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SECURITIES AND EXCHANGE COMMISSION  
 FORM 10-Q/A 
 
 (Amendment No. 1) 
 [X]  Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2004. OR [  ]  Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From  to COMMISSION FILE NUMBER 000-50721 Origen Financial, Inc.  Delaware
(State of Incorporation)
    
    20-0145649
(I.R.S. Employer Identification No.)
 27777 Franklin Rd.
Suite 1700
Southfield, MI
(Address of Principal Executive Offices)
    
    48034
(Zip Code)
 Registrants telephone number, including area code: (248) 746-7000 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [  ] Number of shares of Common
Stock, $.01 par value, outstanding as of August
13, 2004: 25,230,150 
 Indicate by check mark
whether the registrant is an accelerated filer (as defined in rule
12b-2 of the Exchange Act). Yes [  ] No [X]




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EXPLANATORY NOTE: This
Amendment No. 1 to the Registrants Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2004 (the
Quarterly Report) is filed to (a) amend Part I, Items 1,
2, and 3, to correct an error in applying accounting principles to a
pool of loans acquired at a discount in October 2003, and (b) amend
Part I Item 4 to disclose certain steps the Registrant intends to
take to remediate deficiencies in its internal control over financial
reporting. Interest income was recorded on the contractual interest
rates of the loans in the pool instead of the estimated constant
effective yield on the pool. The effect of the correction reduced net
interest income by approximately $260,000 and $590,000 and increased
other loan origination and servicing expenses by approximately
$17,000 and $55,000 for the three and six months ended June 30, 2004,
respectively. Except as otherwise described above, no other changes
have been made to the Quarterly Report. This Amendment does not
otherwise attempt to update the information set forth in the
Quarterly Report.




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Origen Financial, Inc. Index PagePart I
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets - as of June 30, 2004 and
December 31, 2003
    
    
    3Consolidated Statements of Operations for the periods
ended June 30, 2004 and 2003
    
    
    4Consolidated
Statements of Comprehensive Income (Loss) for the periods
ended June 30, 2004 and 2003
    
    
    5Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and 2003
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    36Part II
    
    Other InformationItem 2.
    
    Changes in Securities and Use of Proceeds
    
    
    37Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    37Signatures
    
    
    38Exhibit
IndexCertification of Chief Executive Officer to Section 302Certification of Chief Financial Officer to Section 302Certification of CEO and CFO to Section 906




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Part I 
 Item 1. Financial Statements Origen Financial, Inc. 
 Consolidated Balance Sheet
(In thousands, except share data) June 30, 2004 and December 31, 2003 
 (Unaudited)June 30,
    
    December 31,2004
    
    2003(Restated)ASSETSAssetsCash and equivalents
    
    $
    14,540
    
    
    $
    6,926Restricted cash
    
    
    6,531
    
    
    
    6,017Loans receivable, net of allowance for losses of
$4,547 and $3,614, respectively
    
    
    454,703
    
    
    
    368,040Investments held to maturity
    
    
    34,658
    
    
    
    Furniture, fixtures and equipment, net
    
    
    2,268
    
    
    
    2,476Goodwill
    
    
    32,277
    
    
    
    32,277Other assets
    
    
    27,043
    
    
    
    28,337Total assets
    
    $
    572,020
    
    
    $
    444,073LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesWarehouse financing
    
    $
    130,989
    
    
    $
    273,404Securitization financing
    
    
    183,406
    
    
    
    Repurchase agreements
    
    
    21,554
    
    
    
    Notes payable  servicing advances
    
    
    
    
    
    
    4,037Recourse liability
    
    
    5,678
    
    
    
    8,740Other liabilities
    
    
    13,859
    
    
    
    15,572Total liabilities
    
    
    355,486
    
    
    
    301,753Stockholders EquityPreferred stock, $.01 par value, 10,000,000 shares
authorized; 125 and -0- shares issued and outstanding
at June 30, 2004 and December 31, 2003, respectively
    
    
    125
    
    
    
    Common stock, $.01 stated value, 125,000,000 shares
authorized; 25,118,400 and 15,060,000 shares issued and
outstanding at June 30, 2004 and December 31, 2003,
respectively
    
    
    251
    
    
    
    152Additional paid-in-capital
    
    
    218,714
    
    
    
    143,289Accumulated other comprehensive loss
    
    
    
    
    
    
    (20
    )Unearned stock compensation
    
    
    (3,561
    )
    
    
    (1,114
    )Retained earnings
    
    
    1,005
    
    
    
    13Total stockholders equity
    
    
    216,534
    
    
    
    142,320Total liabilities and stockholders equity
    
    $
    572,020
    
    
    $
    444,073
 
 The accompanying notes are an integral part of these financial statements. 3




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Origen Financial, Inc. 
 Consolidated Statement of Operations (Unaudited)
(In thousands, except share data) For the periods ended June 30, 2004 and 2003 
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(Restated)
    
    
    
    
    
    (Restated)Interest IncomeTotal interest income
    
    $
    10,034
    
    
    $
    5,161
    
    
    $
    18,804
    
    
    $
    10,205Total interest expense
    
    
    3,296
    
    
    
    4,509
    
    
    
    6,315
    
    
    
    7,193Net interest income before loan losses
    
    
    6,738
    
    
    
    652
    
    
    
    12,489
    
    
    
    3,012Provision for credit losses
and recourse liability
    
    
    1,531
    
    
    
    1,214
    
    
    
    3,422
    
    
    
    1,839Net interest income (loss) after loan losses
    
    
    5,207
    
    
    
    (562
    )
    
    
    9,067
    
    
    
    1,173Non-interest income
    
    
    3,014
    
    
    
    2,749
    
    
    
    5,895
    
    
    
    5,119Non-interest ExpensesPersonnel
    
    
    4,915
    
    
    
    4,812
    
    
    
    9,317
    
    
    
    9,024Loan origination and servicing
    
    
    263
    
    
    
    298
    
    
    
    653
    
    
    
    610Write down of residual interest
    
    
    
    
    
    
    1,280
    
    
    
    
    
    
    
    1,280State business taxes
    
    
    73
    
    
    
    5
    
    
    
    163
    
    
    
    4Other operating
    
    
    1,578
    
    
    
    2,324
    
    
    
    3,174
    
    
    
    4,060Total non-interest expense
    
    
    6,829
    
    
    
    8,719
    
    
    
    13,307
    
    
    
    14,978NET INCOME (LOSS)
    
    $
    1,392
    
    
    $
    (6,532
    )
    
    $
    1,655
    
    
    $
    (8,686
    )Weighted average common
shares outstanding
    
    
    20,580,155
    
    
    
    N/A
    
    
    
    18,133,264
    
    
    
    N/AWeighted average common
shares outstanding, diluted
    
    
    20,889,013
    
    
    
    N/A
    
    
    
    18,393,586
    
    
    
    N/AEarnings per common share:Basic
    
    $
    0.07
    
    
    
    N/A
    
    
    $
    0.09
    
    
    
    N/ADiluted
    
    $
    0.07
    
    
    
    N/A
    
    
    $
    0.09
    
    
    
    N/ACommon
dividends declared
    
    $
    0.04
    
    
    
    N/A
    
    
    $
    0.04
    
    
    
    N/A
 
 The accompanying notes are an integral part of these financial statements. 4




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Origen Financial, Inc. 
 Consolidated Statement
of Other Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share data) For the periods ended June 30, 2004 and 2003 
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003(Restated)
    
    
    
    
    
    (Restated)Net income (loss)
    
    $
    1,392
    
    
    $
    (6,532
    )
    
    $
    1,655
    
    
    $
    (8,686
    )Unrealized gain on interest rate swaps
    
    
    5
    
    
    
    
    
    
    
    20
    
    
    
    Comprehensive income (loss)
    
    $
    1,397
    
    
    $
    (6,532
    )
    
    $
    1,675
    
    
    $
    (8,686
    )
 
 The accompanying notes are an integral part of these financial statements. 5




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Origen Financial, Inc. 
 Consolidated Statement of Cash Flows (Unaudited)
(In thousands, except share data) 
 For the six months ended June 302004
    
    2003(Restated)Cash Flows From Operating ActivitiesNet income (loss)
    
    $
    1,655
    
    
    $
    (8,686
    )Adjustments to reconcile net income (loss) to
cash used in operating activities:Provision for credit losses and recourse liability
    
    
    3,422
    
    
    
    1,839Impairment of residual interest
    
    
    
    
    
    
    1,280Depreciation and amortization
    
    
    1,881
    
    
    
    1,573Originations of loans held for sale
    
    
    (121,374
    )
    
    
    (87,535
    )Principal collections on loans held for sale
    
    
    30,696
    
    
    
    16,862Proceeds from the sale of loans
    
    
    
    
    
    
    5,754Increase in other assets
    
    
    (5,022
    )
    
    
    (5,889
    )Decrease in accounts payable and other liabilities
    
    
    (4,529
    )
    
    
    (213
    )Net cash used in operating activities
    
    
    (93,271
    )
    
    
    (75,015
    )Cash Flows From Investing ActivitiesPurchase of investment securities
    
    
    (34,270
    )
    
    
    Capital expenditures
    
    
    (186
    )
    
    
    (730
    )Net cash used in investing activities
    
    
    (34,456
    )
    
    
    (730
    )Cash Flows From Financing ActivitiesNet proceeds from issuance of preferred stock
    
    
    95
    
    
    
    Net proceeds from issuance of common stock
    
    
    73,107
    
    
    
    Proceeds from sale of repossessed homes
    
    
    4,304
    
    
    
    3,452Dividends paid
    
    
    (663
    )
    
    
    Proceeds from warehouse and securitization financing
    
    
    425,388
    
    
    
    426,125Repayment of warehouse and securitization financing
    
    
    (362,853
    )
    
    
    (383,261
    )Proceeds from minority interest investment
    
    
    
    
    
    
    30,780Net change in notes payable  servicing advances
    
    
    (4,037
    )
    
    
    (364
    )Net cash provided by financing activities
    
    
    135,341
    
    
    
    76,732NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    7,614
    
    
    
    987Cash and cash equivalents, beginning of period
    
    
    6,926
    
    
    
    257Cash and cash equivalents, end of period
    
    $
    14,540
    
    
    $
    1,244Supplemental disclosures of cash flow information:Interest paid
    
    $
    6,315
    
    
    $
    6,903Non cash financing activities:Restricted common stock issued as unearned compensation
    
    $
    3,200
    
    
    $
    
 
 The accompanying notes are an integral part of these financial statements. 6




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Origen Financial, Inc. 
 Notes to Consolidated Financial Statements (Unaudited) Note A  Basis of Presentation 
 These unaudited consolidated financial statements of Origen Financial, Inc., a
Delaware corporation (the Company) at June 30, 2004 and for its predecessor
Origen Financial, L.L.C. for the three and six months ended June 30, 2003, have
been prepared pursuant to the Securities and Exchange Commission (SEC) rules
and regulations and should be read in conjunction with the restated consolidated
financial statements and notes thereto for the period ended December 31, 2003,
included in Amendment No. 1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2004. The
following notes to consolidated financial statements present interim
disclosures as required by the SEC. The accompanying consolidated financial
statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements. All such adjustments
are of a normal recurring nature. Certain reclassifications have been made to
prior periods financial statements in order to conform with current period
presentation. Results for interim periods are not necessarily indicative of
the results that may be expected for a full year. 
 The results of operations for the three and six months ended June 30, 2003 are
those of Origen Financial, Inc.s predecessor company, Origen Financial, L.L.C.
Origen Financial L.L.C. relied heavily on high cost short-term borrowings to
fund day-to-day operations due to a lack of significant permanent capital. This
lack of capital combined with losses incurred from underperforming loans
originated prior to year 2002 (referred to as legacy loans), resulted in
significant net operating losses prior to the commencement of Origen Financial,
Inc.s operations. Note B  Per Share Data Basic earnings per share are computed by dividing net income (loss) available
to common shareholders by the weighted average common shares outstanding.
Diluted earnings per share reflect the potential dilution that would occur if
dilutive securities were exercised or converted into common stock. 7




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic earnings per share calculation at June 30,
2004 (in thousands except earnings per share): Three Months Ended
June 30,
    
    Six Months Ended
June 30,2004
    
    2003
    
    2004
    
    2003Numerator:Net income
(loss)
    
    $
    1,392
    
    
    $
    (6,532
    )
    
    $
    1,655
    
    
    $
    8,686Preferred
stock dividends
    
    
    (4
    )
    
    
    
    
    
    
    (8
    )
    
    
    Income (loss)
available to common shareholders
    
    $
    1,388
    
    
    $
    (6,532
    )
    
    $
    1,647
    
    
    $
    (8,686
    )Denominator:Weighted
average common shares for basic EPS
    
    
    20,580
    
    
    
    N/A
    
    
    
    18,133
    
    
    
    N/AEffect of
dilutive securities:Restricted
stock awards
    
    
    309
    
    
    
    N/A
    
    
    
    261
    
    
    
    N/AWeighted
average common shares for diluted EPS
    
    
    20,889
    
    
    
    N/A
    
    
    
    18,394
    
    
    
    N/ABasic EPS
    
    $
    0.07
    
    
    
    N/A
    
    
    $
    0.09
    
    
    
    N/ADiluted EPS
    
    $
    0.07
    
    
    
    N/A
    
    
    $
    0.09
    
    
    
    N/A
 Note C  Stock Options The Company has elected to measure compensation cost using the intrinsic value
method in accordance with APB Opinion No. 25 Accounting for Stock Issued to
Employees. Accordingly, since all options were granted at a fixed price not
less than the fair market value of the Companys common stock on the date of
grant, no compensation cost has been recognized for its stock option plan. Had
stock option costs of the plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the methodology of SFAS
123, the pro forma effects on the Companys net income and earnings per share
would be as follows for the periods ended June 30, 2004 (in thousands except
income per share): Three Months
    
    Six MonthsEnded
    
    EndedJune 30, 2004Net income
available to common shareholders
    
    $
    1,388
    
    
    $
    1,647Stock option compensation cost
    
    
    (3
    )
    
    
    (6
    )Pro forma
net income available to common shareholders
    
    $
    1,385
    
    
    $
    1,641Basic income per share as reported
    
    $
    0.07
    
    
    $
    0.09Stock option compensation cost
    
    
    
    
    
    
    Pro forma basic income per share
    
    $
    0.07
    
    
    $
    0.09Diluted income per share as reported
    
    $
    0.07
    
    
    $
    0.09Stock option compensation cost
    
    
    
    
    
    
    Pro forma diluted income per share
    
    $
    0.07
    
    
    $
    0.09
 8




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) Note D  Investments The Company follows the provisions of Statement of Financial Accounting
Standards No. 115 (SFAS 115), Accounting For Certain Investments in Debt and
Equity Securities, in reporting its investments. At June 30, 2004 the
Companys investments consisted of two asset backed securities with principal
amounts of $32.0 million and $3.1 million. The securities are collateralized
by manufactured home loans and are classified as held-to-maturity. They have
contractual maturity dates of July 28, 2033 and December 28, 2033,
respectively. The securities are carried on the Companys balance sheet at
amortized cost of $34.7 million which approximates their market value at June
30, 2004. Note E  Allowance for Credit Losses and Recourse Liability The allowance for credit losses and related additions and deductions to the
allowance were as follows for the periods ended June 30 (in thousands): Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2004
    
    2003
    
    2004
    
    2003Balance at beginning of period
    
    $
    4,151
    
    
    $
    2,762
    
    
    $
    3,614
    
    
    $
    2,743Provision for loan losses
    
    
    1,531
    
    
    
    1,214
    
    
    
    3,422
    
    
    
    1,839Transfers from recourse liability
    
    
    1,115
    
    
    
    998
    
    
    
    3,062
    
    
    
    2,270Gross chargeoffs
    
    
    (4,159
    )
    
    
    (4,371
    )
    
    
    (9,734
    )
    
    
    (6,989
    )Recoveries
    
    
    1,909
    
    
    
    2,311
    
    
    
    4,183
    
    
    
    3,051Balance at end of period
    
    $
    4,547
    
    
    $
    2,914
    
    
    $
    4,547
    
    
    $
    2,914
 The recourse liability and related additions and transfers out of the recourse
liability were as follows for the periods ended June 30 (in thousands): Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2004
    
    2003
    
    2004
    
    2003Balance at beginning of period
    
    $
    6,793
    
    
    $
    11,424
    
    
    $
    8,740
    
    
    $
    13,320Reimbursements for losses per
recourse agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (624
    )Transfers to allowance for credit losses
    
    
    (1,115
    )
    
    
    (998
    )
    
    
    (3,062
    )
    
    
    (2,270
    )Balance at end of period
    
    $
    5,678
    
    
    $
    10,426
    
    
    $
    5,678
    
    
    $
    10,426
 9




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) Note F  Loan Securitizations Periodically the Company securitizes manufactured home loans. Under the
current legal structure of the securitization program, the Company sells
manufactured home loans it originates and purchases to a trust for cash. The
trust sells asset-backed bonds secured by the loans to investors. The Company
records certain assets and income based upon the difference between all
principal and interest received from the loans sold and the following factors:
(i) all principal and interest required to be passed through to the
asset-backed bond investors, (ii) all excess contractual servicing fees, (iii)
other recurring fees and (iv) an estimate of losses on loans. These loan securitizations may be structured as financing transactions as
opposed to sales transactions, typically by structuring the transaction to
allow the Company to participate in the auction process at the scheduled
termination of the existence of the qualified special purpose entity (the
trust). The Company structured all loan securitizations occurring before 2003
as loan sales and all loan securitizations in 2003 and 2004 as financings for
accounting purposes. When securitizations are structured as financings no gain
or loss is recognized, nor is any allocation made to residual interests or
servicing rights. Rather, the loans securitized continue to be carried by the
Company as assets, and the asset backed bonds secured by the loans are carried
as a liability. On February 11, 2004, the Company completed a securitized financing transaction
for approximately $240.0 million of loans, which was funded by issuing bonds in
the approximate amount of $200.0 million, at a duration weighted average
interest cost of 5.13%. The transaction was structured to issue classes of
bonds with different estimated maturity dates and average lives to better meet
investor demands. Approximately $176.7 million of the securitization proceeds
were used to reduce the aggregate balances of the notes outstanding under the
Companys short-term securitization facility. For securitizations accounted for as either a financing or a sale the Company
retains the right to service the loans it sells. Fees for servicing the loans
are based on a contractual percentage per annum ranging from .5% to 1.25% of
the unpaid principal balance of the associated loans. For securitizations
accounted for as a sale the Company recognizes a servicing asset in addition to
its gain on sale of loans. The servicing asset is calculated as the present
value of the expected future net servicing income in excess of adequate
compensation for a substitute servicer, based on common industry assumptions
and the Companys historical experience. These factors include default and
prepayment speeds. There were no securitizations accounted for as a sale
during the three and six months ended June 30, 2004 or 2003. Servicing fees received with respect to prior securitizations accounted for as
a sale were approximately $501,000 and $1.0 million for the three and six
months ended June 30, 2004, respectively. 10




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) Note F  Loan Securitizations (Continued) Total principal balance of loans serviced that the Company has securitized and
accounted for as a sale at June 30, 2004 was approximately $194.2 million.
Delinquency statistics (including repossessed inventory) on those loans are as
follows at June 30, 2004 (dollars in thousands): No. of
    
    Principal
    
    % ofDays delinquent
    
    Loans
    
    Balance
    
    Portfolio31-60
    
    
    133
    
    
    $
    5,294
    
    
    
    2.7
    %61-90
    
    
    47
    
    
    
    1,839
    
    
    
    1.0
    %Greater than 90
    
    
    266
    
    
    
    12,232
    
    
    
    6.3
    %
 The Company assesses the carrying value of the residual interests and servicing
assets for impairment on a monthly basis. There can be no assurance that the
Companys estimates used to determine the residual receivable and the servicing
asset valuations will remain appropriate for the life of the securitization.
If actual loan prepayments or defaults exceed the Companys estimates, the
carrying value of the Companys residual receivable and/or servicing asset may
decrease through a charge against earnings in the period management recognizes
the disparity. The Companys residual interest balance was approximately
$749,000 and the servicing asset was approximately $1.6 million at June 30,
2004. There was no change in the balance for the 2004 period presented. Note G  Debt Total debt outstanding was as follows (in thousands): June 30,
    
    December 31,2004
    
    2003Warehouse financing
    
    $
    130,989
    
    
    $
    273,404Securitization financing
    
    
    183,406
    
    
    
    Repurchase agreements
    
    
    21,554Notes payable  servicing advances
    
    
    
    
    
    
    4,037$
    335,949
    
    
    $
    277,441
 Notes Payable  Citigroup- The Company through its operating subsidiary Origen
Financial, L.L.C., currently has a short term securitization facility with
Citigroup Global Markets Realty Corp. (Citigroup) (formerly Salomon Brothers
Realty Corporation). Under terms of the facility, originally entered into in
March 2003 and revised in November 2003, the Company is advanced funds and in
turn pledges as collateral manufactured home loans. On March 30, 2004 the
terms of the agreement were modified by segregating the pledged loans into
three separate pools designated 2004-1A, 2004-1B and 2004-1C. The maximum
advance amount on 2004-1A (for new loan production) was set at $170.0 million,
the fixed advance amount on 2004-1B (for loans originated in 2003) was set at
approximately $71.6 million and the maximum amount on 2003-1C (for loans
acquired from third parties) was set at $150.0 million. The modification added
a stratified advance rate for each pool and reduced the stated interest rate on
all three pools. The annual interest rate on the pools is a variable rate
equal to LIBOR plus a spread. Additionally, the maturity date was fixed on
2004-1A at March 29, 2005, on 2004-1B at November 16, 2004 and on 2004-1C at
March 28, 2006. 11




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##### Table of Contents



Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) Note G  Debt (Continued) On June 30, 2004, the advance rate was 84.0% of the eligible principal balance
of the manufactured home loans pledged to 2003-1A, 78.5% of the eligible
principal balance of the manufactured home loans pledged to 2003-1B and 72.6%
of the eligible principal balance of the manufactured home loans pledged to
2003-1C and the outstanding advance amounts were approximately $28.6 million on
2003-1A, $67.3 million on 2003-1B and $35.1 million on 2003-1C, for a total of
$131.0 million. Repurchase Agreement The Company has entered into two repurchase agreements
with Citigroup for the purpose of financing the purchase of investments in two
asset backed securities with principal balances of $32.0 million and $3.1
million, respectively. Under the terms of the agreement the Company sells its
interest in the securities with an agreement to repurchase them at a
predetermined future date at the principal amount sold plus an interest
component. The securities are sold at an amount equal to 75% of their current
market value as determined by Citigroup. The sales are accounted for as
financings for accounting purposes. At June 30, 2004 the repurchase agreement
had an outstanding principal balance of approximately $21.6 and an annual
interest rate equal to LIBOR plus a spread and maturity dates of July 28, 2004
and July 6, 2004, respectively. Typically the repurchase agreements are rolled
over for 30 day periods when they expire. Notes Payable  2004-A Securitization On February 11, 2004, the Company
completed a securitization of approximately $240.0 million in principal balance
of manufactured home loans. The securitization was accounted for as a
financing. Upon completion of the securitization the Company through a special
purpose entity, Origen Manufactured Housing Trust 2004-A issued $200.0 million
in notes payable. The notes are stratified into six different classes and pay
interest at a duration weighted average rate of approximately 5.13%. The notes
have a contractual maturity date of October 2013 with respect to the Class A-1
notes; August 2017, with respect to the Class A-2 notes; December 2020, with
respect to the Class A-3 notes; and January 2035, with respect to the Class
A-4, Class M-1 and Class M-2 notes. At June 30, 2004 the outstanding balance
of the notes was approximately $183.4 million. Notes Payable  Servicing Advances The Company currently has a revolving
credit facility with Bank One, NA. Under the terms of the facility the Company
can borrow up to $7.0 million for the purpose of funding required principal and
interest advances on manufactured home loans that are serviced for outside
investors. Borrowings under the facility are repaid upon the collection by the
Company of monthly payments made by borrowers under such manufactured home
loans. The banks prime interest rate is payable on the outstanding balance.
To secure the loan from Bank One, the Company has granted Bank One a security
interest in substantially all its assets (excluding securitized assets). The
facility has a termination date of December 31, 2004. At June 30, 2004 there
was no outstanding balance on this facility. 12




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##### Table of Contents



Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) Note G  Debt (Continued) The average balance and average interest rate of outstanding debt was as
follows (in thousands): June 30, 2004
    
    December 31, 2003Average
    
    Average
    
    Average
    
    AverageBalance
    
    Rate
    
    Balance
    
    RateNotes payable  Citigroup
    
    $
    158,951
    
    
    
    3.7
    %
    
    $
    250,935
    
    
    
    4.2
    %Notes payable  2004-A securitization
    
    $
    149,062
    
    
    
    4.2
    %
    
    
    
    
    
    
    Repurchase agreement
    
    $
    23,703
    
    
    
    1.8
    %
    
    $
    2,699
    
    
    
    4.4
    %Note payable   servicing advances
    
    $
    1,348
    
    
    
    4.2
    %
    
    
    
    
    
    
    
 Note H  Equity Incentive Plan Data pertaining to the Companys equity incentive plan with respect to stock
options is as follows: Options outstanding, December 31, 2003
    
    
    95,000Options granted
    
    
    198,000Option price
    
    $
    10.00Options exercised
    
    
    Option price
    
    
    Options forfeited
    
    
    (3,500
    )Option price
    
    $
    10.00Options outstanding, March 31, 2004
    
    
    289,500Option price
    
    $
    10.00Options exercisable, March 31, 2004
    
    
    Options granted
    
    
    Option price
    
    
    Options exercised
    
    
    Option price
    
    
    Options forfeited
    
    
    (10,500
    )Option price
    
    
    Options outstanding, June 30, 2004
    
    
    279,000
 The Companys equity incentive plan has 1.7 million shares of common stock
reserved for issuance as either stock options or stock grants. Under the plan,
the exercise price of the options will not be less than the fair market value
of the common stock on the date of grant. The date on which the options are
first exercisable is determined by the administrator of the Companys stock
option plan, the Compensation Committee of the Board of Directors or the entire
Board of Directors, and options generally vest over a two-year period. As of
June 30, 2004, 279,000 were outstanding under the plan at an option price of
$10.00. 13




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##### Table of Contents



Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited) Note H  Equity Incentive Plan (Continued) The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. (SFAS 123), Accounting for Stock Based
compensation. Accordingly, the fair value of each option granted in 2004 was
estimated using the Cox, Ross & Rubenstein binomial option-pricing model based
on the assumptions stated below: Estimated weighted average fair value per
share of options granted
    
    $
    0.40Assumptions:Annualized dividend yield
    
    
    12.00
    %Common stock price volatility
    
    
    15.00
    %Weighted average risk free rate of return
    
    
    4.00
    %Weighted average expected option term (in years)
    
    
    5.0
 Note I  Stockholders Equity Effective January 1, 2004, the Company sold 125 shares of its Series A
Cumulative Redeemable Preferred Stock directly to 125 investors at a per share
price of $1,000.00. The transaction resulted in net proceeds to the company of
$95,000. In June 2004 the Company paid a dividend on its preferred shares of
$62.50 per share for a total of $7,812.50 On February 4, 2004, the Company completed a private placement of 1,000,000
shares of its common stock to one institutional investor. The offering price
was $10.00 per share, which provided approximate net proceeds to the Company of
$9.4 million. On March 23, 2004 the Company issued 113,000 restricted stock awards at $10.00
per share to certain officers and employees, which are being amortized over
their estimated service period. Compensation cost recognized for the restricted
stock awards was $478,000 and $752,000 for the three and six months ended June
30, 2004. On May 6, 2004 the Company completed an initial public offering of 8.0 million
shares of its common stock. In June 2004 the underwriters of the initial
public offering purchased an additional 625,900 shares of the Companys common
stock pursuant to an over allotment-option. Net proceeds from these
transactions were
$62.9 million after discount and expenses, which were used primarily to pay
down the aggregate balances of the notes outstanding under the Companys loan
funding facility with Citigroup and fund new loan originations. On May 26, 2004 the Company declared a dividend of $0.04 per common share
payable to holders of record as of March 16, 2004. On June 6, 2004 those
dividends were paid and totaled approximately $656,000. Note J  Subsequent Events On July 22, 2004 the Company declared a dividend of $0.06 per common share
payable to holders of record as of August 2, 2004. On August 5, 2004, 111,750 shares of common stock were issued by the Company
under its Equity Incentive Plan. 
 Note K  Restatement of Consolidated Financial Statements
   Consolidated Statement of OperationsThree months ended
    
    
    Six months endedJune 30, 2004
    
    
    June 30, 2004As
    
    
    
    
    
    
    
    
    
    
    Aspreviously
    
    
    
    
    
    
    As
    
    
    previously
    
    
    
    
    
    
    Asreported
    
    
    Adjustment
    
    
    restated
    
    
    reported
    
    
    Adjustment
    
    
    restatedInterest income
    
    $
    10,294
    
    
    $
    (260
    )
    
    $
    10,034
    
    
    $
    19,394
    
    
    $
    (590
    )
    
    $
    18,804Net interest income
    
    $
    6,998
    
    
    $
    (260
    )
    
    $
    6,738
    
    
    $
    13,079
    
    
    $
    (590
    )
    
    $
    12,489Loan origination and servicing
    
    $
    246
    
    
    $
    17
    
    
    $
    263
    
    
    $
    598
    
    
    $
    55
    
    
    $
    653Total non interest expense
    
    $
    6,812
    
    
    $
    17
    
    
    $
    6,829
    
    
    $
    13,252
    
    
    $
    55
    
    
    $
    13,307Net income
    
    $
    1,669
    
    
    $
    (277
    )
    
    $
    1,392
    
    
    $
    2,300
    
    
    $
    (645
    )
    
    $
    1,655Earnings per share  basic
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    0.13
    
    
    $
    (0.04
    )
    
    $
    0.09Earnings per share  diluted
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    (0.03
    )
    
    $
    0.09
 
 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations This Form 10-Q includes certain forward looking statements. The words
will, may, designed to, believes, should, anticipates, plans,
expects, intends, and estimates, and similar expressions, identify these
forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, these expectations may not be correct. Important factors that
could cause our actual results to differ materially from the forward-looking
statements we make in this document include the following:  
    
    the performance of our manufactured home loans;
    
    our ability to borrow at favorable rates and terms;
    
    the supply of manufactured home loans;
    
    interest rate levels and changes in the yield curve (which is
formed by the differing Treasury rates paid on one, two, three,
five, ten and 30 year term debt);
    
    our ability to use hedging strategies to insulate our
exposure to changing interest rates;
    
    changes in, and the costs associated with complying with
federal, state and local regulations, including consumer finance and
housing regulations;
    
    applicable laws, including federal income tax laws; and
    
    general economic conditions in the markets in which we operate. All forward-looking statements included in this document are based on
information available to us on the date of this document. We do not intend to
update or revise any forward-looking statements that we make in this document
or other documents, reports, filings or press releases, whether as a result of
new information, future events or otherwise. The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and the notes thereto. Capitalized terms are
used as defined elsewhere in this Quarterly Report on Form 10-Q. Overview On October 8, 2003, we began operations upon the completion of a private
placement of $150 million of our common stock to certain institutional and
accredited investors. On February 4, 2004, we completed another private
placement of $10 million of our common stock to one institutional investor. In
connection with and as a condition to the October 2003 private placement, we
acquired all of the equity interests of Origen Financial L.L.C. We also took
steps to qualify Origen Financial, Inc. as a REIT. Currently, most of our
operations are conducted through Origen Financial L.L.C., which is our
wholly-owned subsidiary. We conduct the rest of our business operations through
our other wholly-owned subsidiaries, including taxable REIT subsidiaries, to
take advantage of certain business opportunities and ensure that we comply with
the federal income tax rules applicable to REITs. 15




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations The results of operations for the three and six months ended June 30, 2003
used for comparison purposes in this discussion and analysis of financial
condition and results of operations are those of our predecessor company Origen
Financial, L.L.C. Origen Financial L.L.C. relied heavily on high cost
short-term borrowings to fund day-to-day operations due to a lack of
significant permanent capital. This lack of capital combined with losses
incurred from underperforming loans originated prior to year 2002 (referred to
as legacy loans), resulted in significant net operating losses prior to the
commencement of our operations. 
 On
March 31, 2005 we announced that we would restate our financial
statements for the period ended December 31, 2003 and for the first
three quarters of 2004 to correct an interpretive error in applying
accounting principles to a pool of loans acquired at a discount in
October 2003. The financial statements set forth in Item I and the
following discussion reflects the restatement. 
 Critical Accounting Policies Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and the related disclosures. On an on-going
basis, we evaluate these estimates, including those related to reserve for
credit losses, recourse liabilities, servicing rights and retained interests in
loans sold and securitized. Estimates are based on historical experience,
information received from third parties and on various other assumptions that
are believed to be reasonable under the circumstances, which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under conditions different from our assumptions. 16




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Transfers of Financial Assets:We engage in securitizations and whole
loan sales of our manufactured home loan receivables. Securitizations may take
the form of a loan sale or a financing. We structured all loan securitizations
occurring before 2003 as loan sales and all loan securitizations in 2003 and
2004 as financings for accounting purposes. In the future, we intend to
structure and account for our securitizations as financings. When a loan
securitization is structured as a financing, the financed asset remains on our
books along with the recorded liability that evidences the financing. Income
from both the loan interest spread and the servicing fees received on the
securitized loans are recorded into income as earned. An appropriate allowance
for credit losses is maintained on the loans. When a loan securitization is
structured as a loan sale, any gains and losses are recognized in the
consolidated statements of operations when control of the transferred financial
asset is relinquished by the seller. In accordance with Statement of Financial
Accounting Standards No. 140 Accounting For Transfers and Servicing of
Financial Assets and Extinguishments of Liabilitiescertain assets and income
are recorded based upon the difference between all principal and interest
received from the loans sold and the following factors (i) all principal and
interest required to be passed through to the asset-backed bond investors, (ii)
all excess contractual servicing fees, (iii) other recurring fees and (iv) an
estimate of losses on loans. At the time of the sale these amounts are
estimated based upon a declining principal balance of the underlying loans,
adjusted by an estimated prepayment and loss rate, and such amounts are
capitalized using a discount rate that market participants would use for
similar financial instruments. These capitalized assets are recorded as
retained interests in loans sold and securitized and capitalized servicing
rights. We assess the carrying value of any retained interests for impairment
on a monthly basis. Any subsequent changes in fair value of the retained
interests are recognized in the consolidated statements of operations. The use
of different pricing models or assumptions could produce different financial
results. There can be no assurance that our estimates used to determine the
value of retained interests and the servicing asset valuations will remain
appropriate for the life of the securitization. Allowance for Credit Losses:Our loan portfolio is comprised of
manufactured home loans with an average loan balance of less than $50,000. The
allowance for credit losses is determined at the portfolio level and computed
by applying loss rate factors to the loan portfolio on a stratified basis using
current portfolio performance and delinquency levels (0-30 days, 31-60 days,
61-90 days and more than 90 days delinquent). Our loss rate factors are based
on historical loan loss experience and are adjusted for economic conditions and
other trends affecting borrowers ability to repay and estimated collateral
value. The allowance for loan losses represents an unallocated allowance; there
are no elements of the allowance allocated to specific individual loans or to
impaired loans. 17




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Liability for Loans Sold With Recourse:We periodically sell manufactured
home loans on a whole-loan basis. At the time of such loan sales, we recognize
recourse liabilities pursuant to our future obligations, if any, to the
applicable loan purchasers under the provisions of the respective sale
agreements. Under existing recourse provisions, we are required to repurchase
any loan contract that goes into default, as defined in the respective loan
agreement, for the life of each loan sold, at an amount equal to the
outstanding principal balance and accrued interest, and refund any purchase
premiums. The loan purchasers have no recourse to our other assets for failure
of debtors to pay when due. The loan pools subject to recourse provisions are comprised of
manufactured home loans with an average loan balance of less than $50,000. The
estimated recourse liability is calculated based on historical default rates
and loss experience for pools of similar loans we originate and service. These
loss rates are applied to each pool of loans subject to recourse provisions and
the resulting estimated recourse liability represents the present value of the
expected obligations under those recourse provisions. The loss rates are
adjusted for economic conditions, other trends affecting borrowers ability to
repay and estimated collateral value. The recourse liability is calculated at a
portfolio level and there are no elements of the estimated recourse liability
allocated to specific loans. Derivative Financial Instruments:We have periodically used derivative
instruments, including forward sales of U.S. Treasury securities, U.S. Treasury
rate locks and forward interest rate swaps to mitigate interest rate risk
related to our loans receivable and anticipated sales or securitizations. We
follow the provisions of Statement of Financial Accounting Standards No. 133
(SFAS 133),Accounting for Derivative Instruments and Hedging Activities(as
amended by Statement of Financial Accounting Standards No. 149). Under SFAS
133, all derivative instruments are recorded on the balance sheet at fair value
and changes in fair value are recorded in current earnings or other
comprehensive income, depending on whether a derivative instrument qualifies
for hedge accounting and, if so, whether the hedge transaction represents a
fair value or cash flow hedge. Hedges are measured for effectiveness both at inception and on an ongoing
basis, and hedge accounting is terminated if a derivative instrument ceases to
be effective as a hedge or its designation as a hedge is terminated. In the
event of termination of a hedge, any gains or losses during the period that a
derivative instrument qualified as a hedge are recognized as a component of the
hedged item and subsequent gains or losses are recognized in earnings. Derivative financial instruments that do not qualify for hedge accounting
are carried at fair value and changes in fair value are recognized currently in
earnings. 18




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Stock Options:In connection with our formation, we adopted a stock
option plan. We have elected to measure compensation cost using the intrinsic
value method in accordance with APB Opinion No. 25 Accounting for Stock Issued
to Employees. Goodwill Impairment:The provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets,require that
recorded goodwill be tested for impairment on an annual basis. The initial and
on-going estimate of our fair value is based on our assumptions and
projections. Once determined, the amount is compared to our net book value to
determine if a write-down in the recorded value of the goodwill is necessary. 
 Loans
Acquired at a Discount: In October 2003 we purchased a pool of
manufactured housing loans at a substantial discount to the
outstanding principal balance of the underlying loans. The discount
was in recognition of identified credit impairment associated with a
substantial number of these loans. We account for this purchased loan
pool according to guidance provided by AICPA Practice Bulletin No. 6,
Amortization of Discounts on Certain Acquired Loans (PB
6). In transactions where the initial investment differs from
the related principal balances of the underlying loans and such
difference is due to credit quality, PB 6 requires a level-yield
accounting treatment over the life of the loan pool. We are required
to evaluate the loan pool, at least quarterly. If upon evaluation,
the estimate of probable collections is increased, the amount of the
discount amortized to achieve a level-yield must be adjusted
accordingly and the adjustment is treated as a change in estimate in
accordance with APB Opinion 20, Accounting Changes, and the
amount of the periodic discount amortization is adjusted over the
life of the loan pool. If, however, at any valuation date, the
estimate of collections is reduced, the loan pool is considered
impaired for purposes of applying the measurement provisions of FASB
Statement No. 5, Accounting for Contingencies, which requires
an accrual for a loss contingency, resulting in a charge against
operations. The required accounting treatment may subject us to
substantial variations in income recognition for this loan pool from
period to period. 
 Results of Operations Comparison of the three months ended June 30, 2004 and 2003. Net Income 
 Net
income increased $7.9 million to $1.4 million for the three months
ended June 30, 2004 compared to a net loss of $6.5 million for the three months
ended June 30, 2003. The increase is the result of an increase
of $5.8 million
in net interest income after loan losses, an increase of $0.3 million in non
interest income and a decrease in non interest expenses of $1.9 million as
described in more detail below. 
 Interest Income 
 Interest
income increased 92.3% to approximately $10.0 million compared to
approximately $5.2 million. This increase resulted primarily from an increase
of $256.5 million or 114.1% in average interest earning assets. The increase
in interest income was lower than the increase in average loans receivable due
primarily to a positive change in the credit quality of the loan portfolio for
the period. Generally, higher credit quality loans will carry a lower interest
rate. The weighted average interest rate on the loan receivable portfolio was
8.7% compared to 9.2%. 
 Interest expense decreased $1.2 million to $3.3 million compared to $4.5
million, or 26.9%. The majority of our interest expense relates to interest on
our loan funding facilities. Average debt outstanding on our loan funding
facilities increased $102.7 million to $328.5 compared to $225.8 million, or
45.5%. The increase in average outstanding debt on our loan funding facilities
was partially offset by a decrease in average interest rate on the total debt
outstanding which was 3.7% compared to 7.2%. The higher average rate for the
three months ended June 30, 2003 was due to the fact that prior to the private
placement of our common stock we had to rely partially on a higher-cost fixed
rate facility to fund our new originations. 19




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations The following table presents information relative to the average balances
and interest rates for the three months ended June 30 (dollars in thousands): 
 2004
    
    2003Average
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateInterest earning assets:Manufactured housing loans
    
    $
    430,227
    
    
    $
    9,318
    
    
    
    8.66
    %
    
    $
    223,147
    
    
    $
    5,152
    
    
    
    9.24
    %Investment securities
    
    
    34,217
    
    
    
    664
    
    
    
    7.76
    %
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    16,754
    
    
    
    52
    
    
    
    1.24
    %
    
    
    1,583
    
    
    
    9
    
    
    
    2.27
    %Total
    
    $
    481,198
    
    
    $
    10,034
    
    
    
    8.34
    %
    
    $
    224,730
    
    
    $
    5,161
    
    
    
    9.19
    %Interest bearing liabilities:Loan funding facilities
    
    $
    328,469
    
    
    $
    3,174
    
    
    
    3.87
    %
    
    $
    225,827
    
    
    $
    3,853
    
    
    
    6.82
    %Repurchase agreement  investment
securities
    
    
    23,703
    
    
    
    107
    
    
    
    1.81
    %
    
    
    
    
    
    
    
    
    
    
    Notes payable  servicing
advances
    
    
    882
    
    
    
    15
    
    
    
    6.80
    %
    
    
    1,327
    
    
    
    16
    
    
    
    4.82
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,749
    
    
    
    640
    
    
    
    10.78
    %Total
    
    $
    353,054
    
    
    $
    3,296
    
    
    
    3.73
    %
    
    $
    250,903
    
    
    $
    4,509
    
    
    
    7.19
    %Net interest income and
interest rate spread
    
    
    
    
    
    $
    6,738
    
    
    
    4.61
    %
    
    
    
    
    
    $
    652
    
    
    
    2.00
    %Net yield on average interest
earning assets
    
    
    
    
    
    
    
    
    
    
    5.60
    %
    
    
    
    
    
    
    
    
    
    
    1.16
    %
 
 20




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations The following table sets forth the changes in net interest income
attributable to changes in volume (change in average portfolio volume
multiplied by prior period average rate) and changes in rates (change in
weighted average interest rate multiplied by prior period average portfolio
balance) for the three months ended June 30, 2004 compared to the three months
ended June 30, 2003 (in thousands): 
 Volume
    
    Rate
    
    TotalInterest earning assets:Manufactured housing loans
    
    $
    4,485
    
    
    $
    (319
    )
    
    $
    4,166Investment securities
    
    
    664
    
    
    
    
    
    
    
    664Other
    
    
    47
    
    
    
    (4
    )
    
    
    43Total interest income
    
    $
    5,196
    
    
    $
    (319
    )
    
    $
    4,873Interest bearing liabilities:Loan funding facilities
    
    $
    992
    
    
    $
    (1,671
    )
    
    $
    (679
    )Repurchase agreement -
investment securities
    
    
    100
    
    
    
    7
    
    
    
    107Notes payable  servicing
advances
    
    
    639
    
    
    
    (640
    )
    
    
    (1
    )Other
    
    
    1,527
    
    
    
    (2,167
    )
    
    
    (640
    )Total interest expense
    
    $
    3,258
    
    
    $
    (4,471
    )
    
    $
    (1,213
    )Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    6,086
 
 Non-interest Income Non-interest income is primarily made up of loan servicing related revenue
including loan servicing fees, late charges and commissions on force placed
insurance. Such revenue increased $0.6 million to $3.0 million compared to
$2.7 million, or 11.1%. Loan servicing fees increased $0.4 million to $2.4
million compared to $2.0 million, or 22.5%. The average serviced loan
portfolio on which servicing fees are collected increased approximately $95.4
million or 8.2% for the quarter ended June 30, 2004 compared to the quarter
ended June 30, 2003. The weighted average service fee rate increased
approximately .09%. 21




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Provision for Losses We maintain an allowance for credit losses to cover inherent losses that
can be reasonably estimated for loan receivables held on our balance sheet.
The level of the allowance is based principally on the outstanding balance of
the contracts held on our balance sheet and historical loss trends. We also
maintain a recourse liability to cover inherent losses that can be reasonably
estimated on loans that we have sold in a true sale transaction but the terms
of the sale included recourse provisions. The provision for credit losses and recourse reserves increased $0.3
million to $1.5 million compared to $1.2 million, or 25.0%. The increase
resulted from higher outstanding principal from new loan originations offset by
loans charged off. Total net chargeoffs increased to $2.3 million with $1.2
million being charged to the allowance for credit losses and $1.1 million being
charged to the recourse liability, compared to total net chargeoffs of $2.1
million, with $1.1 million being charged to the allowance for credit losses and
$1.0 million being charged to the recourse liability. As a percentage of
average outstanding principal balance (including $59.3 million and $88.6
million in average principal balance of loans sold with recourse for the
quarters ended June 30, 2004 and 2003, respectively) total net chargeoffs on an
annualized basis decreased to 1.8% compared to 2.3%. We expect net chargeoffs
as a percentage of average outstanding principal balance to decrease in the
future due to the higher credit quality of loans originated in years 2002
through 2004 versus that of loans originated in years 2000 and 2001 and also
because the life of the loans we have sold with recourse extend beyond the peak
loss periods in a normal loan life cycle. Non-interest Expenses Personnel expenses increased approximately $0.1 million or 2.1% to $4.9
million compared to $4.8 million. The increase is primarily related to an
increase in the number of full time employees. The increase in the
number of full time employees is partially offset by an approximate $0.1
million decrease in the use of temporary employees for the comparable quarters. 
 Loan
origination and servicing expenses decreased to $263,000 compared to
$298,000, or approximately 11.7%. The decrease is primarily a result of a
decrease in repossession expenses resulting from the consolidation and
streamlining of much of our repossession operations in our Fort Worth offices. 
 22




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Other operating expenses, which consist of occupancy and equipment,
professional fees, travel and entertainment and miscellaneous expenses
decreased approximately $0.7 million to $1.6 compared to $2.3 million,
approximately 30.4%. Occupancy and equipment, office expense and telephone expense increased a
total of approximately $22,000 to $990,000 compared to approximately $968,000,
or 2.3%. Professional fees decreased $904,000 to $89,000 compared to $993,000.
The primary reason for the decrease related to a reduction in the use of
outside professional services. Travel and entertainment expenses increased
approximately $18,000 or 5.6% to $341,000 compared to $323,000.
Miscellaneous expenses increased approximately $260,000 to $294,000 compared to
$34,000. The increase was primarily the result of an increase of approximately
$213,000 in director and officer liability insurance and director fees which
were $222,000 compared to $9,000. Such increases are a direct result of the
additional costs incurred related to our formation as a REIT in October 2003
and our status as a publicly traded company. Comparison of the six months ended June 30, 2004 and 2003. Net Income 
 Net
income increased $10.3 million to $1.7 million for the six months
ended June 30, 2004 compared to a net loss of $8.7 million for the six months
ended June 30, 2003. The increase is the result of an increase
of $7.9 million
in net interest income after loan losses, an increase of $0.8 million in non
interest income and a decrease in non interest expenses of $1.7 million as
described in more detail below. 
 Interest Income 
 Interest
income increased $8.6 million or 84.3% to approximately $18.8
million compared to approximately $10.2 million. This increase resulted
primarily from an increase of $232.2 million or 110.2% in average interest
earning assets. The increase in interest income was lower than the increase in
average interest earning assets due primarily to a positive change in the
credit quality of the loan portfolio for the period. Generally, higher credit
quality loans will carry a lower interest rate. The weighted average interest
rate on the loan portfolio was 8.8% compared to 9.7%. 
 23




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Interest expense decreased $0.9 million to $6.3 million compared to $7.2
million, or 12.5%. The majority of our interest expense relates to interest on
our loan funding facilities. Average debt outstanding on our loan funding
facilities increased $90.2 million to $308.0 compared to $217.8 million, or
41.4%. The increase in average outstanding debt on our loan funding facilities
was partially offset by a decrease in average interest rate on total debt
outstanding which was 3.91% compared to 5.92%. The higher average rate for the
six months ended June 30, 2003 was due to the fact that prior to the private
placement of our common stock we had to rely partially on a higher-cost fixed
rate facility to fund our new originations. The following table presents information relative to the average balances
and interest rates for the six months ended June 30 (dollars in thousands): 
 2004
    
    2003Average
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateInterest earning assets:Manufactured housing loans
    
    $
    408,327
    
    
    $
    17,962
    
    
    
    8.80
    %
    
    $
    209,010
    
    
    $
    10,173
    
    
    
    9.73
    %Investment securities
    
    
    20,214
    
    
    
    762
    
    
    
    7.54
    %
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    14,376
    
    
    
    80
    
    
    
    1.11
    %
    
    
    1,685
    
    
    
    32
    
    
    
    3.80
    %Total
    
    $
    442,917
    
    
    $
    18,804
    
    
    
    8.49
    %
    
    $
    210,695
    
    
    $
    10,205
    
    
    
    9.69
    %Interest bearing liabilities:Loan funding facilities
    
    $
    308,014
    
    
    $
    6,161
    
    
    
    4.00
    %
    
    $
    217,785
    
    
    $
    6,506
    
    
    
    5.97
    %Repurchase agreement  investment
securities
    
    
    13,919
    
    
    
    126
    
    
    
    1.81
    %
    
    
    
    
    
    
    
    
    
    
    Notes payable  servicing
advances
    
    
    1,348
    
    
    
    28
    
    
    
    4.15
    %
    
    
    1,320
    
    
    
    35
    
    
    
    5.30
    %Other
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    23,749
    
    
    
    652
    
    
    
    5.49
    %Total
    
    $
    323,281
    
    
    $
    6,315
    
    
    
    3.91
    %
    
    $
    242,854
    
    
    $
    7,193
    
    
    
    5.92
    %Net interest income and
interest rate spread
    
    
    
    
    
    $
    12,489
    
    
    
    4.58
    %
    
    
    
    
    
    $
    3,012
    
    
    
    3.77
    %Net yield on average interest
earning assets
    
    
    
    
    
    
    
    
    
    
    5.64
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
 
 24




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations The following table sets forth the changes in net interest income
attributable to changes in volume (change in average portfolio volume
multiplied by prior period average rate) and changes in rates (change in
weighted average interest rate multiplied by prior period average portfolio
balance) for the six months ended June 30, 2004 compared to the six months
ended June 30, 2003 (in thousands): 
 Volume
    
    Rate
    
    TotalInterest earning assets:Manufactured housing loans
    
    $
    8,768
    
    
    $
    (979
    )
    
    $
    7,789Investment securities
    
    
    762
    
    
    
    
    
    
    
    762Other
    
    
    48
    
    
    
    
    
    
    
    48Total interest income
    
    $
    9,578
    
    
    $
    (979
    )
    
    $
    8,599Interest bearing liabilities:Loan funding facilities
    
    $
    1,805
    
    
    $
    (2,150
    )
    
    $
    (345
    )Repurchase agreement  investment
securities
    
    
    134
    
    
    
    (8
    )
    
    
    126Notes payable  servicing
advances
    
    
    645
    
    
    
    (652
    )
    
    
    (7
    )Other
    
    
    1,797
    
    
    
    (2,449
    )
    
    
    (652
    )Total interest expense
    
    $
    4,381
    
    
    $
    (5,259
    )
    
    $
    (878
    )Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    9,477
 
 Non-interest Income 
 Total non-interest income increased $0.8 million to $5.9 million compared
to $5.1 million, or 15.7%. Loan servicing fees increased $1.3 million to
$4.9 million compared to $3.6 million, or 36.1%. The average serviced loan
portfolio on which servicing fees are collected increased approximately $78.7
million or 6.7%. The weighted average service fee rate increased approximately
..09% as our serviced for others portfolio, which has lower than average
servicing rates, continues to pay down and as we add servicing from
securitizations at higher than our average servicing portfolio rates. 
 25




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Provision for Losses The provision for credit losses and recourse reserves increased $1.6
million to $3.4 million compared to $1.8 million, or 88.9%. The increase
resulted from both an increase in outstanding principal due to new loan
originations and the amount of loans charged off. Total net chargeoffs
increased to $5.6 million with $2.5 million being charged to the allowance for
credit losses and $3.1 million being charged to the recourse liability,
compared to total net chargeoffs of $3.9 million, with $1.6 million being
charged to the allowance for credit losses and $2.3 million being charged to
the recourse liability. As a percentage of average outstanding principal
balance (including $66.2 million and $89.9 million in average principal balance
of loans sold with recourse for the six months ended June 30, 2004 and 2003,
respectively) total net chargeoffs on an annualized basis decreased to 2.4%
compared to 2.6%. We expect net chargeoffs as a percentage of average
outstanding principal balance to decrease in the future due to the higher
credit quality of loans originated in years 2002 through 2004 versus that of
loans originated in years 2000 and 2001 and also because the life of the loans
we have sold with recourse extend beyond the peak loss periods in a normal loan
life cycle. Non-interest Expenses Personnel expenses increased approximately $0.3 million to $9.3 million
compared to $9.0 million, or 3.33% primarily related to a slight increase in
the number of full time employees. The increase in the number of full time
employees is partially offset by an approximate $0.2 million decrease in the
use of temporary employees. During June and July of 2004, we hired 10
former employees of Chase Home Finance  Manufactured Housing (Chase). In
May 2004 Chase had announced they were exiting the manufactured housing lending
business. While the impact on non-interest expenses was negligible for the
second quarter 2004, on an annualized basis the cost will be approximately $1.5
million 
 Loan
origination and servicing expenses increased slightly to $653,000
compared to $610,000, or approximately 6.7%. The increase is primarily a
result of an increase in repossession expenses related to a portfolio
of manufactured housing loans purchased in October 2003. 
 Other operating expenses decreased approximately $0.9 million to $3.2
compared to $4.1 million, or approximately 21.9% the details of which are
discussed below. 26




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Occupancy and equipment, office expense and telephone expense decreased a
total of approximately $0.2 million to $2.0 million compared to approximately
$2.2 million, or 11.2% primarily as a result of consolidating the functions
performed in our Ohio office and by relocating our corporate offices from
Birmingham, Michigan to Southfield, Michigan in April 2003. Professional fees
decreased $1.0 million to $0.2 million, or 83.3% compared to $1.2 million
primarily as a result of the reduction in the use of outside professionals.
Travel and entertainment expenses decreased approximately $139,000 or 18.7% to
$605,000 compared to $744,000. Miscellaneous expenses increased approximately
$517,000 to $563,000 compared to $46,000. The increase was primarily the
result of an increase of approximately $463,000 in director and officer
liability insurance and director fees which were $485,000 compared to $22,000.
Such increases are a direct result of the additional costs incurred related to
our formation as a REIT in October 2003. Receivable Portfolio and Asset Quality 
 Net
loans receivable outstanding increased 23.6% to $454.7 million at June
30, 2004 compared to $368.0 million at December 31, 2003. Loans receivable are
comprised of installment contracts and mortgages collateralized by manufactured
homes and in some instances real estate. 
 New loan originations for the quarter ended June 30, 2004 increased 43.0%
to $60.4 million compared to $42.3 million for the quarter ended June 30, 2003.
The increase was due primarily to increased market share resulting from our
focus on customer service and the use of technology to deliver our products and
services. For the quarter ended 2004 our loan volume was negatively affected
by the exit of Chase, as they funded out their pipeline through the end of June
2004. Although, we did receive a large increase in loan applications, as many
loan sources moved to find a replacement lender for Chase. The following table sets forth the average loan balance, weighted average
loan coupon and weighted average initial term of the loan receivable portfolio
(dollars in thousands): June 30,
    
    December 31,2004
    
    2003Principal balance loans receivable
    
    $
    465,297
    
    
    $
    380,174Number of loans receivable
    
    
    11,088
    
    
    
    9,154Average loan balance
    
    $
    42
    
    
    $
    42Weighted average loan coupon (a)
    
    
    10.05
    %
    
    
    10.23
    %Weighted average initial term
    
    21 years
    
    22 years
 (a) The weighted average loan coupon includes an imbedded
servicing fee rate resulting from securitization or sale of the
loan but accounted for as a financing. 27




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Delinquency statistics for the manufactured home loan portfolio are as
follows (dollars in thousands): June 30, 2004
    
    December 31, 2003No. of
    
    Principal
    
    % of
    
    No. of
    
    Principal
    
    % ofDays delinquent
    
    Loans
    
    Balance
    
    Portfolio
    
    Loans
    
    Balance
    
    Portfolio31-60
    
    
    169
    
    
    $
    6,287
    
    
    
    1.4
    %
    
    
    193
    
    
    $
    7,068
    
    
    
    1.9
    %61-90
    
    
    79
    
    
    
    2,919
    
    
    
    0.6
    %
    
    
    83
    
    
    
    2,943
    
    
    
    0.8
    %Greater than 90
    
    
    147
    
    
    
    6,157
    
    
    
    1.3
    %
    
    
    158
    
    
    
    6,575
    
    
    
    1.7
    %
 We define non-performing loans as those loans that are 90 or more days
delinquent in contractual principal payments. For the three and six months
ended June 30, 2004 the average outstanding principal balance of non-performing
loans was approximately $6.0 million and $6.4 million, respectively compared to
$4.1 million and $4.0 million for the three and six months ended June 30, 2003.
Non-performing loans as a percentage of average loan receivables were 1.4% and
1.6%, respectively for the three and six months ended June 30, 2004 compared to
1.9% for both the three and six months ended June 30, 2003, primarily as a
result of higher average balances and improved credit quality in the loan
portfolio in 2004. The allowance for credit losses was $4.5 million at June 30, 2004 compared
to $3.6 million at December 31, 2003. The increase in the allowance for credit
losses is primarily due to a  higher loan portfolio balance offset by
chargeoffs. The allowance for credit
losses as a percentage of net loans receivable was approximately 1.0% at June 30, 2004
and December 31, 2003. Net chargeoffs were $2.3 million and
$5.6 million for the three and six months ended June 30, 2004, respectively
compared to $2.1 million and $3.9 million for the three and six months ended
June 30, 2003, respectively. Based on the analysis we performed related to the
allowance for credit losses as described above under Critical Accounting
Policies, we believe that our allowance for credit losses is currently adequate
to cover inherent losses in our loan portfolio that can be reasonably
estimated. Our asset quality statistics for the first and second quarters of 2004
reflect improving conditions in the economy and the industry. They also
reflect the improving underwriting and origination practices we put into place
in 2002. Continued improvement in delinquency statistics are expected to
result in lower levels of non-performing assets and net charge-offs. Lower
levels of non-performing assets and net chargeoffs should have a positive
effect on earnings through decreases in the provision for credit losses and
servicing expenses as well as increases in net interest income. 28




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources We require capital to fund our loan originations, acquire manufactured
home loans originated by third parties and expand our loan servicing
operations. At June 30, 2004, we had approximately $14.5 million in available
cash and cash equivalents. As a REIT, we will be required to distribute at
least 90% of our taxable income to our stockholders on an annual basis.
Therefore, as a general matter, it is unlikely we will have any substantial
cash balances that could be used to meet our liquidity needs. Instead, these
needs must be met from cash provided from operations and external sources of
capital. Historically, we have satisfied our liquidity needs through cash
generated from operations, sales of our common and preferred stock, borrowings
on our credit facilities and loan sales and securitizations. 
 Cash used in operating activities during the six months ended June 30,
2004, totaled $93.3 million versus $75.0 million for the six months ended June
30, 2003. Cash used to originate loans increased 38.6%, or $33.8 million for
the six months ended June 30, 2004 compared to the six months ended June 30,
2003. Principal collections on loans held for sale totaled $30.7 million for
the six months ended June 30, 2004 as compared to $16.9 million for the six
months ended June 30, 2003, an increase of $13.8 million, or 81.7%. The
increase in collections is primarily related to the increase in the average
outstanding loan portfolio balance, which was $408.3 million for the six months
ended June 30, 2004 compared to $211.8 million for the six months ended June
30, 2003 in addition to improved credit quality and decreased delinquency. 
 Cash used in investing activities was $34.5 million in the six months
ended June 30, 2004 versus $0.7 million for the six months ended June 30, 2003.
The primary reason for the increase in the use of cash was the purchase of a
$32.0 million asset backed security and a $3.1 million asset backed security.
The securities are collateralized by manufactured home loans and are classified
as held-to-maturity. They have contractual maturity dates of July 28, 2033 and
December 28, 2033 and effective yields of 6.88% and 7.88%, respectively. The primary sources of cash during the six months ended June 30, 2004 were
approximately $200.0 million in net proceeds from a securitized financing
transaction we completed in February 2004 and approximately $62.9 million from
the issuance of our common stock. Proceeds from the securitization and from the
issuance of common stock were used primarily to pay down the aggregate balances
of the notes outstanding under our loan funding facility with Citigroup and
fund new loan originations. On February 11, 2004, we completed a securitized financing transaction for
approximately $240.0 million of loans, which was funded by issuing bonds in the
approximate amount of $200 million, at a duration weighted average interest
cost of 5.13%. We structured the transaction to issue classes of bonds with
different estimated maturity dates and average lives to better meet investor
demands. The outstanding balance of the 2004-A Notes issued was approximately
$183.4 million at June 30, 2004. 29




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations We currently have a loan funding facility with Citigroup. Under the terms
of the agreement, originally entered into in March 2003 and revised in November
2003 to split the loans into two pools, one under a note due in April 2004 and
one under a note due in November 2004, we pledge loans as collateral and in
turn are advanced funds. On March 30, 2004 the terms of the agreement were
modified by segregating the pledged loans into three separate pools designated
2004-1A, 2004-1B and 2004-1C. The maximum advance amount on 2004-1A (for new
loan production) was set at $170.0 million, the fixed advance amount on 2004-1B
(for loans originated in 2003) was set at approximately $71.6 million and the
maximum amount on 2004-1C (for loans acquired from third parties) was set at
$150.0 million. The modification added a stratified advance rate for each pool
and reduced the stated interest rate on all three pools. Additionally, the
maturity date was fixed on 2004-1A at March 29, 2005, on 2004-1B at November
16, 2004 and on 2004-1C at March 28, 2006. At June 31, 2004 the outstanding
balance on the notes issued under the facility was approximately $131.0
million. We currently are entered into two separate repurchase agreements with
Citigroup Global Markets, Inc. for the purpose of financing the purchase of
investments in two asset backed securities with principal balances of $32.0
million and $3.1 million, respectively. Under the terms of the agreements we
sell our interest in the securities with an agreement to repurchase the
interests at a predetermined future date at the principal amount sold plus an
interest component. The securities were financed at an amount equal to 75% of
the current market value as determined by Citigroup. At June 30, 2004 the
repurchase agreements had outstanding principal balances of approximately $19.6
million and $1.9 million, respectively and maturity dates of July 28, 2004 and
July 6, 2004, respectively. The annual interest rates on the agreements are
equal to LIBOR plus a spread. We currently have a revolving credit facility with Bank One. Under the
terms of the facility we can borrow up to $7 million for the purpose of funding
required principal and interest advances on manufactured home loans that are
serviced for outside investors. Borrowings under the facility are repaid upon
our collection of monthly payments made by borrowers. The outstanding balance
under the facility accrues interest at the banks prime rate. To secure the
loan, we have granted the bank a security interest in substantially all of our
assets excluding securitized loans. The facility terminates on December 31,
2004. At June 30, 2004 there was no balance outstanding on this facility. 30




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations In addition to borrowings under our credit facilities, we have fixed
contractual obligations under various lease agreements. Our contractual
obligations were comprised of the following as of June 30, 2004: Less than
    
    1 - 3
    
    4 - 5Total
    
    1 year
    
    years
    
    years
    
    ThereafterNotes payable  Citigroup (1)
    
    $
    130,989
    
    
    $
    96,351
    
    
    $
    34,638
    
    
    $
    
    
    
    $
    Notes payable  2004 A securitization (2)
    
    
    183,406
    
    
    
    2,506
    
    
    
    10,179
    
    
    
    6,960
    
    
    
    163,761Repurchase agreement (3)
    
    
    21,554
    
    
    
    21,554
    
    
    
    
    
    
    
    
    
    
    
    Notes payable  servicing advances (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    2,687
    
    
    
    870
    
    
    
    1,697
    
    
    
    120
    
    
    
    Total Contractual Obligations
    
    $
    338,636
    
    
    $
    121,281
    
    
    $
    46,514
    
    
    $
    7,080
    
    
    $
    163,761
  (1)
    
    Origen Financial L.L.C. and Origen Securitization Company, LLC are
borrowers
under the short-term securitization facility with Citigroup.(2)
    
    Origen Financial L.L.C. through a special purpose entity Origen
Manufactured Housing Trust 2004-A, is the issuer of the notes payable
under the 2004  A securitization.(3)
    
    Origen Financial L.L.C. is the borrower under the Citigroup repurchase
agreement.(4)
    
    Origen Financial L.L.C. is the borrower under the Bank One line of
credit. In May 2004 we completed an initial public offering of our common stock.
In June 2004, the underwriters for the offering purchased additional shares by
exercising their over allotment option. Aggregate net proceeds from
these transactions were approximately $62.9 million after discount and expenses, which
were used primarily to pay down the aggregate balances of the notes outstanding
under our loan funding facility with Citigroup and fund new loan originations.
The net proceeds from this offering, cash generated from operations and
borrowings under our Citigroup facility will enable us to meet our liquidity
needs for approximately 12 months depending on market conditions which may
affect loan origination volume, loan purchase opportunities and the
availability of securitizations. If adverse market conditions require or if
loan purchase opportunities become available, we may seek additional funds
through additional credit facilities or additional sales of our common or
preferred stock sooner than anticipated. 31




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##### Table of Contents



Item 2.
    Managements Discussion and Analysis of Financial Condition
and Results of Operations Our long-term liquidity and capital requirements consist primarily of
funds necessary to originate and hold manufactured home loans, acquire and hold
manufactured home loans originated by third parties and expand our loan
servicing operations. We expect to meet our long-term liquidity requirements
through cash generated from operations, but we will require external sources of
capital, including sales of shares of our common and preferred stock and
third-party borrowings. We intend to continue to access the asset-backed
securities market for the long-term financing of our loans in order to match
the interest rate risk between our loans and the related long-term funding
source. Our ability to meet our long-term liquidity needs depends on numerous
factors, many of which are outside of our control. These factors include
general market interest rate levels, the shape of the yield curve and spreads
between rates on U.S. Treasury obligations and securitized bonds, all of which
affect investors demand for securitized debt. The risks associated with the manufactured housing business become more
acute in any economic slowdown or recession. Periods of economic slowdown or
recession may be accompanied by decreased demand for consumer credit and
declining asset values. In the manufactured housing business, any material
decline in collateral values increases the loan-to-value ratios of loans
previously made, thereby weakening collateral coverage and increasing the size
of losses in the event of default. Delinquencies, repossessions, foreclosures
and losses generally increase during economic slowdowns or recessions. For our
finance customers, loss of employment, increases in cost-of-living or other
adverse economic conditions would impair their ability to meet their payment
obligations. Higher industry inventory levels of repossessed manufactured homes
may affect recovery rates and result in future impairment charges and provision
for losses. In addition, in an economic slowdown or recession, servicing and
litigation costs generally increase. Any sustained period of increased
delinquencies, repossessions, foreclosures, losses or increased costs would
adversely affect our financial condition and results of operations. These same risks also affect our ability to securitize loans. Continued
access to the securitization market is very important to our business. Numerous
factors affect our ability to complete a successful securitization, including
factors beyond our control. These include general market interest rate levels,
the shape of the yield curve and spreads between rates on U.S. Treasury
obligations and securitized bonds, all of which affect investors demand for
securitized debt. When these factors are unfavorable our ability to
successfully complete securitization transactions is impeded and our liquidity
and capital resources are affected negatively. There can be no assurance that
current favorable conditions will continue or that unfavorable conditions will
not return. 32




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. Our market risk arises from interest rate risk
inherent in our financial instruments. We are not currently subject to foreign
currency exchange rate risk or commodity price risk. Our variable rate debt totaled $152.5 million and $183.1 million at June
30, 2004 and June 30, 2003, respectively, under which we paid interest at
various LIBOR rates plus a spread. If LIBOR increased or decreased by 1.0%
during the six months ended June 30, 2004 and 2003, we believe our interest
expense would have increased or decreased by approximately $814,000 and
$381,800, respectively based on the $185.7 million and $160.1 million average
balance outstanding under our variable rate debt facilities for the six months
ended June 30, 2004 and June 30, 2003, respectively. The increase or decrease
in interest expense related to an increase or decrease in LIBOR is mitigated
somewhat due to the fact that our average variable rate debt outstanding for
the six months ended June 30, 2004 and 2003 was hedged for portions of the
periods through the use of interest rate swap agreements with average notional
amounts of $173.4 million and $165.9 million, respectively thus minimizing the
effect of changes in the benchmark LIBOR rate. We had no variable rate
interest earning assets outstanding during the six months ended June 30, 2004
or 2003. 33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk The following table shows the contractual maturity dates of our assets and
liabilities at June 30, 2004. For each maturity category in the table the
difference between interest-earning assets and interest-bearing liabilities
reflects an imbalance between repricing opportunities for the two sides of the
balance sheet. The consequences of a negative cumulative gap at the end of one
year suggests that, if interest rates were to rise, liability costs would
increase more quickly than asset yields, placing negative pressure on earnings. 
 Maturity0 to 3
    
    4 to 12
    
    1 to 5
    
    Over 5Months
    
    Months
    
    Years
    
    Years
    
    TotalAssetsCash and equivalents
    
    $
    14,540
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,540Restricted cash
    
    
    6,531
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,531Loans receivable, net of allowance for loss
    
    
    1,875
    
    
    
    5,916
    
    
    
    53,126
    
    
    
    393,786
    
    
    
    454,703Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,658
    
    
    
    34,658Furniture, fixtures and equipment, net
    
    
    181
    
    
    
    567
    
    
    
    1,520
    
    
    
    
    
    
    
    2,268Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,277
    
    
    
    32,277Other assets
    
    
    9,919
    
    
    
    7,558
    
    
    
    6,881
    
    
    
    2,685
    
    
    
    27,043Total assets
    
    $
    33,046
    
    
    $
    14,041
    
    
    $
    61,527
    
    
    $
    463,406
    
    
    $
    572,020Liabilities and Stockholders EquityWarehouse financing
    
    $
    431
    
    
    $
    95,920
    
    
    $
    34,638
    
    
    $
    
    
    
    $
    130,989Securitization financing
    
    
    603
    
    
    
    1,903
    
    
    
    17,139
    
    
    
    163,761
    
    
    
    183,406Repurchase agreements
    
    
    21,554
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,554Notes payable  servicing advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recourse liability
    
    
    589
    
    
    
    1,326
    
    
    
    2,722
    
    
    
    1,041
    
    
    
    5,678Other liabilities
    
    
    12,847
    
    
    
    403
    
    
    
    
    
    
    
    609
    
    
    
    13,859Total liabilities
    
    
    36,024
    
    
    
    99,552
    
    
    
    54,499
    
    
    
    165,411
    
    
    
    355,486Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    125Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251
    
    
    
    251Paid-in-capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218,714
    
    
    
    218,714Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned stock compensation
    
    
    (477
    )
    
    
    (1,911
    )
    
    
    (1,173
    )
    
    
    
    
    
    
    (3,561
    )Retained Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,005
    
    
    
    1,005Total stockholders equity
    
    
    (477
    )
    
    
    (1,911
    )
    
    
    (1,173
    )
    
    
    220,095
    
    
    
    216,534Total liabilities and stockholders equity
    
    $
    35,547
    
    
    $
    97,641
    
    
    $
    53,326
    
    
    $
    385,506
    
    
    $
    572,020Interest
sensitivity gap
    
    $
    (2,501
    )
    
    $
    (83,600
    )
    
    $
    8,201
    
    
    $
    77,900Cumulative
interest sensitivity gap
    
    $
    (2,501
    )
    
    $
    (86,101
    )
    
    $
    (77,900
    )
    
    $
    Cumulative
interest sensitivity gap to total earning assets
    
    
    (0.44
    %)
    
    
    (15.02
    %)
    
    
    (13.59
    %)
    
    
    
 
 We believe the negative effect of a rise in interest rates is reduced by
the anticipated securitization of our loans receivable which fixes our cost of
funds associated with the loans over the lives of such loans. 34




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk In conjunction with the loan funding facility with Citigroup, we entered
into six interest rate swap agreements in an effort to manage interest rate
risk on our floating rate notes payable. The interest rate swaps expired on
April 12, 2004. The interest rate swaps were structured to be hedges against
changes in the benchmark interest rate (LIBOR) of the floating rate notes. We
designated the swaps as hedges for accounting purposes. The hedges were highly
effective and had a minimal impact on the results of operations. The following table shows our financial instruments that are sensitive to
changes in interest rates, categorized by expected maturity, and the
instruments fair values at June 30, 2004. 
 Contractual MaturityTotal2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Fair Value(Dollars in thousands)Interest sensitive assets:Loans receivable
    
    $
    3,798
    
    
    $
    9,638
    
    
    $
    9,205
    
    
    $
    10,174
    
    
    $
    11,245
    
    
    $
    410,643
    
    
    $
    454,703Average interest rate
    
    
    10.05
    %
    
    
    10.05
    %
    
    
    10.05
    %
    
    
    10.05
    %
    
    
    10.05
    %
    
    
    10.05
    %
    
    
    10.05
    %Interest bearing deposits
    
    
    16,754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,754Average interest rates
    
    
    1.19
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.19
    %Loan sale proceeds
receivable
    
    
    207
    
    
    
    359
    
    
    
    302
    
    
    
    258
    
    
    
    223
    
    
    
    1,224
    
    
    
    2,573Average interest rate
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,658
    
    
    
    34,658Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.97
    %
    
    
    6.97
    %Residual interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    749
    
    
    
    749Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.00
    %
    
    
    15.00
    %Total interest sensitive assets
    
    $
    20,759
    
    
    $
    9,997
    
    
    $
    9,507
    
    
    $
    10,432
    
    
    $
    11,468
    
    
    $
    447,274
    
    
    $
    509,437Interest sensitive liabilities:Borrowings:Warehouse financing
    
    
    67,887
    
    
    
    28,857
    
    
    
    36,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,989Average interest rate
    
    
    3.69
    %
    
    
    3.69
    %
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.69
    %Securitization financing
    
    
    1,855
    
    
    
    2,703
    
    
    
    2,990
    
    
    
    3,308
    
    
    
    3,660
    
    
    
    168,890
    
    
    
    183,406Average interest rate
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    4.00
    %Repurchase agreements
    
    
    21,554
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,554Average interest rate
    
    
    1.79
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.79
    %Recourse liability
    
    
    929
    
    
    
    1,532
    
    
    
    897
    
    
    
    538
    
    
    
    355
    
    
    
    1,427
    
    
    
    5,678Average interest rate
    
    
    10.57
    %
    
    
    10.57
    %
    
    
    10.57
    %
    
    
    10.57
    %
    
    
    10.57
    %
    
    
    10.57
    %
    
    
    10.57
    %Total interest sensitive
liabilities
    
    $
    92,225
    
    
    $
    33,092
    
    
    $
    38,132
    
    
    $
    3,846
    
    
    $
    4,015
    
    
    $
    170,317
    
    
    $
    341,627
 
 35




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##### Table of Contents



Item 4. Controls and Procedures  (a)
    
    Under the supervision and with the participation of the
Companys management, including the Chief Executive Officer, Ronald
A. Klein, and Chief Financial Officer, W. Anderson Geater, Jr., the
Company evaluated the effectiveness of the design and operation of
the Companys disclosure controls and procedures as of the end of
the period covered by this quarterly report, pursuant to Rule 13a-15
of the Securities Exchange Act of 1934 (the Exchange Act). Based
upon that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective to ensure that information
the Company is required to disclose in its filings with the SEC
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and
forms, and to ensure that information required to be disclosed by
the Company in the reports that it files under the Exchange Act is
accumulated and communicated to the Companys management, including
its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosures(b)
    
    There were no significant changes in the Companys
internal control over financial reporting during the quarterly
period ended June 30, 2004, that have materially affected, or are
reasonably likely to materially affect, the Companys internal
control over financial reporting. 
 As
we have previously announced and as described in our Annual Report on
Form 10-K for the year ended December 31, 2004, we were required to
restate our previously issued financial statements for the period
ended December 31, 2003 and the first three quarters of 2004 due to
an interpretative error in applying accounting principles to a pool
of loans acquired at a discount in October 2003. 
 
 The
Audit Committee of our board of directors has instructed management
to implement certain corrective changes to our internal control
procedures to improve the effectiveness of its internal control over
financial reporting to reduce the likelihood of interpretive errors
resulting in material misstatements in the future. Management is
currently in the process of hiring an accounting professional to
increase our capabilities related to interpretive research into
complex accounting issues. In addition, Management has explored the
possibility of retaining an outside expert to consult on complex
accounting issues. 
 36




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##### Table of Contents



PART II OTHER INFORMATION 
 ITEM 2.  Changes in Securities and Use of Proceeds  (a)
    
    In May 2004, we completed an initial public offering of
8,000,000 shares common stock, $0.01 par value at an offering price
of $8.00 per share. Lehman Brothers Inc. was the managing
underwriter of the offering, and Credit Suisse First Boston LLC and
Flagstone Securities, LLC were co-managers of the offering. In
June 2004, the underwriters purchased an additional 625,900 shares
of common stock at the initial offering price of $8.00 per share
pursuant to their over-allotment option. Our registration statement
was declared effective by the SEC on May 5, 2004 (Registration No.
333-112516). We received aggregate gross offering proceeds of $69.0
million from these transactions and paid aggregate underwriting
commissions of $4.8 million. Aggregate other offering costs paid
totaled $1.3 million. Net offering proceeds after deducting
underwriting commissions and other offering costs was $62.9 million.
We used approximately $52.0 million of the net proceeds of this
offering to repay a portion of the short-term borrowings incurred
under our Citigroup financing arrangement. We have used the
remainder of the net offering proceeds to fund manufactured home
loans in the ordinary course of our business. 
 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Required by Rule 13a-14(b) of the Securities Exchange
Act of 1934, as amended.
 (b) Reports of Form 8-K:  a.
    
    Form 8-K, dated June 3, 2004 furnished for the
purpose of reporting, under Item 12  Results of Operations and
Financial Condition, the Companys 2004 first quarter earnings
and results of operations.b.
    
    Form 8-K, dated June 10, 2004 furnished for the
purpose of reporting, under Item 5  Other Events, the Companys
announcement of the exercise of the over-allotment option granted to the underwriters of the Companys initial public
offering. 37




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. 
 Dated: August 12, 2005 
 ORIGEN FINANCIAL, INC.BY:
    /s/  W. Anderson Geater, Jr.W. Anderson Geater, Jr., ChiefFinancial Officer and Secretary
(Duly authorized officer and principal
financial officer) 38




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##### Table of Contents



ORIGEN FINANCIAL, INC. 
 EXHIBIT INDEX Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required by Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Required by Rule 13a-14(b) of the Securities Exchange
Act of 1934, as amended.