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Clayton Emphasizes Surveillance as Issuance Withers

Clayton Holdings, a provider of analytics, consulting and outsourced services here, reported a loss of $91.7 million in the fourth quarter, reflecting a loss of $92.8 million related to impairment of goodwill and other assets in its transaction management business.

However, the company said that excluding impairment and losses related to the extinguishment of debt, its adjusted net income from continuing operations was $3.5 million, or $0.16 per share.

Frank Filipps, chairman and CEO of the company, said the impairment reflects a prolonged downturn in the nonprime mortgage securities business.

"The new issuance market for nonconforming securities remained virtually shut down in the fourth quarter and our volumes were negatively impacted. However, our strong cash generation enabled us to repay $25 million of debt and renegotiate our bank credit facility, giving us greater flexibility to weather this market," Mr. Filipps said in a news release.

On a conference call for investors and analysts, Mr. Filipps said Clayton's transaction management business depends upon new issuance of mortgage securities for volume. He noted that in December 2007, just $1.5 billion in alt-A and subprime MBS issuance occurred, compared with $80 billion in December of 2006.

At the end of 2007, Clayton Surveillance was monitoring approximately $454 billion of assets for investment banks and institutional investors in mortgage-backed securities. The surveillance business generated $10.4 million of revenue during the fourth quarter.

Mr. Filipps said that revenue from the company's special servicing and surveillance businesses is more predictable than transaction management business. But he said the company plans to keep its due diligence and other transaction management capabilities intact, believing that the market will eventually make a comeback.

Mr. Filipps said the company's decision to share information with the New York State attorney general in exchange for immunity reflects the company's best interests. He said the decision has been discussed with Clayton's clients. "We believe they understood the nature of the agreement and why Clayton entered into the agreement."

Clayton's CEO, Mr. Filipps, formerly headed Radian Guaranty, one of the nation's biggest mortgage insurers. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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