Opteum Faces ‘Going Concern’ Allegations

After a research report issued today by Friedman, Billings, and Ramsey Group, Inc. analyst Merrill Ross questioned whether Opteum Inc. (NYSE:OPX) faces issues as a going concern, the Florida-based REIT has gone on the offensive to counter allegations regarding the company’s future.

The FBR report highlights a growing concern over the Alt-A credit sector as problems in the subprime credit industry appear on many accounts to be spreading into Alt-A lending.

Housing Wire had originally reported on the problems at Opteum on February 15, noting at the time that the company’s $33.9 million fourth quarter loss during 2006 might be indicative of emerging problems in the Alt-A credit sector.

The FBR report questions whether the company will continue to be able to secure covenant waivers on its warehouse lines of credit, a claim Opteum disputed by noting that is “has secured all waivers needed to date.” The company did not, however, comment on potential warehouse liabilities it may face going forward, but disclosed that it has incurred $8 million in margin calls on its warehouse lines during 2007.

Like many lenders that had originated subprime loans, Opteum stressed that it no longer originates within the subprime credit class, and that its overall exposure to subprime mortgages is small — a claim that is being echoed by many firms as of late, including both Countrywide and Indymac.

Opteum said it has produced approximately $44 million of subprime mortgages in 2007, representing approximately 4.8 percent of 2007 year-to-date loan production of approximately $916 million. Forty-four percent of the $44 million in subprime mortgages were underwritten by a third party buyer and sold directly to that buyer, the company said. The company did not disclose whether it stopped originating of its own accord or because of a lack of investor funding to originate futher subprime loan product.

Taking the most heated issue with Ross’ claim that Opteum may face questions as a going concern, the company said that it “continues to believe it has very adequate liquidity,” saying that it currently owns approximately $3 billion in agency mortgage related assets.

Ross had also noted her opinion that the company may be overvaluing the carrying value of its servicing rights and residuals in an effort to offset losses, a claim that Opteum also disputed.

“The company continues to believe that the carrying value of the servicing rights on its balance sheet correctly reflects the value of the servicing rights,” Opteum said in a press statement. “The changes in the value of the servicing rights have been related to changes in prepayment speed assumptions. The changes in prepayment assumptions also apply to our retained interests in securitizations. Losses continue to run, in the aggregate, in line with expectations.”

Addressing Opteum’s responses to her original report, Ross later authored a second report affirming her stance on the company in a subsequent research update posted for subscribers to FBRDirect, the company’s investment brokerage service.

For more information, visit http://www.fbrdirect.com and http://www.opteum.com.