ClearPoint Recent Developments

The Company acquired ClearPoint on January 3, 2011 with the intent to add an element of competitive differentiation for the Company’s MBS Business. That differentiation was to have been achieved by offering customers of the Company’s MBS Business, institutional investors, the ability to purchase mortgage backed securities backed by loans that conformed to customized specified pool characteristics. ClearPoint intended to originate loans according to customers’ desired specifications, deliver those loans to a Government Sponsored Enterprise (GSE, or FNMA, FHLMC, or GNMA) in exchange for a security backed by those loans, and sell that security to the Company’s MBS unit – for onward sale to the MBS unit’s customers. The strategy required ClearPoint to have GSE seller servicer approvals, the application for which required the development of adequate infrastructure, and sustained profitability in the ClearPoint subsidiary as a standalone business unit.

ClearPoint is a “wholesale third party originator” of conforming residential loans. The original business strategy included three options for the sale of loans that ClearPoint originates, namely: 1. sell to “aggregators” (who may retain the loans for their balance sheets, or deliver them to a “GSE window”); 2. sell to a GSE “window” for cash; 3. sell to a GSE window and receive a GSE security in return – for onward sale, as described above, through the Company or other broker dealers, to MBS buyers. Since inception, without GSE approvals, ClearPoint has been forced to sell all the loans it originates to aggregators.

Since implementing our mortgage origination strategy, beginning with the acquisition of ClearPoint, market dynamics have changed dramatically. As the effects of the mortgage crisis have rippled through the market, representation and warranty risk remains an intense focus. Moreover, as mentioned above, without GSE approvals, ClearPoint is confined to selling loans to a limited universe of aggregators, thus providing no benefit to the Company’s MBS customers. These factors have led the Company to conclude that the commercial prospects for its mortgage origination activity have greatly diminished. The Company has decided it will therefore pursue a sale of the ClearPoint business.

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