Clayton Sees Opportunity to Grow Special Servicing

Clayton Holdings, a provider of information-based analytics, turned in a modest profit from continuing operations in the first quarter, but the company still reported a net loss because of charges related to discontinued earnings.

But the company's leaders say they are well positioned for growth in the long term and are pinning some of their hopes on the special servicing business.

In a conference call with investors and analysts to discuss first-quarter results, Clayton chairman and CEO Frank Filipps said that the evolving subprime market will create increased demand for the company's surveillance and special servicing businesses.

Clayton has doubled its capacity in its Tampa, Fla., office, to take advantage of anticipated growth opportunities.

Clayton currently services about 4,000 loans, but Mr. Filipps said the company recently signed a new client and is in negotiations with other possible clients. Clayton was recently added to Standard & Poor's Select Servicer List.

"Now, as a ranked special servicer, we will be able to service loans that have been securitized," he said. "We believe that in this business, we are firmly positioned for growth."

Clayton executives said they expect their loan servicing count will grow during the second quarter.

Clayton reported $1.6 million in net income from continuing operations, but the result of discontinued operations caused the firm to report a net loss of $2.3 million. The company is in the process of closing its Clayton Lender Solutions unit and hopes to be out of that business by the end of the second quarter. Earlier, Clayton had estimated that the total charges of closing the unit would be in a range of $5.3 million to $5.7 million.

But despite the loss, Clayton showed some promising trends in the first quarter. The company said it had a gross profit of $19.6 million, up from $16 million in the first quarter of last year.

What pushed Clayton into the red in its first-quarter financial report was the results from discontinued operations. But the company also faced difficult market circumstances in its business of providing services to companies involved in the securitization of nonconforming home loans.

Mr. Filipps said that despite a 22% decline in subprime securitization volume compared with the year-earlier period, Clayton was able to maintain revenue and increase its gross profit and income from continuing operations.

But he said the first-quarter results are "a testament to our diversification and productivity efforts."

In addition to being added to S&P's Select Servicer List, he noted that Clayton also acquired a risk management business in Europe. That business, Clayton Euro Risk, provides due diligence services to the securitization market in Europe. Mr. Filipps said he believes there is significant growth opportunity in the nascent world of providing surveillance for mortgage securitizations in Europe.

Currently, that European market, with offices in England, Italy and the Netherlands, produces about $3 million to $4 million a year in revenue, he said.

Clayton Holdings reported that revenue from centralized underwriting grew 42% from the year-earlier period and represented 36% of total field due diligence and centralized underwriting revenue. Reviews were performed on approximately 200,000 loans during the first quarter, about the same as last year, the company said.

As of March 31, Clayton Surveillance was monitoring $438 billion in assets, primarily for investment banks and for institutional investors in mortgage-backed securities. That was an increase of $120 billion, or 38%, from one year earlier.

Revenue from the surveillance business grew more than 56% to $12 million, accounting for 22% of total revenue in the first quarter.

The company said its gross profit margin was nearly 37% in the first quarter, up from 30% in the year-earlier period.

The company reported $1.7 million of revenue from special servicing in the first quarter, up 3.3% from the year-earlier period. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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