Origen Financial

ORGN

Please see disclaimer at bottom of this document

A REIT that originates and services manufactured home loans.

Manufactured Homes : These are homes built entirely in the factory, transported to the site, and installed under a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). The Federal Manufactured Home Construction and Safety Standards (commonly known as the HUD Code) went into effect June 15, 1976. The federal standards regulate manufactured housing design and construction, strength and durability,

transportability, fire resistance, energy efficiency and quality. The HUD Code also sets performance standards for the heating, plumbing, air conditioning, thermal and electrical systems. It is the only federally-regulated national building code. On-site additions, such as garages, decks and porches, often add to the attractiveness of manufactured homes and must be built to local, state or regional building codes.

Who Lives in Manufactured Housing?

January 30, 2008 (3.25)    A Friendly Discussion with an Anonymous Industry Insider

    1.   Spoke with an industry expert, who asked to remain anonymous.  Is concerned that ORGN as a stock, is in a “death spiral.”  Interesting that term was used, as I had used that term several days before in relation to ORGN, but not in relation to this person or any other.

    2.    This person claimed that Freddie did the October securitization with ORGN based on 10% OC, and also disallowed $30M in the deal.  That $30M is sitting in warehouse line.  “Freddie tossed out $30 million and then did 90% of what was left.”

    3.    This person had good things to say about ORGN and Ron Klein.  Says morale is certainly a concern at ORGN and some are concerned with employment and looking elsewhere.  Says that ORGN servicing is top-notch and that ORGN is just at mercy of credit markets.  This person feels Credit Markets could be closed for a long time.  Concerned that since warehouse is with Citigroup, who is itself distressed, is concerning.

    4.    End of the day, this person, when asked if ORGN would survive, said, “I think they will, but I certainly have concerns.”

September 21, 2007 (5.77)

1.                A few 13-G’s filed today.  Halpern and Woodward  still have same shares as 12/31/06.

2.                Davidson filed for his ownership of 3,051,667 or11.6% of shares outstanding.  This includes an apparent proxy of Woodward and Halpern shares.  This filing includes the 1,301,667 shares that are available at a price of 6.24, after bridge financing announced last week. 

September 19, 2007 (5.88)

1.                 I did a quick read of 8K (87 pages), which explained the terms of financing from Davidson. All seemed cool. Davidson is involved with Halpern and Woodward.  I am speculating here, but I  don’t think he would have committed risk capital, if he didn't see potential opportunity. I didn’t see anything toxic in there.

2.                 Some Thoughts:

a.    As I mentioned below, securitizations and commercial paper has had terribly difficult times.  I do not see, and could be wrong, that ORGN did anything here that was not fiduciary or business improper.

b.    The entire industry is in a mess.  ORGN will hopefully weather the storm.  There paper is not sub-prime and they do not use Gain on Sale accounting.

c.    8% financing is not onerous in my eyes.

d.       Davidson has ability to convert shares at $6.24.  This price is greater than current price of 5.80ish.  This seems like a fair deal for ORGN.  Countrywide and Thornburg have done recent deals below book value.  Thornburg had to sell valuable assets at a below market price because of desperation.  ORGN has not done that.

August 21, 2007 (6.00)

Capital markets not giving much comfort to ORGN. Nothing fundamentally has changed since liquidity crunch. Things are getting marked down. ORGN has had some margin calls because of this.

Citi Hinted that liquidity will continue to be dry and is advising to find equity. 

ORGN claims all covenants are intact.  They claim that Citi covenants are the least strenuous of all the covenants, but that they are not available as public information.  ORGN mentioned that the covenants are very light, and nowhere near violation. 

I questioned ORGN as to the following:  “Under worst case scenario, what do you think would happen to ORGN's book value.  Do you see the possibility of bankruptcy, if funding remained difficult and even got worse?  Would you be able to stop the expense outflow, stop funding and still preserve book value.  Hence my question of potential impairment, or worse, any possibility of bankruptcy.”    Their response was something as such.

a.                Bankruptcy not even near possible.

b.                Stock price does not affect covenants.

c.                ORGN needs to maintain shareholders equity of about $30M, currently it is around $215M.

d.                Worst case scenario, they could see tangible book value taking a 10% hit.   Current tangible  book is $6.99 per share (25.9M shares), hence 90% of that would be $6.29.

e.                According to ORGN all remains fine.  Business is fine and liquidity markets have frozen up, and even AAA’s are being marked down to 90% of dollar.

Biggest concern is just a temporary fix and hope that markets get back to normal.  They stressed that business has not been better, and that collections were also better than expected.

June 28, 2007 (6.56)  

I have no idea on price action. The volume during this 5 day drop has been very low.

HUD code and modular shipments are down through April 30. No biggie as far as I am concerned.

Potential of annual MH shipments < 105K. YTD shipments for top 10 states through 4/07 are 16,420, compared to 25,529 last year. NC is only state up in April

http://www.census.gov/const/mhs/shipment.pdf


Weakness of multi sections in Florida, CA and AZ.
 

February 27, 2007    Manufactured Housing Monthly 2/26/07 BB&T Notes

1.                Full year shipments of 117,510 lowest level since 1961.  This is down YoY 19.9%.  If take into account FEMA both years (Katrina), decline would have been 9.7%.

2.                MH Lenders seeing significant strengthening in loan application activity.

3.                Weakness in key states of California, Arizona and Florida.

4.                Projects 120,000 units for 2007, but acknowledges total lack of visibility.

5.                Top 3 lenders have indicated to BB&T they are seeing a relatively sharp up tick in loan applications.  They consider top 3 to be 21^st Mortgage (Berkshire), Origen and Triad (privately held).  Backlogs of manufactures still low, but watch this closely.  One lender mentioned to watch the March backlogs for flow through of application pickup.  One lender claimed FICO  is increasing in the mid 600 FICO, but that verification is stringent.

6.                Loan approval ratios have been steadily improving.

February 7, 2007     13G filings

a.                 Woodward on 12/31/05 13g mentioned that 1,000,000 option shares were included in the total, and that they expired 1/06.  Does not appear to be a sale of 1M shares, but I could be wrong.

b.                Halpern includes the Woodward shares in his filing. I have removed these.  I could be wrong in doing that.

c.                 Shiffman includes 5M shares owned by Sun OFI LLC. I could be wrong in removing them.

December 8, 2006    Bingham Notes - These notes are not put on our website

November 29, 2006    Notes

1.                Items to Discuss

a.                 A few analysts mentioned that they wish you relaxed your credit standards.  They felt that would bring up volume of revenues.  I was wondering yours and Ron's thoughts on that.  I would prefer an answer not being, "we will take that under advisement," or "we explore all avenues."  Personally, I enjoy tight standards, at the sacrifice of current volume.  But you guys are the mavens, and certainly not me.

b.                costs, benefits and disadvantages of eliminating REIT status.

c.                 considerations of buyback and perhaps insider purchases.

d.                Form POS AM filed 5/9/2005, is that the most comprehensive original filing.  It seems like it is just a completed S11.

e.                How is Bingham, Woodward, Sun and Shiffman involved in operations.

f.                   Please discuss the proposed offering of $200M of common stock.  1,540,000 shares at prevailing rates.  What is status.  I am confused on the $200M.

g.                You purchased loans from Sun during 2004, and 2006.  How are the performances of these loans?

h.                 Review beneficial owners below:  On Def14A Halpern owned 1,750,000.  Is this actually owned by Woodward?  Shiffman, according to Def14A owned 5M shares more.  On Edgar shows different, is that because of Sun?

i.                    I am under the assumption there are anti takeover provisions set up this year.  Where is filing and what are they.

j.                    Ask Andy for flow through of all cash and shares issued to start company. 

k.                 Ron/Andy – Who are your favorite companies in the industry.  Do you own any MH companies in your own portfolios as long term core investments.  Would you identify them?

l.                    What % HUD?  What is difference between HUD and modular.  What are current trends?  What are expected trends?

m.              Any Military work?

n.                 How is CountryPlace affecting you.  How do you compare in requirements?  Have you considered merger with them.  I am familiar with a board member and major investor.

o.                How does repo market affect you.

p.                What have credit trends been.  Can these be monitored via your abs reports from the ambac 2006 securitization. 

q.                How can I follow the securitizations. Is there a primary master trust?

r.                   What are you seeing in dealer inventories?

s.                 What is typical square footage of units?  Is that listed in any of the ABS reports on your site.

t.                   CHB said on 10/25/06, “Typical California customer previously paid cash.  They would sell their expensive site home, and purchase with cash a modular, which was much less expensive.”  What does ORGN have to say on that ?

u.                 Why don’t you work with Cavco?  In their 10/20/06 they did mention you as one of the industry channel sources.  They also mentioned 21^st Century (owned by same company as Pampered Chef) and US Bank.

v.                 Have you considered putting your conference calls on Thomson Street Events?

w.               What is your dream scenario for the industry?

x.                 Do you read Grant’s Interest Rate Observer?

y.                 What is typical down payment?  What is required down payment?

z.                 How large is TX business?

aa.            With housing slowdown, do you think you could get mortgage brokers to start working with you?  Have you seen any change in that regard?

bb.           Can you explain the hedging.  When would one expect to make money hedging?  What were the dynamics to cause the losses in 3Q06 versus gains 3Q05?

2.                According to ORGN, “GAAP accounting specifies that loan loss reserves should reflect "inherent" losses.  Inherent losses are those that are identifiable based on an observed characteristic of a loan, such as delinquency status, a deterioration in the loan collateral, a known condition of the borrower that would indicate an inability to pay, etc.  Also, GAAP accounting requires a matching of revenues and expenses by period.  Accordingly, recognition must be given to the timing of the anticipated loan loss, since revenue is recognized over the term of the loan.”

3.                According to ORGN on 9/25/06 there are 275 employees.  All executive officers listed in the IPO prospectus are still with the company.

4.                According to ORGN, “For 2006 year to-date, Santiago Financial,  Manufactured Home Mortgage, San Jose Advantage Homes, U.S. Financial Networks and Western Finance are our five largest customers, representing about 20% of our loan fundings.”

5.                According to ORGN, “In addition to our auditors, Grant Thornton, our major service providers and vendors would include the law firm of Hunton & Williams (loan securitization transactions), the law firm of Jaffe, Raitt, Heuer & Weiss (general corporate legal), the major credit bureaus (customer credit reports), JP Morgan Chase (banking services to include loan custodial functions and trustee services relating to our securitization transactions) and American Modern Insurance Company (force-placed casualty insurance on the loans we service).”

6.                 Beneficial Ownership I constructed.  Could have errors.

7.                PHHM mentioned on 10/18/06 CC that “more and more of secondary buyers, whether that is Fannie, Freddie, Hud or just investor buyers are putting loans back on originators, which is causing them to tighten standard significantly….”

a.                 They mentioned that average down payment is “about 17%.  We require as low as 5%.

b.                Mentioned they are working through “title 1” reform.  I need to learn more about that , and see if ORGN is affected at all.

c.                 Mentioned that Berkshire lenders were heavy in volume.

d.                Average fico 680 – 690.

e.                HUD is strong.

f.                   Wrote off an investment in BankSource Mortgage.

8.                Run Altman Z

9.                Quick thought….. If ORGN sees improvement, maybe customers see improvement.  Hometown America is not listed, as they are privately owned.   "They are a major MH community owner, and our most significant source of third party fee income."

a.                 CAVALIER HOMES IN (CAV) "Cavalier is a good source of chattel loans for us, but actually competes with us in the land/home category."

b.                CHAMPION ENTERPRISES (CHB)  "Champion is a major manufacturer of MH and we do a good bit of business with their retail arm, but they seem to be moving out of the retail side."

c.                 FLEETWOOD ENTERPRISES (FLE)  "Fleetwood, another major manufacturer, is a good source of loans for us, from their independent retail operations."

d.                PALM HARBOR HOMES (PHHM) "Palm Harbor, also a manufacturer, is a competitor through their CountryPlace finance subsidiary."

e.                SUN COMMUNITIES INC (SUI) "Communities (owner of 20% of our stock) is a community owner/operator/developer and has been a minor source of loan business and also a source of third party income from loan processing and servicing."

10.           Champion CC on 10/25/06

a.                 HUD code business in an accelerated decline over last few quarters.  Primarily in California and Florida.  Doesn’t envision pick up at least till 2Q07.  Yet does see an improvement, just might not show till mid year.

b.                4^th quarter seasonally slow.

c.                 “ we can clearly see credit standards in the site-built  market tightening up, and that is definitely going to have a positive impact on the manufactured housing customer.”  They are surprised they haven’t seen this change yet.

d.                Typical California customer previously paid cash.  They would sell their expensive site home, and purchase with cash a modular, which was much less expensive. 

11.           Champion Analyst meeting on November 7 and 8, 2006

a.                 MH weakness driven by California, Arizona and Florida.

b.                Expects rebound “sometime in 2007.”

c.                 Expects 130,000 units shipped in 2007.  I have seen recent guesses for 2006 at 122,500.  Those estimates have already been reduced twice this year from 140,000, to 125,000.

d.                Discussed  a modular sub-division project in Charlotte.  They claim that attendees saw products were comparable to site built.  Claims 1/3 the price ($150 Sq. Foot site built).

e.                Implied a HUD code CAGR rate of 20% for next 5 years.

12.           Cavco 10/20/06 CC.

a.                 January through March is typically strongest quarter.  October through December is typically weakest, with a shut down in last two weeks of December.

b.                Competition from site houses is because they do not require a down payment.  Tuff to compete with.

c.                 Good reception in Texas.  I am not certain, but seems like new industry for them.  I remember being at a MH conference a few weeks ago.  They said watch Texas because of the massive amount of available land, traditionally a good area and multi-generations are used to MH living.

13.           I read a report from BB&T Manufactured Housing Monthly.  They cite http://www.manufacturedhousing.org/default.asp as a source of information.  From their report, I quickly constructed the following:

                        Originations question for 3Q06

They claim that Vanderbilt lends to 450 Clayton owned dealer network, whereas 21^st Century lends to independent dealers.  They again claim the data is manipulated from “trade magazine advertisements.”

I made the following table from some of their data:

March 29, 2006    CC Notes 3/14/06

1.                “Year-over-year shipments for single section homes were up over 200% reflecting that demand, while shipments for multi-section homes, which are the core of our business, were down over 5%.” 

2.                “We believe that manufactured housing will do well in areas where there is a clear affordability advantage for manufactured housing versus site built, and this can also be seen in December's shipment data where shipments were up in 19 states and down in 24 states.”

3.                “We are hopeful as we move through 2006 that the continued abatement of the repo overhang, as well as higher interest rates that we have been seeing for the past several months, will translate into higher demand for manufactured housing as the affordability factor of manufactured housing comes into play.”

4.                “In this type of market, we believe adhering to credit guidelines is paramount.  Unlike many of our competitors, we are not relaxing our credit, waiving conditions, or otherwise returning to some of the common practices of several years ago that contributed to the implosion of our industry.”

5.                “The credit performance of our loan portfolio has thus far exceeded our expectations.  At the end of February, our 30-day plus delinquency number was at a company record low and our delinquent dollars were lower than our year ago numbers, while we did increase our loan portfolio by over $200 million.”

6.                “We expect to resume the payment of a dividend in the first quarter of '06.”

7.                “The amount outstanding on our Citigroup loan warehouse facility at December 31st '05 was 65.4 million which represents approximately 33% utilization of the capacity of that facility.”

8.                “And roughly, while 65% of our loans have 700 plus FICO, that means 35% are less than 700, including some at the, you know, 620 mark as well.  What we really see is that many of our competitors are still offering and pushing 30-year loans, as opposed to ours where we're trying to drive down the term because that builds value dramatically.”

9.                “And, depending on the various market, we see different competitors.  We see banks.  We see credit unions.  You know, we do see, you know, obviously, you know, Berkshire's independent ARM is out there that we compete against, you know, and they're formidable.  And, you know, that would be the basic biggest captive out there.”

10.           “The second thing is that as we -- as time passes and the deals continue to perform, that capital gets unlocked and gets returned to us.  So, you know, we're anxiously awaiting that occurrence too, but typically there's a four-year lockout.”

Just Some Notes:

1.  Institutional Holdings as of 3/24/06