Hanover Capital Sees Loss, May Consider Sale of Subsidiary

Hanover Capital Mortgage Holdings reported a net loss of $700,000, or $0.08 per share, in the first quarter of 2006, citing lower operating income in the company's real estate investment trust segment.

The company also said it has hired Stifel Nicolaus & Co. to review strategic options for its non-REIT subsidiary, including a possible sale.

The company said the REIT's decline in operating income was the result of lower gain on sale related to mortgage assets. In the first quarter of 2005, Hanover Capital achieved $2.3 million in gain-on-sale income from mortgages, compared to a slight loss in the first quarter of this year.

President and CEO John Burchett said in the company's earnings release that Hanover's focus on growing the portfolio, as well as market conditions, have diminished gain-on-sale income.

"The portfolio of subordinate mortgage-backed securities continues to grow and perform well. The carry value of $126.2 million at the end of the first quarter 2006 represents an increase of over $19 million in carry value from the year-end 2005 and an increase of $59.8 million over the balance as of March 31, 2005. We expect that this continued growth will be the basis for improved results in the remaining quarters of 2006," Mr. Burchett said.

He said the company is continuing to make a transition from relying primarily on gain-on-sale income to relying primarily on net interest income for its earnings.

Hanover Capital cited earnings volatility in its non-REIT operating subsidiary as one factor behind the decision to pursue a possible sale. Those operating units are Hanover Capital Partners and HanoverTrade. HCP provides consulting and outsource services to the mortgage industry. HanoverTrade provides technology solutions and loan sale advisory services. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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