7.34 | (21.27 | ) | (2.29 | ) | |||||||||
Loss
from discontinued operations, net of income tax
|
(0.79 | ) | (8.43 | ) | (0.21 | ) | (3.55 | ) | ||||||||
Net
loss available to common shareholders
|
$ | (52.10 | ) | $ | (1.09 | ) | $ | (21.48 | ) | $ | (5.84 | ) | ||||
Diluted
earnings per share:
|
||||||||||||||||
(Loss)
income from continuing operations
|
$ | (50.60 | ) | $ | 7.70 | $ | (20.91 | ) | $ | (2.11 | ) | |||||
Dividends
on preferred shares
|
(0.71 | ) | (0.36 | ) | (0.36 | ) | (0.18 | ) | ||||||||
(Loss)
income from continuing operations available to common
shareholders
|
(51.31 | ) | 7.34 | (21.27 | ) | (2.29 | ) | |||||||||
Loss
from discontinued operations, net of income tax
|
(0.79 | ) | (8.43 | ) | (0.21 | ) | (3.55 | ) | ||||||||
Net
loss available to common shareholders
|
$ | (52.10 | ) | $ | (1.09 | ) | $ | (21.48 | ) | $ | (5.84 | ) | ||||
For the Six Months Ended
June 30,
|
For the Three Months
Ended June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Number
of stock options
|
250 | 330 | 266 | 461 | ||||||||||||
Weighted
average exercise price
|
$ | 39.35 | $ | 40.52 | $ | 37.11 | $ | 32.24 | ||||||||
As Previously
|
As Restated
|
|||||||||||
Reported
|
Adjustments
|
|||||||||||
Assets
|
||||||||||||
Unrestricted
cash and cash equivalents
|
$ | 10,269 | $ | - | $ | 10,269 | ||||||
Restricted
cash
|
7,181 | - | 7,181 | |||||||||
Mortgage
loans – held-in-portfolio, net of allowance of $308,162 (previously
reported) and $616,690 (as restated)
|
1,014,747 | 1,146,973 | 2,161,720 | |||||||||
Mortgage
securities -
trading
|
27,837 | (2,562 | ) | 25,275 | ||||||||
Mortgage
securities -
available-for-sale
|
9,167 | - | 9,167 | |||||||||
Real
estate owned
|
26,724 | 39,815 | 66,539 | |||||||||
Accrued
interest receivable
|
30,276 | 35,763 | 66,039 | |||||||||
Other
assets
|
5,875 | - | 5,875 | |||||||||
Assets
of discontinued operations
|
2,477 | - | 2,477 | |||||||||
Total
assets
|
$ | 1,134,553 | $ | 1,219,989 | $ | 2,354,542 | ||||||
Liabilities
and Shareholders’ Equity
|
||||||||||||
Liabilities:
|
||||||||||||
Asset-backed
bonds secured by mortgage loans
|
$ | 1,311,934 | $ | 1,472,367 | $ | 2,784,301 | ||||||
Asset-backed
bonds secured by mortgage securities
|
18,630 | - | 18,630 | |||||||||
Short-term
borrowings secured by mortgage securities
|
- | - | - | |||||||||
Junior
subordinated debentures
|
77,077 | - | 77,077 | |||||||||
Due
to servicer
|
29,308 | 47,857 | 77,165 | |||||||||
Derivative
instruments, net
|
- | 10,574 | 10,574 | |||||||||
Dividends
payable
|
10,473 | - | 10,473 | |||||||||
Accounts
payable and other liabilities
|
23,911 | 1,500 | 25,411 | |||||||||
Liabilities
of discontinued operations
|
47,608 | - | 47,608 | |||||||||
Total
liabilities
|
1,518,941 | 1,532,298 | 3,051,239 | |||||||||
Commitments
and contingencies (Note 7)
|
||||||||||||
Shareholders’
deficit:
|
||||||||||||
Capital
stock, $0.01 par value, 50,000,000 shares authorized:
|
||||||||||||
Redeemable
preferred stock, $25 liquidating preference per share; 2,990,000 shares,
issued and outstanding
|
30 | - | 30 | |||||||||
Convertible
participating preferred stock, $25 liquidating preference per share;
2,100,000 shares, issued and outstanding
|
21 | - | 21 | |||||||||
Common
stock, 9,391,341 and 9,439,273 shares, issued and outstanding,
respectively
|
94 | - | 94 | |||||||||
Additional
paid-in capital
|
786,440 | - | 786,440 | |||||||||
Accumulated
deficit
|
(1,170,553 | ) | (312,309 | ) | (1,482,862 | ) | ||||||
Accumulated
other comprehensive loss
|
(246 | ) | - | (246 | ) | |||||||
Other
|
(174 | ) | - | (174 | ) | |||||||
Total
shareholders’ deficit
|
(384,388 | ) | (312,309 | ) | (696,697 | ) | ||||||
Total
liabilities and shareholders’ deficit
|
$ | 1,134,553 | $ | 1,219,989 | $ | 2,354,542 |
The following table sets forth the effects of the adjustments on the condensed consolidated statements of operations for the six and three months ended June 30, 2008 (in thousands, except share and per share amounts): | ||||||||||||||||||||||||
For The Six Months Ended
June 30, 2008
|
For The Three Months Ended
June 30, 2008
|
|||||||||||||||||||||||
As
Previously
Reported
|
Adjustments
|
As
Restated
|
As
Previously
Reported
|
Adjustments
|
As Restated
|
|||||||||||||||||||
Interest
income
|
$ | 131,008 | $ | - | $ | 131,008 | $ | 59,542 | $ | - | $ | 59,542 | ||||||||||||
Interest
expense
|
65,283 | - | 65,283 | 29,001 | - | 29,001 | ||||||||||||||||||
Net
interest income before provision for credit losses
|
65,725 | - | 65,725 | 30,541 | - | 30,541 | ||||||||||||||||||
Provision
for credit losses
|
461,436 | - | 461,436 | 212,120 | - | 212,120 | ||||||||||||||||||
Net
interest loss after provision for credit losses
|
(395,711 | ) | - | (395,711 | ) | (181,579 | ) | - | (181,579 | ) | ||||||||||||||
Other
operating expense:
|
||||||||||||||||||||||||
Gains
(losses) on sales of mortgage assets
|
312,309 | (312,309 | ) | - | 312,309 | (312,309 | ) | - | ||||||||||||||||
(Losses)
gains on derivative instruments
|
(10,613 | ) | - | (10,613 | ) | 4,974 | - | 4,974 | ||||||||||||||||
Gains
on debt extinguishment
|
6,418 | - | 6,418 | 6,418 | - | 6,418 | ||||||||||||||||||
Fair
value adjustments
|
(22,669 | ) | - | (22,669 | ) | (9,952 | ) | - | (9,952 | ) | ||||||||||||||
Impairment
on mortgage securities – available-for-sale
|
(21,229 | ) | - | (21,229 | ) | (1,848 | ) | - | (1,848 | ) | ||||||||||||||
Premiums
for mortgage loan insurance
|
(8,317 | ) | - | (8,317 | ) | (4,043 | ) | - | (4,043 | ) | ||||||||||||||
Servicing
fee expense
|
(7,093 | ) | - | (7,093 | ) | (3,397 | ) | - | (3,397 | ) | ||||||||||||||
Other
income (expense), net
|
80 | - | 80 | 69 | - | 69 | ||||||||||||||||||
Total
other operating expense
|
248,886 | (312,309 | ) | (63,423 | ) | 304,530 | (312,309 | ) | (7,779 | ) | ||||||||||||||
General
and administrative expenses:
|
||||||||||||||||||||||||
Compensation
and benefits
|
3,479 | - | 3,479 | 930 | - | 930 | ||||||||||||||||||
Office
administration
|
4,553 | - | 4,553 | 2,284 | - | 2,284 | ||||||||||||||||||
Professional
and outside services
|
3,887 | - | 3,887 | 1,976 | - | 1,976 | ||||||||||||||||||
Travel
and other
|
370 | - | 370 | 226 | - | 226 | ||||||||||||||||||
Total
general and administrative expenses
|
12,289 | - | 12,289 | 5,416 | - | 5,416 | ||||||||||||||||||
Loss
from continuing operations before income tax expense
(benefit)
|
(159,114 | ) | (312,309 | ) | (471,423 | ) | 117,535 | (312,309 | ) | (194,774 | ) | |||||||||||||
Income
tax expense (benefit)
|
1,084 | - | 1,084 | 433 | - | 433 | ||||||||||||||||||
(Loss)
income from continuing operations
|
(160,198 | ) | (312,309 | ) | (472,507 | ) | 117,102 | (312,309 | ) | (195,207 | ) | |||||||||||||
Loss
from discontinued operations, net of income tax
|
(7,347 | ) | - | (7,347 | ) | (1,977 | ) | - | (1,977 | ) | ||||||||||||||
Net
(loss) income
|
(167,545 | ) | (312,309 | ) | (479,854 | ) | 115,125 | (312,309 | ) | (197,184 | ) | |||||||||||||
Basic
earnings per share:
|
||||||||||||||||||||||||
(Loss)
income from continuing operations available to common
shareholders
|
$ | (17.87 | ) | $ | (33.44 | ) | $ | (51.31 | ) | $ | 10.18 | (31.45 | ) | $ | (21.27 | ) | ||||||||
Loss
from discontinued operations, net of income tax
|
(0.79 | ) | - | (0.79 | ) | (0.21 | ) | - | (0.21 | ) | ||||||||||||||
Net
(loss) income available to common shareholders
|
$ | (18.66 | ) | $ | (33.44 | ) | $ | (52.10 | ) | $ | 9.97 | (31.45 | ) | $ | (21.48 | ) | ||||||||
Diluted
earnings per share:
|
||||||||||||||||||||||||
(Loss)
income from continuing operations available to common
shareholders
|
$ | (17.87 | ) | $ | (33.44 | ) | $ | (51.31 | ) | $ | 10.18 | (31.45 | ) | $ | (21.27 | ) | ||||||||
Loss
from discontinued operations, net of income tax
|
(0.79 | ) | - | (0.79 | ) | (0.22 | ) | - | (0.21 | ) | ||||||||||||||
Net
(loss) income available to common shareholders
|
$ | (18.66 | ) | $ | (33.44 | ) | $ | (52.10 | ) | $ | 9.96 | (31.45 | ) | $ | (21.48 | ) | ||||||||
Weighted
average basic shares outstanding
|
9,337,427 | - | 9,337,427 | 9,337,695 | - | 9,337,695 | ||||||||||||||||||
Weighted
average diluted shares outstanding
|
9,337,427 | - | 9,337,427 | 9,340,694 | (2,999 | ) | 9,337,695 |
Previously
|
||||||||||||
Reported
|
Adjustments
|
As
Restated
|
||||||||||
Net
loss
|
$ | (167,545 | ) | $ | (312,309 | ) | $ | (479,854 | ) | |||
Loss
from continuing operations
|
(160,198 | ) | (312,309 | ) | (472,507 | ) | ||||||
Losses
(gains) on sales of mortgage assets
|
(312,309 | ) | 312,309 | - | ||||||||
Net
cash used in operating activities
|
(2,547 | ) | - | (2,547 | ) | |||||||
Net
cash provided by investing activities
|
320,131 | - | 320,131 | |||||||||
Net
cash (used in) provided by financing activities
|
(332,679 | ) | - | (332,679 | ) | |||||||
Net
decrease in cash and cash equivalents
|
(15,095 | ) | - | (15,095 | ) | |||||||
Cash
and cash equivalents, beginning of period
|
25,364 | - | 25,364 | |||||||||
Cash
and cash equivalents, end of period
|
$ | 10,269 | $ | - | $ | 10,269 |
For the Six Months
|
For the Three Months
|
|||||||||||||||
Ended
June 30,
|
Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Net
loss available to common shareholders
|
$ | (486,511 | ) | $ | (10,190 | ) | $ | (200,553 | ) | $ | (54,541 | ) | ||||
Net
loss available to common shareholders, per diluted share
|
$ | (52.10 | ) | $ | (1.09 | ) | $ | (21.48 | ) | $ | (5.84 | ) | ||||
|
·
|
We
incurred income tax expense of $1.1 million for the six months ended June
30, 2008 as compared to earning a benefit of $186.6 million for the same
period of 2007. The tax benefit in 2007 was driven by the
formal plan approved by the Board of Directors to revoke REIT status as of
January 1, 2008. This plan was subsequently superseded in the
third quarter of 2007 by termination of our REIT status as of January 1,
2006.
|
|
·
|
An
increase in our provision for credit losses for our mortgage loans
held-in-portfolio to $461.4 million for the six months ended June 30, 2008
from $93.2 million for the same period in 2007. This increase
of $368.2 million was primarily due to the continued credit deterioration
in our mortgage loans
held-in-portfolio.
|
|
·
|
A
net loss due to fair value adjustments of $22.7 million related to our
trading securities and the asset-backed bonds issued in our CDO
transaction. The trading securities had a negative fair value adjustment
of approximately $(74.9) million while the CDO asset-backed bonds had a
positive fair value adjustment of $52.2 million. These
adjustments were a result of significant credit deterioration of
underlying loans collateralizing these
securities.
|
|
·
|
We
incurred income tax expense of $0.4 million for the three months ended
June 30, 2008 as compared to earning a benefit of $71.2 million for the
same period of 2007. The tax benefit in 2007 was driven by the formal plan
approved by the Board of Directors to revoke status as a real estate
investment trust (“REIT”) as of January 1, 2008. This plan was
subsequently superseded in the third quarter of 2007 by termination of our
REIT status as of January 1, 2006 as a result of our inability to pay a
dividend on our common stock with respect to our 2006 taxable
income.
|
|
·
|
An
increase in our provision for credit losses for our mortgage loans
held-in-portfolio to $212.1 for the three months ended June 30, 2008 from
$73.3 million for the same period in 2007. This increase of
$138.8 million was primarily due to the continued credit deterioration in
our mortgage loans
held-in-portfolio.
|
¨
|
Have
the transferred assets been isolated from the
transferor?
|
¨
|
Does
the transferee have the right to pledge or exchange the transferred
assets?
|
¨
|
Is
there a “call” agreement that requires the transferee to return specific
assets?
|
¨
|
Is
there an agreement that both obligates and entitles the transferee to
return the transferred assets prior to
maturity?
|
¨
|
Have
any derivative instruments been
transferred?
|
¨
|
The
interest spread between the coupon net of servicing fees on the underlying
loans, the cost of financing, mortgage insurance, payments or receipts on
or from derivative contracts and bond administrative
costs.
|
¨
|
Prepayment
penalties received from borrowers who payoff their loans early in their
life.
|
¨
|
Overcollateralization
which is designed to protect the primary bondholder from credit loss on
the underlying loans.
|
For
the Six Months
|
For
the Three Months
|
|||||||||||||||
Ended
June 30,
|
Ended
June 30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Interest
income:
|
||||||||||||||||
Mortgage
securities
|
$ | 26,758 | $ | 60,348 | $ | 12,028 | $ | 28,634 | ||||||||
Mortgage
loans held-in-portfolio
|
103,312 | 123,740 | 47,287 | 73,760 | ||||||||||||
Other
interest income
|
938 | 3,667 | 227 | 1,701 | ||||||||||||
Total
interest income
|
131,008 | 187,755 | 59,542 | 104,095 | ||||||||||||
Interest
expense:
|
||||||||||||||||
Short-term
borrowings secured by mortgage securities
|
434 | 12,446 | 58 | 6,159 | ||||||||||||
Asset-backed
bonds secured by mortgage loans
|
54,929 | 91,306 | 24,569 | 52,555 | ||||||||||||
Asset-backed
bonds secured by mortgage securities
|
6,606 | 7,867 | 2,921 | 5,152 | ||||||||||||
Junior
subordinated debentures
|
3,314 | 4,057 | 1,453 | 2,035 | ||||||||||||
Total
interest expense
|
65,283 | 115,676 | 29,001 | 65,901 | ||||||||||||
Net
interest income before provision for credit losses
|
65,725 | 72,079 | 30,541 | 38,194 | ||||||||||||
Provision
for credit losses
|
(461,436 | ) | (93,167 | ) | (212,120 | ) | (73,254 | ) | ||||||||
Net
interest loss
|
$ | (395,711 | ) | $ | (21,088 | ) | $ | (181,579 | ) | $ | (35,060 | ) | ||||
|
·
|
Continued
decline in home prices;
|
|
·
|
Continued
weakness in the economy;
|
|
·
|
Tighter
underwriting standards within the mortgage industry making it difficult
for borrowers to refinance; and
|
|
·
|
As
a result of the sale of our mortgage servicing rights, we no longer
possess the ability to identify and address potential or actual
delinquencies and defaults.
|
As of June 30, 2008: | ||||||||||||||||||||
Securitization
Trust
|
Original
Principal
Balance
|
Current
Principal
Balance
|
Allowance
for Credit
Losses
|
Remaining
Expected
Credit
Losses(A)
|
Original
Expected
Credit
Losses
|
|||||||||||||||
2006-1
|
$ | 1,350,000 | $ | 582,119 | $ | 141,602 | 11.2 | % | 2.9 | % | ||||||||||
2006-MTA1
|
1,199,013 | 718,529 | 166,560 | 16.3 | 1.7 | |||||||||||||||
2007-1
|
1,888,756 | 1,455,501 | 308,528 | 27.5 | 6.2 |
As
of December 31, 2007:
|
|||||||||||||||||||||
Securitization
Trust |
Original
Principal
Balance
|
Current
Principal
Balance
|
Allowance
for
Credit
Losses
|
Remaining
Expected
Credit
Losses(A)
|
Original
Expected
Credit
Losses
|
||||||||||||||||
2006-1
|
$ | 1,350,000 | $ | 694,101 | $ | 40,031 | 6.5 | % | 2.9 | % | |||||||||||
2006-MTA1
|
1,199,013 | 753,787 | 27,312 | 5.7 | 1.7 | ||||||||||||||||
2007-1
|
1,888,756 | 1,619,849 | 162,795 | 13.5 | 6.2 |
For
the Six Months Ended
June
30,
|
For
the Three Months Ended
June
30,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Balance,
beginning of period
|
$ | 230,138 | $ | 22,452 | $ | 445,120 | $ | 34,911 | ||||||||
Provision
for credit losses
|
461,436 | 93,167 | 212,120 | 73,254 | ||||||||||||
Charge-offs,
net of recoveries
|
(74,884 | ) | (15,523 | ) | (40,550 | ) | (8,069 | ) | ||||||||
Balance,
end of period
|
$ | 616,690 | $ | 100,096 | $ | 616,690 | $ | 100,096 | ||||||||
As of June 30, 2008:
|
||||||||||||||||
NHES
|
NHES
|
NHES
|
||||||||||||||
2006-MTA1
|
2006-1
|
2007-1
|
Totals
|
|||||||||||||
Assets:
|
||||||||||||||||
Mortgage
loans – held-in-portfolio
|
||||||||||||||||
Outstanding
principal
|
$ | 718,529 | $ | 582,119 | $ | 1,455,501 | $ | 2,756,149 | ||||||||
Net
unamortized deferred origination costs
|
17,811 | 4,450 | - | 22,261 | ||||||||||||
Allowance
for credit losses
|
(166,560 | ) | (141,602 | ) | (308,528 | ) | (616,690 | ) | ||||||||
Mortgage
loans – held-in-portfolio
|
569,780 | 444,967 | 1,146,973 | 2,161,720 | ||||||||||||
Accrued
interest receivable
|
12,374 | 17,901 | 35,764 | 66,039 | ||||||||||||
Real
estate owned
|
4,979 | 21,745 | 39,815 | 66,539 | ||||||||||||
Total
assets
|
$ | 587,133 | $ | 484,613 | $ | 1,222,552 | $ | 2,294,298 | ||||||||
Liabilities:
|
||||||||||||||||
Asset-backed
bonds secured by mortgage loans
|
$ | 713,016 | $ | 598,918 | $ | 1,472,366 | $ | 2,784,301 | ||||||||
Other
liabilities
|
6,521 | 24,735 | 59,931 | 91,186 | ||||||||||||
Total
liabilities
|
719,537 | 623,653 | 1,532,297 | 2,875,487 | ||||||||||||
Net
deficiency
|
(132,404 | ) | (139,040 | ) | (309,745 | ) | (581,189 | ) | ||||||||
Total
liabilities and net deficiency
|
$ | 587,133 | $ | 484,613 | $ | 1,222,552 | $ | 2,294,298 | ||||||||
As
of December 31, 2007:
|
||||||||||||||||
NHES
|
NHES
|
NHES
|
||||||||||||||
2006-MTA1
|
2006-1
|
2007-1
|
Totals
|
|||||||||||||
Assets:
|
||||||||||||||||
Mortgage
loans – held-in-portfolio
|
||||||||||||||||
Outstanding
principal
|
$ | 753,787 | $ | 694,101 | $ | 1,619,849 | $ | 3,067,737 | ||||||||
Net
unamortized deferred origination costs
|
27,177 | 5,237 | - | 32,414 | ||||||||||||
Allowance
for credit losses
|
(27,312 | ) | (40,031 | ) | (162,795 | ) | (230,138 | ) | ||||||||
Mortgage
loans – held-in-portfolio
|
753,652 | 659,307 | 1,457,054 | 2,870,013 | ||||||||||||
Accrued
interest receivable
|
14,091 | 14,238 | 33,375 | 61,704 | ||||||||||||
Real
estate owned
|
4,851 | 32,126 | 39,637 | 76,614 | ||||||||||||
Total
assets
|
$ | 772,594 | $ | 705,671 | $ | 1,530,066 | $ | 3,008,331 | ||||||||
Liabilities:
|
||||||||||||||||
Asset-backed
bonds secured by mortgage loans
|
$ | 748,182 | $ | 714,476 | $ | 1,603,088 | $ | 3,065,746 | ||||||||
Other
liabilities
|
5,751 | 19,927 | 45,087 | 70,765 | ||||||||||||
Total
liabilities
|
753,933 | 734,403 | 1,648,175 | 3,136,511 | ||||||||||||
Net
assets (deficiency)
|
18,661 | (28,732 | ) | (118,109 | ) | (128,180 | ) | |||||||||
Total
liabilities and net assets (deficiency)
|
$ | 772,594 | $ | 705,671 | $ | 1,530,066 | $ | 3,008,331 | ||||||||
Table
6 — Rollforward of Mortgage Loans - Held-in-Portfolio
(dollars
in thousands)
|
||||
June 30,
2008
|
||||
Beginning
principal balance
|
$
|
3,067,737
|
||
Borrower
repayments
|
(194,022
|
)
|
||
Capitalization
of interest
|
14,355
|
|||
Transfers
to real estate owned
|
(131,922
|
)
|
||
Ending
principal balance
|
2,756,149
|
|||
Net
unamortized deferred origination costs
|
22,261
|
|||
Amortized
cost
|
2,778,410
|
|||
Allowance
for credit losses
|
(616,690
|
)
|
||
Mortgage
loans held-in-portfolio
|
$
|
2,161,720
|
||
Table
7 — Mortgage Loans – Held-in-Portfolio Delinquencies
(dollars
in thousands)
|
||||||||||||||||
As of June 30, 2008
|
As of December 31, 2007
|
|||||||||||||||
Current Principal
|
Percent
of Total
|
Current Principal
|
Percent of
Total
|
|||||||||||||
Current
|
$ | 1,781,508 | 65 | % | $ | 2,484,386 | 81 | % | ||||||||
30-59
days delinquent
|
138,541 | 5 | 158,366 | 5 | ||||||||||||
60-89
days delinquent
|
116,919 | 4 | 98,039 | 3 | ||||||||||||
90
+ days delinquent
|
381,636 | 14 | 150,811 | 5 | ||||||||||||
In
process of foreclosure
|
337,545 | 12 | 176,135 | 6 | ||||||||||||
Total
principal
|
$ | 2,756,149 | 100 | % | $ | 3,067,737 | 100 | % | ||||||||
As
of June 30, 2008
|
||||||||||||||||||||||||||||||||||||
Current
Assumptions
|
Current
Valuation Assumptions
|
|||||||||||||||||||||||||||||||||||
Securitization
Trust
|
Cost
(A)
|
Unrealized
Gain
(loss)
(A)
|
Estimated
Fair Value
of
Mortgage
Securities
(A)
|
Discount
Rate
|
Constant
Prepayment
Rate
|
Expected
Credit
Losses
(B)
|
Discount
Rate
|
Constant
Prepayment
Rate
|
Expected
Credit
Losses
(B)
|
|||||||||||||||||||||||||||
NMFT
Series – Available-for-Sale:
|
||||||||||||||||||||||||||||||||||||
2002-3
|
$ | 1,507 | $ | 531 | $ | 2,038 | 25 | % | 13 | % | 0.7 | % | 20 | % | 30 | % | 1.0 | % | ||||||||||||||||||
2003-1
|
2,151 | - | 2,151 | 25 | 10 | 2.0 | 20 | 28 | 3.3 | |||||||||||||||||||||||||||
2003-2
|
953 | - | 953 | 25 | 10 | 1.7 | 28 | 25 | 2.7 | |||||||||||||||||||||||||||
2003-3
|
249 | 2 | 251 | 25 | 9 | 2.5 | 20 | 22 | 3.6 | |||||||||||||||||||||||||||
2003-4
|
12 | 20 | 32 | 25 | 11 | 2.8 | 20 | 30 | 5.1 | |||||||||||||||||||||||||||
2004-1
|
25 | 15 | 40 | 25 | 14 | 2.9 | 20 | 33 | 5.9 | |||||||||||||||||||||||||||
2004-2
|
40 | 4 | 44 | 25 | 13 | 3.2 | 26 | 31 | 5.1 | |||||||||||||||||||||||||||
2004-3
|
- | 97 | 97 | 25 | 14 | 4.0 | 19 | 34 | 4.5 | |||||||||||||||||||||||||||
2004-4
|
13 | - | 13 | 25 | 16 | 3.7 | 26 | 35 | 4.0 | |||||||||||||||||||||||||||
2005-1
|
- | - | - | 25 | 17 | 5.0 | 15 | 37 | 3.6 | |||||||||||||||||||||||||||
2005-2
|
1 | - | 1 | 25 | 15 | 6.2 | 13 | 39 | 2.1 | |||||||||||||||||||||||||||
2005-3
|
105 | - | 105 | 25 | 16 | 8.0 | 15 | 41 | 2.0 | |||||||||||||||||||||||||||
2005-4
|
112 | 64 | 176 | 25 | 17 | 9.1 | 15 | 43 | 2.3 | |||||||||||||||||||||||||||
2006-2
|
322 | - | 322 | 25 | 20 | 12.7 | 15 | 44 | 2.4 | |||||||||||||||||||||||||||
2006-3
|
500 | - | 500 | 25 | 20 | 14.4 | 15 | 43 | 3.0 | |||||||||||||||||||||||||||
2006-4
|
561 | - | 561 | 25 | 21 | 14.5 | 15 | 43 | 2.9 | |||||||||||||||||||||||||||
2006-5
|
844 | - | 844 | 25 | 20 | 17.8 | 15 | 43 | 3.9 | |||||||||||||||||||||||||||
2006-6
|
1,039 | - | 1,039 | 25 | 19 | 18.2 | 15 | 41 | 3.7 | |||||||||||||||||||||||||||
Total
|
$ | 8,434 | $ | 733 | $ | 9,167 | ||||||||||||||||||||||||||||||
NMFT
Series – Trading Securities:
|
||||||||||||||||||||||||||||||||||||
2007-2
|
$ | 28,422 | $ | (13,949 | ) | $ | 14,473 | 25 | % | 16 | % | 21.9 | % | 20 | % | 34 | % | 5.7 | % | |||||||||||||||||
(A)
|
The
interest-only, prepayment penalty and overcollateralization securities are
presented on a combined basis.
|
(B)
|
For
securities that have not reached their call date - represents expected
credit losses for the life of the securitization up to the expected date
in which the related asset-backed bonds can be called, net of mortgage
insurance recoveries.
|
As
of December 31, 2007
|
||||||||||||||||||||||||||||||||||||
Current
Assumptions
|
Current
Valuation Assumptions
|
|||||||||||||||||||||||||||||||||||
Securitization
Trust
|
Cost
(A)
|
Unrealized
Gain
(loss)
(A)
|
Estimated
Fair
Value
of
Mortgage
Securities
(A)
|
Discount
Rate
|
Constant
Prepayment
Rate
|
Expected
Credit
Losses
(B)
|
Discount
Rate
|
Constant
Prepayment
Rate
|
Expected
Credit
Losses
(B)
|
|||||||||||||||||||||||||||
NMFT
Series – Available-for-Sale:
|
||||||||||||||||||||||||||||||||||||
2002-3
|
$ | 1,932 | $ | - | $ | 1,932 | 25 | % | 24 | % | 0.6 | % | 20 | % | 30 | % | 1.0 | % | ||||||||||||||||||
2003-1
|
3,260 | - | 3,260 | 25 | 20 | 1.7 | 20 | 28 | 3.3 | |||||||||||||||||||||||||||
2003-2
|
2,817 | - | 2,817 | 25 | 18 | 1.2 | 28 | 25 | 2.7 | |||||||||||||||||||||||||||
2003-3
|
1,233 | - | 1,233 | 25 | 16 | 1.2 | 20 | 22 | 3.6 | |||||||||||||||||||||||||||
2003-4
|
1,279 | - | 1,279 | 25 | 20 | 1.6 | 20 | 30 | 5.1 | |||||||||||||||||||||||||||
2004-1
|
180 | - | 180 | 25 | 24 | 2.4 | 20 | 33 | 5.9 | |||||||||||||||||||||||||||
2004-2
|
180 | - | 180 | 25 | 23 | 2.4 | 26 | 31 | 5.1 | |||||||||||||||||||||||||||
2004-3
|
986 | - | 986 | 25 | 24 | 3.0 | 19 | 34 | 4.5 | |||||||||||||||||||||||||||
2004-4
|
48 | - | 48 | 25 | 26 | 2.6 | 26 | 35 | 4.0 | |||||||||||||||||||||||||||
2005-1
|
512 | - | 512 | 25 | 27 | 3.6 | 15 | 37 | 3.6 | |||||||||||||||||||||||||||
2005-2
|
642 | - | 642 | 25 | 24 | 3.3 | 13 | 39 | 2.1 | |||||||||||||||||||||||||||
2005-3
|
1,335 | - | 1,335 | 25 | 24 | 3.6 | 15 | 41 | 2.0 | |||||||||||||||||||||||||||
2005-3
(C)
|
158 | 69 | 227 | 25 | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||||
2005-4
|
1,344 | - | 1,344 | 25 | 27 | 4.5 | 15 | 43 | 2.3 | |||||||||||||||||||||||||||
2005-4
(C)
|
212 | - | 212 | 25 | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||||
2006-2
|
2,301 | - | 2,301 | 25 | 32 | 6.8 | 15 | 44 | 2.4 | |||||||||||||||||||||||||||
2006-3
|
2,994 | - | 2,994 | 25 | 31 | 8.4 | 15 | 43 | 3.0 | |||||||||||||||||||||||||||
2006-4
|
2,960 | - | 2,960 | 25 | 32 | 8.2 | 15 | 43 | 2.9 | |||||||||||||||||||||||||||
2006-5
|
4,217 | - | 4,217 | 25 | 31 | 11.0 | 15 | 43 | 3.9 | |||||||||||||||||||||||||||
2006-6
|
4,712 | - | 4,712 | 25 | 30 | 10.0 | 15 | 41 | 3.7 | |||||||||||||||||||||||||||
Total
|
$ | 33,302 | $ | 69 | $ | 33,371 | ||||||||||||||||||||||||||||||
NMFT
Series – Trading Securities:
|
||||||||||||||||||||||||||||||||||||
2007-2
|
$ | 41,275 | $ | (13,959 | ) | $ | 27,316 | 25 | % | 20 | % | 12.5 | % | 20 | % | 34 | % | 5.7 | % | |||||||||||||||||
(A)
|
The
interest-only, prepayment penalty and overcollateralization securities are
presented on a combined basis.
|
(B)
|
For
securities that have not reached their call date - represents expected
credit losses for the life of the securitization up to the expected date
in which the related asset-backed bonds can be called, net of mortgage
insurance recoveries.
|
(C)
|
Represents
derivative cash flow bonds (“CT
Bonds”).
|
As
of June 30, 2008
|
||||||||||||||||||||
S&P Rating
|
Original Face
|
Amortized Cost
Basis
|
Fair Value
|
Number of
Securities
|
Weighted
Average Yield
|
|||||||||||||||
Subordinated
Securities:
|
||||||||||||||||||||
Investment
Grade (A)
|
25,305 | 24,386 | 1,959 | 6 | 4.96 | % | ||||||||||||||
Non-investment
Grade (B)
|
409,809 | 389,694 | 16,763 | 102 | 6.31 | |||||||||||||||
Total
Subordinated Securities
|
435,114 | 414,080 | 18,722 | 108 | 6.17 | |||||||||||||||
Residual
Securities:
|
||||||||||||||||||||
Unrated
|
N/A | 24,228 | 6,553 | 2 | 25.00 | |||||||||||||||
Total
|
$ | 435,114 | $ | 438,308 | $ | 25,275 | 110 | 11.05 | % | |||||||||||
(A)
|
Investment
grade includes all securities with ratings above
BB+.
|
(B)
|
Non-investment
grade includes all securities with ratings below
BBB-.
|
As
of December 31, 2007
|
||||||||||||||||||||
S&P Rating
|
Original Face
|
Amortized Cost
Basis |
Fair Value
|
Number of
Securities
|
Weighted
Average Yield
|
|||||||||||||||
Subordinated
Securities:
|
||||||||||||||||||||
Investment
Grade (A)
|
$ | 389,881 | $ | 367,581 | $ | 80,004 | 91 | 11.46 | % | |||||||||||
Non-investment
Grade (B)
|
45,233 | 38,514 | 4,458 | 17 | 17.05 | |||||||||||||||
Total
Subordinated Securities
|
435,114 | 406,095 | 84,462 | 108 | 11.76 | |||||||||||||||
Residual
Securities:
|
||||||||||||||||||||
Unrated
|
N/A | 41,275 | 24,741 | 1 | 21.00 | |||||||||||||||
Total
|
$ | 435,114 | $ | 447,370 | $ | 109,203 | 109 | 13.85 | % | |||||||||||
(A)
|
Investment
grade includes all securities with ratings above
BB+.
|
(B)
|
Non-investment
grade includes all securities with ratings below
BBB-.
|
|
·
|
$21.2
million due to impairment on mortgage securities – available for sale
reclassified to earnings; and
|
|
·
|
$0.4
million due to changes in other miscellaneous activity.
|
·
|
$0.2
million due to adjustments on derivative instruments used in cash flow
hedges reclassified to
earnings.
|
|
·
|
$479.9
million due to a net loss recognized for the six months ended June 30,
2008, which includes a $461.4 million dollar provision for credit
losses;
|
|
·
|
$20.6
million due to the decrease in unrealized gains on mortgage securities
classified as available-for-sale; and
|
·
|
$6.7
million due to dividends accrued on preferred
stock.
|
(dollars
in thousands)
|
||||||||||||||||||||
Payments
Due by Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Less
than 1
Year
|
1-3
Years
|
3-5
Years
|
More
Than 5
Years
|
|||||||||||||||
Long—term
debt (A)
|
$ | 3,468,753 | $ | 729,034 | $ | 958,441 | $ | 782,349 | $ | 998,929 | ||||||||||
Junior
subordinated debentures (B)
|
211,591 | 4,909 | 9,817 | 9,817 | 187,048 | |||||||||||||||
Operating
leases (C)
|
15,253 | 6,020 | 8,773 | 460 | - | |||||||||||||||
Total
|
$ | 3,705,597 | $ | 739,963 | $ | 977,031 | $ | 792,626 | $ | 1,016,977 | ||||||||||
(A)
|
Our
asset-backed bonds are non-recourse as repayment is dependent upon payment
of the underlying mortgage loans, which collateralize the debt. The timing
of the repayment of these mortgage loans is affected by prepayments. These
amounts include expected interest payments on the obligations. Interest
obligations on our variable-rate long-term debt are based on the
prevailing interest rate at June 30, 2008 for each respective
obligation.
|
(B)
|
The
junior subordinated debentures are assumed to mature in 2035 and 2036 in
computing the future payments. These amounts include expected interest
payments on the obligations. Interest obligations on our junior
subordinated debentures are based on the prevailing interest rate at June
30, 2008 for each respective
obligation.
|
(C)
|
Does
not include rental income of $2.2 million to be received under sublease
contracts.
|
(dollars
in thousands)
|
||||||||||||
For
the Six Months Ended June
30,
|
(Decrease)
/
|
|||||||||||
2008
|
2007
|
Increase
|
||||||||||
Consolidated
Statements of Cash Flows:
|
||||||||||||
Cash
used in operating activities
|
$ | (2,547 | ) | $ | (745,710 | ) | $ | 743,163 | ||||
Cash
flows provided by investing activities
|
320,131 | 579,514 | (259,383 | ) | ||||||||
Cash
flows (used in) provided by financing activities
|
(332,679 | ) | 113,546 | (446,225 | ) | |||||||
|
·
|
The
coupons on the underlying collateral of our mortgage securities have
decreased modestly.
|
|
·
|
Higher
credit losses have decreased cash available to distribute with respect to
our residual securities.
|
|
·
|
We
have lower average balances of our mortgage securities—available-for-sale
portfolio as a result of the underlying mortgages being repaid and us not
purchasing additional mortgage securities—available for
sale.
|
(dollars in thousands) | ||||||||||||||||
Basis Point Increase (Decrease) in Interest Rates (A)
|
||||||||||||||||
(200)
|
(100)
|
100
|
200
|
|||||||||||||
As
of June 30, 2008:
|
||||||||||||||||
Change
in market values of:
|
||||||||||||||||
Assets
– non trading (B)
|
$ | 5,875 | $ | 2,902 | $ | (2,803 | ) | $ | (5,383 | ) | ||||||
Assets
– trading (C)
|
14,416 | 6,531 | (4,204 | ) | (7,050 | ) | ||||||||||
Cumulative
change in market value
|
$ | 20,291 | $ | 9,433 | $ | (7,007 | ) | $ | (12,433 | ) | ||||||
Percent
change of market value portfolio equity (D)
|
10.7 | % | 5.0 | % | (3.7 | )% | (6.6 | )% | ||||||||
As
of December 31, 2007:
|
||||||||||||||||
Change
in market values of:
|
||||||||||||||||
Assets
– non trading (B)
|
$ | 42,484 | $ | 19,234 | $ | (18,057 | ) | $ | (32,868 | ) | ||||||
Assets
– trading (C)
|
33,448 | 15,269 | (14,210 | ) | (26,053 | ) | ||||||||||
Cumulative
change in market value
|
$ | 75,932 | $ | 34,503 | $ | (32,267 | ) | $ | (58,921 | ) | ||||||
Percent
change of market value portfolio equity (D)
|
61.0 | % | 24.6 | % | (17.5 | )% | (30.5 | )% |
|
(A)
|
Change
in market value of assets or interest rate agreements in a parallel shift
in the yield curve, up and down 1% and
2%.
|
|
(B)
|
Includes
mortgage loans held-for-sale, mortgage loans held-in-portfolio and
mortgage securities -
available-for-sale.
|
|
(C)
|
Consists
of mortgage securities – trading.
|
|
(D)
|
Total
change in estimated market value as a percent of market value portfolio
equity as of June 30, 2008 and December 31,
2007.
|
(dollars in thousands) | ||||||||||||||||||||||||||||
Maturity Range
|
||||||||||||||||||||||||||||
Net Fair
Value
|
Total
Notional
Amount
|
2008
|
2009
|
2010
|
2011
|
2012 and
beyond
|
||||||||||||||||||||||
Pay-fixed
swaps:
|
||||||||||||||||||||||||||||
Contractual
maturity
|
$ | (10,602 | ) | $ | 735,000 | $ | 290,000 | $ | 405,000 | $ | 40,000 | $ | — | $ | — | |||||||||||||
Weighted
average pay rate
|
4.9 | % | 4.9 | % | 4.9 | % | 5.0 | % | — | — | ||||||||||||||||||
Weighted
average receive rate
|
2.5 | % |
|
(A)
|
|
(A)
|
|
(A)
|
— | — | ||||||||||||||||||
Interest
rate caps:
|
||||||||||||||||||||||||||||
Contractual
maturity
|
$ | 28 | $ | 140,000 | $ | 100,000 | $ | 40,000 | $ | — | $ | — | $ | — | ||||||||||||||
Weighted
average strike rate
|
5.1 | % | 5.1 | % | 5.0 | % | — | — | — | |||||||||||||||||||
(A)
|
The
pay-fixed swaps receive rate is indexed to one-month
LIBOR.
|
·
|
interest
rate fluctuations may harm our cash flow as the spread between the
interest rates we pay on our borrowings and hedges and the interest rates
we receive on our mortgage assets
narrows;
|
·
|
the
value of our residual and subordinated securities and the income we
receive from them are based primarily on LIBOR, and an increase in LIBOR
increases funding costs which reduces the cash flow we receive from, and
the value of, these
securities;
|
·
|
existing
borrowers with adjustable-rate mortgages or higher risk loan products may
incur higher monthly payments as the interest rate increases, and
consequently may experience higher delinquency and default rates,
resulting in decreased cash flows from, and decreased value of, our
mortgage securities; and
|
·
|
mortgage
prepayment rates vary depending on such factors as mortgage
interest rates and market conditions, and changes in prepayment rates may
harm our earnings and the value of our mortgage
securities.
|
·
|
actual
or perceived changes in our ability to continue as a going
concern;
|
·
|
actual
or anticipated changes in the delinquency and default rates on mortgage
loans, in general, and specifically on the loans we invest in through our
mortgage securities;
|
·
|
actual
or anticipated changes in residential real estate
values;
|
·
|
actual
or anticipated changes in market interest
rates;
|
·
|
actual
or anticipated changes in our earnings and cash
flow;
|
·
|
general
market and economic conditions, including the operations and stock
performance of other industry
participants;
|
·
|
developments
in the subprime mortgage lending industry or the financial services sector
generally;
|
·
|
the
impact of new state or federal legislation or adverse court
decisions;
|
·
|
the
activities of investors who engage in short sales of our common
stock;
|
·
|
actual
or anticipated changes in financial estimates by securities
analysts;
|
·
|
sales,
or the perception that sales could occur, of a substantial number of
shares of our common stock by
insiders;
|
·
|
additions
or departures of senior management and key personnel;
and
|
·
|
actions
by institutional
shareholders.
|
·
|
authorize
the issuance of additional shares of common stock or preferred stock
without shareholder approval, including the issuance of shares of
preferred stock that have preference rights over the common stock with
respect to dividends, liquidation, voting and other matters or shares of
common stock that have preference rights over our outstanding common stock
with respect to voting;
|
·
|
classify
or reclassify any unissued shares of common stock or preferred stock and
to set the preferences, rights and other terms of the classified or
reclassified shares; and
|
·
|
issue
additional shares of common stock or preferred stock in exchange for
outstanding securities, with the consent of the holders of those
securities.
|
(dollars in thousands) | ||||||||||||||||
Issuer Purchases of Equity Securities
|
||||||||||||||||
Total Number
of Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under
the Plans or
Programs (A)
|
|||||||||||||
April
1, 2008 – April 30, 2008
|
- | - | - | $ | 1,020 | |||||||||||
May
1, 2008 – May 31, 2008
|
- | - | - | $ | 1,020 | |||||||||||
June
1, 2008 – June 30, 2008
|
- | - | - | $ | 1,020 | |||||||||||
(A)
|
Current
report on Form 8-K was filed on October 2, 2000 announcing that the Board
of Directors authorized the Company to repurchase its common shares, in an
amount not to exceed $9 million.
|
Vote
Results
|
||||
For
|
Against
|
Abstain
|
||
1.
|
Election
of Directors
|
|||
Donald
M. Berman (term expiring in 2011)
|
7,674,535
|
436,729
|
63,245
|
|
For
|
Against
|
Abstain
|
||
2.
|
Approval
of the amendment to Article XI of the Company’s charter
|
6,182,075
|
956,261
|
1,036,173
|
3.
|
Ratification
of Deloitte & Touche LLP as NovaStar Financial, Inc.’s independent
registered public accountants for 2007
|
7,858,379
|
278,241
|
37,889
|
Exhibit No.
|
Description
of Document
|
|
2.11*
|
Servicing
Rights Transfer Agreement, dated as of October 12, 2007, between Saxon
Mortgage Services, Inc. and NovaStar Mortgage, Inc.
|
|
10.20.1
|
Second
and Amended Restated Trust Agreement, dated September 20, 2005, between
NovaStar Mortgage, Inc., JPMorgan Chase Bank, NA, Chase Bank USA, NA and
certain administrative trustees
|
|
10.21.1
|
Amended
and Restated Junior Subordinated Indenture, dated September 20, 2005,
between NovaStar Mortgage, Inc. and JPMorgan Chase Bank,
NA.
|
|
10.552*
|
Confidential
Settlement Term Sheet Agreement, dated March 17, 2008, between American
Interbanc Mortgage LLC, NovaStar Financial, Inc., NovaStar Mortgage, Inc.,
NFI Holding Corp., and NovaStar Home Mortgage,
Inc.
|
10.563
|
Summary
of Oral Agreement, dated May 21, 2008, between NovaStar Mortgage, Inc. and
Kodiak CDO II Ltd.
|
|
10.574
|
Membership
Interest Purchase Agreement, dated as of August 1, 2008, by and among
NovaStar Financial, Inc., PipeFire, LLC, the existing members of PipeFire,
LLC, and certain beneficial owners of such membership
interests
|
|
11.15
|
Statement
Regarding Computation of Per Share Earnings
|
|
31.1
|
Chief
Executive Officer Certification - Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Principal
Financial Officer Certification - Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Chief
Executive Officer Certification - Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Principal
Financial Officer Certification - Section 906 of the Sarbanes-Oxley Act of
2002
|
DATE:
March 20, 2009
|
/s/
W. LANCE ANDERSON
|
|
W.
Lance Anderson, Chairman of the
Board
of Directors and Chief
Executive
Officer
|
||
(Principal
Executive Officer)
|
||
DATE:
March 20, 2009
|
/s/
RODNEY E. SCHWATKEN
|
|
Rodney
E. Schwatken, Chief
Financial
Officer
|
||
(Principal
Financial Officer)
|