Clayton Takes Subprime Hit

Clayton Holdings, Inc., mostly known for its mortgage analytics and secondary market due diligence services, reported a second quarter loss of $400,000 this morning, compared to net earnings of $2.4 million in the year-ago period. Revenue for the quarter dipped 28 percent from the second quarter of 2006. The second quarter woes added to what has been a rough first half this year for Clayton’s various businesses, with first-half losses totalling $2.6 million.

“As expected, the continuing turmoil in the subprime market significantly reduced our transaction management volumes and revenues in the quarter. Subprime securitization volumes have declined 42% from last year and our volumes declined similarly,” said Frank Filipps, Chairman and Chief Executive Officer of Clayton. “Our gross profit margin, however, continued to be strong, reaffirming the effectiveness of our variable cost business model and the shift in our revenue mix to higher margin products. We also had strong revenue growth in our Surveillance business. We will continue to emphasize our recurring-revenue businesses: Surveillance and Special Servicing … “

In spite of net losses, the company’s surveillance business has seen some significant growth as of late. The company reported that as of the end of the second quarter, Clayton Surveillance was monitoring approximately $465 billion in assets, primarily for investment banks and for institutional investors in mortgage-backed securities — an increase of $111 billion, or a 31.5 percent increase from year-ago levels. Revenues from the company’s surveillance business increased by more than 53 percent to $12.6 million in the quarter, as a result, accounting for 29.3 percent of the firm’s total revenues. Speaking of survellience, Tanta over at CR had an interesting post yesterday about the re-emergence of due diligence in the mortgage industry.

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