Origen Left Out in the Cold

Origen Financial (ORGN) is officially shut out of the game. Origen, a manufactured home lender and residential mREIT, was one of the last remaining "active" mREITs still doing business during fourth quarter 2007. (Active mREITs act like banks by originating, holding and securitizing mortgages and mortgage-backed securities.) Still, as I noted in this post from January, securing cheap financing is critical for Origen. As the Company noted in its 10-Q, "[c]ontinued access to the securitization market is very important to our business." If Origen cannot attractively price future securitizations, the Company has few alternatives for financing its originations.

Well, the tide never turned for Origen, which reported just that very news in its late night fourth-quarter earnings release. From the earnings release:

Origen's business model is dependent on the availability of credit, both for the funding of newly originated loans and for the periodic securitization of pools of loans that have been originated and funded by short-term borrowings from warehouse lenders. The securitization process permits Origen to sell bonds secured by the loans it has originated. The proceeds from the bond sales are used to pay off the warehouse lenders and recharge the availability of funding for newly originated loans. If warehouse funding is not available, or is available only on terms that do not permit Origen to profit from loan origination, Origen's origination of loans only can be continued at a loss. If there is no market for securitization at rates of interest and leverage levels acceptable to Origen, Origen's only alternative for satisfying its obligations under its warehouse line is to sell the manufactured housing loans to a purchaser. If purchasers are unwilling to pay at least the full amount advanced to borrowers plus all related fees and costs, sales of loans are not profitable for Origen.

As the capital markets have not recovered since the summer 2007 seize, Origen has run out of time to free up more capital for origination.

In February 2008, to satisfy its primary lender, the company sold an asset-backed bond for $22.5 million, in order to fully pay off $19.6 million of obligations secured by this bond and three others that the company continues to hold. Sale of this bond resulted in the company recording an asset impairment charge in 2007 of $9.2 million.

Origen's warehouse facility, which has an outstanding loan balance of approximately $146.4 million, expires on March 14, 2008. As Origen depends on securitization of its loans to pay down its warehouse line, the absence of a profitable financing in the securitization market requires that Origen sell its loans that are currently on its warehouse line in order to pay off the warehouse line.

The absence of a profitable exit in the securitization market and reduced pricing in the whole loan market requires that Origen suspend originating loans for its own account until these markets recover.

Shares tanked on the news, dropping below the $1/share mark for part of the trading day. Not surprisingly, management is evaluating a potential sale of some or all of the Company. The credit crunch claims another victim.