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SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
 FORM 10-Q þ Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2005. OR o 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
    
    20-0145649(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 27777 Franklin Rd.Suite 1700Southfield, MI
    
    48034(Address of Principal Executive Offices)
    
    (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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ Number of shares of Common Stock, $.01 par value, outstanding as of May 10, 2005: 25,473,900




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Origen Financial, Inc.  
 Index PagePart I Financial InformationItem 1. Financial Statements (Unaudited)Consolidated
Balance Sheets - as of March 31, 2005 and
December 31, 2004
    
    
    4Consolidated Statements of Earnings for the three months
ended March 31, 2005 and 2004
    
    
    5Consolidated Statements of Comprehensive Income for the three months
ended March 31, 2005 and 2004
    
    
    6Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and 2004
    
    
    7Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    31Part II Other InformationItem 2. Changes in Securities and Use of Proceeds
    
    
    32Item 6. Exhibits and Reports on Form 8-K
    
    
    32Signatures
    
    
    33Certification of Chief Executive Officer Required by Rule 13a-14(a)Certification of Chief Financial Officer Required by Rule 13a-14(a)Certification of Chief Executive Officer and Chief Financial Officer Required by Rule 13a-14(b)




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Part I 
 Item 1. Financial Statements




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Origen Financial, Inc. 
 Consolidated Balance Sheet
(In thousands, except share data) March 31, 2005 and December 31, 2004 
 March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSAssetsCash and equivalents
    
    $
    5,598
    
    
    $
    9,293Restricted cash
    
    
    10,653
    
    
    
    9,222Loans receivable, net of allowance for losses of
$5,294 and $5,315, respectively
    
    
    630,244
    
    
    
    563,268Investments
    
    
    40,772
    
    
    
    37,622Furniture, fixtures and equipment, net
    
    
    2,720
    
    
    
    2,336Goodwill
    
    
    32,277
    
    
    
    32,277Other assets
    
    
    30,295
    
    
    
    28,529Total assets
    
    $
    752,559
    
    
    $
    682,547LIABILITIES AND STOCKHOLDERS EQUITYLiabilitiesWarehouse financing
    
    $
    183,739
    
    
    $
    107,373Securitization financing
    
    
    315,515
    
    
    
    328,388Repurchase Agreements
    
    
    22,141
    
    
    
    20,153Notes payable  servicing advances
    
    
    1,977
    
    
    
    Recourse liability
    
    
    5,665
    
    
    
    6,603Other liabilities
    
    
    17,961
    
    
    
    16,564Total liabilities
    
    
    546,998
    
    
    
    479,081Stockholders EquityPreferred stock, $.01 par value, 10,000,000 shares
authorized; 125 shares issued and outstanding
at March 31, 2005 and December 31, 2004, respectively
    
    
    125
    
    
    
    125Common stock, $.01 stated value, 125,000,000 shares
authorized; 25,215,400 shares issued and
outstanding at March 31, 2005 and December 31, 2004
    
    
    252
    
    
    
    252Additional paid-in-capital
    
    
    219,121
    
    
    
    219,121Accumulated other comprehensive loss
    
    
    (370
    )
    
    
    (1,807
    )Unearned stock compensation
    
    
    (2,131
    )
    
    
    (2,790
    )Distributions in excess of earnings
    
    
    (11,436
    )
    
    
    (11,435
    )Total stockholders equity
    
    
    205,561
    
    
    
    203,466Total liabilities and stockholders equity
    
    $
    752,559
    
    
    $
    682,547
 The accompanying notes are an integral part of these financial statements. 4




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Origen Financial, Inc. 
 Consolidated Statement of Earnings (Unaudited)
(In thousands, except share data) For the Three Months Ended March 31   2005
    
    
    2004Interest IncomeTotal interest income
    
    $
    13,166
    
    
    $
    8,770Total interest expense
    
    
    5,410
    
    
    
    3,019Net interest income before loan losses
    
    
    7,756
    
    
    
    5,751Provision for credit losses
    
    
    2,030
    
    
    
    1,891Net interest income after loan losses
    
    
    5,726
    
    
    
    3,860Non-interest income
    
    
    3,280
    
    
    
    2,880Non-interest ExpensesPersonnel
    
    
    5,481
    
    
    
    4,402Loan origination and servicing
    
    
    414
    
    
    
    388State business taxes
    
    
    113
    
    
    
    90Other operating
    
    
    1,991
    
    
    
    1,597Total non-interest expense
    
    
    7,999
    
    
    
    6,477NET INCOME
    
    $
    1,007
    
    
    $
    263Weighted average common shares outstanding
    
    
    24,726,729
    
    
    
    15,686,374Weighted average common shares outstanding, diluted
    
    
    25,016,254
    
    
    
    15,929,881Earnings per share:Basic
    
    $
    0.04
    
    
    $
    0.02Diluted
    
    $
    0.04
    
    
    $
    0.02
 The accompanying notes are an integral part of these financial statements. 5




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Origen Financial, Inc. 
 Consolidated Statement of Other Comprehensive Income (Unaudited)
(In thousands, except share data) For the Three Months Ended March 31   2005
    
    
    2004Net income
    
    $
    1,007
    
    
    $
    263Other
Comprehensive Income:Net unrealized gain on interest rate swaps
    
    
    1,369
    
    
    
    Less
reclassification adjustment for net realized losses included in net
income
    
    
    68
    
    
    
    46Comprehensive income
    
    $
    2,444
    
    
    $
    309
 The accompanying notes are an integral part of these financial statements. 6




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Origen Financial, Inc. 
 Consolidated Statement of Cash Flows (Unaudited)
(In thousands, except share data) For the Three Months Ended March 31   2005
    
    
    2004Cash Flows From Operating ActivitiesNet income (loss)
    
    $
    1,007
    
    
    $
    263Adjustments to reconcile net income (loss) to
cash used in operating activities:Provision for credit losses and recourse liability
    
    
    2,080
    
    
    
    1,891Depreciation and amortization
    
    
    1,946
    
    
    
    1,191Originations
and purchases of loans
    
    
    (87,970
    )
    
    
    (59,143
    )Principal collections on loans held for sale
    
    
    16,308
    
    
    
    11,355Increase in other assets
    
    
    (2,924
    )
    
    
    (4,186
    )Increase (decrease) in accounts payable and other liabilities
    
    
    92
    
    
    
    (1,829
    )Net cash used in operating activities
    
    
    (69,461
    )
    
    
    (50,458
    )Cash Flows From Investing ActivitiesPurchase of investment securities
    
    
    (3,150
    )
    
    
    (31,360
    )Proceeds from sale of repossessed homes
    
    
    3,069
    
    
    
    2,341Capital expenditures
    
    
    (596
    )
    
    
    (65
    )Net cash used in investing activities
    
    
    (677
    )
    
    
    (29,084
    )Cash Flows From Financing ActivitiesNet proceeds from issuance of preferred stock
    
    
    
    
    
    
    95Net proceeds from issuance of common stock
    
    
    
    
    
    
    9,624Dividends paid
    
    
    (1,009
    )
    
    
    (1,484
    )Proceeds from warehouse and securitization financing
    
    
    82,204
    
    
    
    370,643Repayment of warehouse and securitization financing
    
    
    (16,729
    )
    
    
    (292,189
    )Net change
in notes payable - servicing advances
    
    
    1,977
    
    
    
    (1,487
    )Net cash provided by financing activities
    
    
    66,443
    
    
    
    85,202NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (3,695
    )
    
    
    5,660Cash and cash equivalents, beginning of period
    
    
    9,293
    
    
    
    6,926Cash and cash equivalents, end of period
    
    $
    5,598
    
    
    $
    12,586Supplemental disclosures of cash flow information:Interest paid
    
    $
    5,011
    
    
    $
    3,153Non cash financing activities:Restricted common stock issued as unearned compensation
    
    $
    
    
    
    $
    3,300
 The accompanying notes are an integral part of these financial statements. 7




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Origen Financial, Inc. 
 Notes to Consolidated Financial Statements (Unaudited)   Note A  Basis of Presentation These unaudited condensed consolidated financial statements of Origen Financial, Inc., a
Delaware corporation (the Company), have been prepared pursuant to the Securities and Exchange
Commission (SEC) rules and regulations and should be read in conjunction with the consolidated
financial statements and notes thereto of the Company included in the 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. 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. 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 March 31 (in thousands, except earnings per share): 2005
    
    
    2004Numerator:Net income
    
    $
    1,007
    
    
    $
    263Preferred stock dividends
    
    
    (4
    )
    
    
    (4
    )Income available to
common shareholders
    
    $
    1,003
    
    
    $
    259Denominator:Weighted average common shares
for basic EPS
    
    
    24,727
    
    
    
    15,686Effect of dilutive securities:Restricted stock awards
    
    
    289
    
    
    
    244Weighted average common shares
for diluted EPS
    
    
    25,016
    
    
    
    15,930Basic EPS
    
    $
    0.04
    
    
    $
    0.02Diluted EPS
    
    $
    0.04
    
    
    $
    0.02
 Diluted
earnings per share reflect the potential dilution that would occur if
dilutive securities were exercised or converted into common stock. At
March 31, 2005 the Company had 267,500 stock options outstanding that
if exercised, may impact dilution. 8




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited)   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 period ended March
31 (in thousands except income per share): 2005
    
    
    2004Net income available to common
shareholders
    
    $
    1,003
    
    
    $
    259Stock option compensation cost
    
    
    (6
    )
    
    
    (4
    )Pro forma net income available
to common shareholders
    
    $
    997
    
    
    $
    255Basic income per share as reported
    
    $
    0.04
    
    
    $
    0.02Stock option compensation cost
    
    
    
    
    
    
    Pro forma basic income per share
    
    $
    0.04
    
    
    $
    0.02Diluted income per share as reported
    
    $
    0.04
    
    
    $
    0.02Stock option compensation cost
    
    
    
    
    
    
    Pro forma diluted income per share
    
    $
    0.04
    
    
    $
    0.02
 Note D  Investments The Companys investments consisted of three asset backed securities with principal amounts
of $32.0 million, $6.8 million and $6.5 million. The securities are collateralized by manufactured
housing loans and are classified as held-to-maturity. They have contractual maturity dates of July
28, 2033, December 28, 2033 and December 28, 2033, respectively. The securities are carried on the
Companys balance sheet at amortized cost of $40.8 million which approximates their fair value. 9




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited)   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 period ended March 31 (in thousands): 2005
    
    
    2004Balance at beginning of period
    
    $
    5,315
    
    
    $
    3,614Provision for loan losses
    
    
    2,030
    
    
    
    1,891Transfers from recourse liability
    
    
    988
    
    
    
    1,947Gross charge-offs
    
    
    (5,934
    )
    
    
    (5,575
    )Recoveries
    
    
    2,895
    
    
    
    2,274Balance at end of period
    
    $
    5,294
    
    
    $
    4,151
 The recourse liability and related additions and transfers out of the recourse liability were
as follows for the period ended March 31 (in thousands): 2005
    
    
    2004Balance at beginning of period
    
    $
    6,603
    
    
    $
    8,740Reimbursements for losses per recourse
agreements
    
    
    
    
    
    
    Provision for recourse liabilities
    
    
    50
    
    
    
    Transfers to allowance for credit losses
    
    
    (988
    )
    
    
    (1,947
    )Balance at end of period
    
    $
    5,665
    
    
    $
    6,793
 Note F  Loans Receivable and Securitizations The carrying amounts of loans receivable consisted of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Manufactured
housing loans - securitized
    
    $
    388,406
    
    
    $
    401,995Manufactured housing loans  available for sale
    
    
    252,686
    
    
    
    170,978Accrued interest receivable
    
    
    3,444
    
    
    
    3,285Deferred fees
    
    
    (3,076
    )
    
    
    (3,100
    )Discount on purchased loans
    
    
    (5,922
    )
    
    
    (4,575
    )Allowance for loan loss
    
    
    (5,294
    )
    
    
    (5,315
    )$
    630,244
    
    
    $
    563,268
 10




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited)   Note F  Loans Receivable and Securitizations (Continued) Periodically
the Company securitizes manufactured housing loans. Under the current legal
structure of the securitization program, the Company sells
manufactured housing 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) and including a 20% clean up call. 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. Total
principal balance of loans serviced that the Company has previously securitized and accounted for
as a sale at March 31, 2005 was approximately $170.6 million. Delinquency statistics (including
repossessed inventory) on those loans are as follows at March 31, 2005 (dollars in thousands): No. of
    
    
    Principal
    
    
    % ofDays delinquent
    
    Loans
    
    
    Balance
    
    
    Portfolio31-60
    
    
    100
    
    
    $
    3,918
    
    
    
    2.3
    %61-90
    
    
    34
    
    
    $
    1,422
    
    
    
    0.8
    %Greater than 90
    
    
    218
    
    
    $
    10,144
    
    
    
    5.9
    %
 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 $724,000 at March 31, 2005. There was no
change in the balance for the period presented. 11




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited)   Note G  Debt Total debt outstanding was as follows (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Warehouse financing
    
    $
    183,739
    
    
    $
    107,373Securitization financing
    
    
    315,515
    
    
    
    328,388Notes payable  servicing advances
    
    
    1,977
    
    
    
    Repurchase agreements
    
    
    22,141
    
    
    
    20,153$
    523,372
    
    
    $
    455,914
 Notes Payable  Citigroup The Company, through its operating subsidiary Origen Financial
L.L.C., currently has a short term securitization facility used for warehouse financing with
Citigroup Global Markets Realty Corp. (Citigroup) (formerly Salomon Brothers Realty Corporation).
Under the terms of the agreement, originally entered into in March 2003 and revised periodically,
most recently in March 2005, the Company pledges loans as collateral and in turn is advanced funds.
The facility has a maximum advance amount of $200 million, an advance rate equal to 85% of the
unpaid principal balance of the pool of loans pledged and an annual interest rate equal to LIBOR
plus a spread. The facility also includes a $15 million supplemental advance amount that is
collateralized by the Companys residual interests in the 2004-A, and 2004-B securitizations. The
facility matures on March 23, 2006. At March 31, 2005 the outstanding balance on the facility was
approximately $183.7 million. Repurchase Agreements The Company has entered into three repurchase agreements with
Citigroup for the purpose of financing the purchase of investments in three asset backed securities
with principal balances of $32.0 million, $3.1 million and $3.7 million respectively. Under the
terms of the agreements 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 financed at an amount equal to 75% of their current market value as
determined by Citigroup. At March 31, 2005 the repurchase agreements had outstanding principal
balances of approximately $18.1 million, $1.8 million and $2.2 million, respectively. Typically
the repurchase agreements are rolled over for 30 day periods when they expire. The annual interest
rates on the agreements are equal to LIBOR plus a spread. 12




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Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited)  Note G  Debt (Continued) Notes
Payable  2004-A Securitization On February 11, 2004, the Company completed a
securitization of approximately $238 million in principal balance of manufactured housing loans.
The securitization was accounted for as a financing. As part of the securitization the Company,
through a special purpose entity, Origen Manufactured Housing Trust 2004-A issued $200 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 March 31, 2005 the outstanding balance of the notes was
approximately $160.7 million. Notes Payable  2004-B Securitization On September 29, 2004, the Company completed a
securitization of approximately $200 million in principal balance of manufactured housing loans.
The securitization was accounted for as a financing. As part of the securitization the Company,
through a special purpose entity, Origen Manufactured Housing Trust 2004-B issued $169 million in
notes payable. The notes are stratified into seven different classes and pay interest at a
duration weighted average rate of approximately 5.26%. The notes have a contractual maturity date
of June 2013 with respect to the Class A-1 notes; December 2017, with respect to the Class A-2
notes; August 2021, with respect to the Class A-3 notes; and November 2035, with respect to the
Class A-4, Class M-1, Class M-2 and Class B-1 notes. At March 31, 2005 the aggregate outstanding
balance of the 2004-B securitization notes was approximately $154.9 million. Notes Payable  Servicing Advances The Company currently has a revolving credit facility
with JPMorgan Chase Bank, N.A. (as successor by merger to Bank One, NA). Under the terms of the
facility the Company can borrow up to $5.0 million for the purpose of funding required principal
and interest advances on manufactured housing 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 housing loans. The banks prime interest rate is payable
on the outstanding balance. To secure the loan, the Company has granted JPMorgan Chase a security
interest in substantially all its assets (excluding securitized assets). The expiration date of
the facility is December 31, 2005. At March 31, 2005 the outstanding balance on the facility was
approximately $2.0 million. 13




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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): March 31, 2005
    
    
    December 31, 2004Average
    
    
    Average
    
    
    Average
    
    
    AverageBalance
    
    
    Rate
    
    
    Balance
    
    
    RateNotes payable  Citigroup
    
    $
    128,412
    
    
    
    4.3
    %
    
    $
    139,115
    
    
    
    3.9
    %Notes payable  2004-A securitization
    
    $
    165,451
    
    
    
    4.6
    %
    
    $
    163,088
    
    
    
    4.4
    %Notes payable  2004-B securitization
    
    $
    158,956
    
    
    
    4.9
    %
    
    $
    42,299
    
    
    
    4.8
    %Repurchase agreement
    
    $
    20,616
    
    
    
    3.4
    %
    
    $
    17,573
    
    
    
    2.3
    %Note payable   servicing advances
    
    $
    402
    
    
    
    9.5
    %
    
    $
    553
    
    
    
    7.0
    %
 Note H  Equity Incentive Plan The Companys equity incentive plan has approximately 1.7 million shares of common stock
reserved for issuance as either stock options or restricted 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
Compensation Committee of the Board of Directors as the administrator of the Companys stock option
plan, and options that have been issued to date generally vest over a two-year period. There were
no options issued during the quarter ended March 31, 2005. As of March 31, 2005, 267,500 options
were outstanding under the plan at an exercise price of $10.00 per share. Note I  Derivative Instruments and Hedging Activity In February 2005, the Company entered into a forward starting interest rate swap for the
purpose of locking in the benchmark interest rate on a portion of its planned securitization
transaction to be completed in May 2005. The Company has designated the swap as a cash flow hedge
for accounting purposes. On the start date of the swap the Company began paying a fixed rate of 4.44% and receiving a
floating rate equal to the one month LIBOR rate on a beginning notional balance of $132.9 million.
A rise in rates during the interim period would increase the borrowing cost in the securitization,
but the increase would be offset by the increased value in the right to pay a lower fixed rate
during the term of the securitized deal making the hedge highly effective. SFAS No. 133, the Accounting for Derivative Instruments and Hedging Activities requires all
derivative instruments to be carried at fair value on the balance sheet. The fair value of the
forward starting interest rate swap related to the 2005-A
securitization transaction approximates an asset of $1.4 million at
March 31, 2005. The unamortized portion of the terminated interest
rate swap related to the 2004-B securitization approximates a liability
of $1.7 million at March 31, 2005. 14




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##### Table of Contents



Origen Financial, Inc. Notes to Consolidated Financial Statements (Unaudited)   Note J  Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 123(R), that addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the fair value of the
enterprises equity instruments or that may be settled by the issuance of such equity instruments.
Under the FASBs statement, all forms of share-based payments to employees, including employee
stock options, must be treated the same as other forms of compensation by recognizing the related
cost in the income statement. The expense of the award would generally be measured at fair value at
the grant date. Previous accounting guidance requires that the expense relating to so-called fixed
plan employee stock options only be disclosed in the footnotes to the financial statements. The
Statement eliminates the ability to account for share-based compensation transactions using APB
Opinion No. 25, Accounting for Stock Issued to Employeesfor options granted after June 15, 2005.
On April 14, 2005, the SEC announced it would permit companies to implement statement 123(R) at the
beginning of their next fiscal year. The Company plans to adopt the new rules reflected in
statement 123(R) using the modified-prospective method effective January 1, 2006. Management has
determined the impact of adoption of SFAS No. 123 will not have a material effect on its results of
operation. Note K  Subsequent Events On May 12, 2005, the Company completed a securitized financing transaction for approximately
$190.0 million of loans, which was funded by issuing bonds in the approximate amount of $165.3
million, at a duration weighted average interest cost of 5.30%. The transaction was structured to
issue classes of bonds with different estimated maturity dates and average lives to better meet
investor demands. On May 3, 2005, the forward starting interest rate swap entered into in February 2005 was
terminated. Because interest rates had fallen during the interim period the cost to terminate the
swap was approximately $0.4 million. This cost will be amortized over the expected life of the debt
issued in the securitization transaction in accordance with SFAS No. 133. Amortization over the
next twelve months is expected to be approximately $68,000. On
May 8, 2005 the Company issued 258,500 restricted stock awards
to certain directors, officers and
employees. The stock awards were issued at $7.24 per share and are being amortized over their
estimated service period. On April 27, 2005 the Company declared a dividend of $0.06 per common share payable to holders of
record as of May 25, 2005. 15




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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 housing loans;
    our ability to borrow at favorable rates and terms;
    the supply of manufactured housing 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. 16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   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 the Company as
a REIT. In May 2004, we completed an initial public offering of 8,000,000 shares of our common
stock at a purchase price of $8.00 per share. In June 2004, the underwriters for the public
offering purchased an additional 625,900 shares by exercising their over-allotment option.
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. Critical Accounting Policies We have identified critical accounting policies that, as a result of the judgments,
uncertainties, uniqueness and complexities of the underlying accounting standards and operations
involved, could result in material changes to our financial condition or results of operations
under different conditions or using different assumptions. Details regarding our critical
accounting policies are described fully in our 2004 Annual Report filed with the Securities and
Exchange Commission on Form 10-K. During the three months ended March 31, 2005, we adopted the
provisions of Statement of Position (SOP 03-3) Accounting for Certain Loans or Debt Securities
Acquired in a Transfer, which addresses accounting for differences between contractual cash flows
and cash flows expected to be collected from an investors initial investment in loans or debt
securities (loans) acquired in a transfer if those differences are attributable, at least in part,
to credit quality. It includes such loans acquired in a purchase business combination, but does not
apply to loans originated by the entity. We have determined the impact of adoption of SOP 03-3
will not have a material effect on our results from operations. Results of Operations Comparison of the three months ended March 31, 2005 and 2004. Net Income Net income increased $0.7 million to $1.0 million for the three months ended March 31, 2005
compared to net income of $0.3 million for the same period in 2004. The increase is the result of
an increase of $1.8 million in net interest income after loan losses and an increase of $0.4
million in non interest income offset by an increase in non interest expenses of $1.5 million as
described in more detail below. 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   Interest Income Interest income increased 48.9% to approximately $13.1 million compared to approximately $8.8
million. This increase resulted primarily from an increase of $230.5 million or 57.0% in average
interest earning assets from $404.7 million to $635.2 million. The increase in interest earning
assets includes approximately $195.9 million in newly originated
and purchased manufactured housing loans and
approximately $6.7 million in asset backed securities. The weighted average net interest rate on
the loan receivable portfolio decreased to 8.4% from 9.0% due to competitive conditions
resulting in lower interest rates on new originations and a continuing positive change in the
credit quality of the loan portfolio. Generally, higher credit quality loans will carry a lower
interest rate. The weighted average net interest rate is net of any servicing fee resulting from
securitization or sale of the loan but accounted for as a financing. Interest
expense increased $2.4 million, or 80.0%, to $5.4 million
from $3.0 million.
The majority of our interest expense relates to interest on our loan funding facilities. Average
debt outstanding on our loan funding facilities increased $153.4 million to $452.8 million compared
to $299.4 million, or 51.2%. The average interest rate on total debt outstanding increased from
4.0% to 4.6%. The higher average rate for the three months ended March 31, 2005 was due primarily
to the increase in the average balance of loans financed on our long term securitization
facilities, which tend to have higher weighted average interest rates compared to our short term
securitization facility, which is used primarily to fund new originations. 18




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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
of our interest earning assets and interest bearing liabilities for the three months ended March 31
(dollars in thousands): 2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest earning assets:Manufactured housing loans
    
    $
    582,414
    
    
    $
    12,222
    
    
    
    8.39
    %
    
    $
    386,427
    
    
    $
    8,643
    
    
    
    8.95
    %Investment securities
    
    
    38,063
    
    
    
    869
    
    
    
    9.13
    %
    
    
    6,279
    
    
    
    98
    
    
    
    6.24
    %Other
    
    
    14,719
    
    
    
    75
    
    
    
    2.04
    %
    
    
    11,998
    
    
    
    29
    
    
    
    0.97
    %Total
    
    $
    635,196
    
    
    $
    13,166
    
    
    
    8.29
    %
    
    $
    404,704
    
    
    $
    8,770
    
    
    
    8.67
    %Interest bearing liabilities:Loan funding facilities
    
    $
    452,819
    
    
    $
    5,226
    
    
    
    4.62
    %
    
    $
    299,393
    
    
    $
    2,985
    
    
    
    3.99
    %Repurchase agreement -
investment securities
    
    
    20,616
    
    
    
    174
    
    
    
    3.38
    %
    
    
    4,181
    
    
    
    19
    
    
    
    1.82
    %Notes
payable - servicing
advances
    
    
    402
    
    
    
    10
    
    
    
    9.95
    %
    
    
    1,359
    
    
    
    15
    
    
    
    4.42
    %Total
    
    $
    473,837
    
    
    $
    5,410
    
    
    
    4.57
    %
    
    $
    304,933
    
    
    $
    3,019
    
    
    
    3.96
    %Net interest income and
interest rate spread
    
    
    
    
    
    $
    7,756
    
    
    
    3.72
    %
    
    
    
    
    
    $
    5,751
    
    
    
    4.71
    %Net yield on average interest
earning assets
    
    
    
    
    
    
    
    
    
    
    4.88
    %
    
    
    
    
    
    
    
    
    
    
    5.68
    %
 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 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 March 31, 2005 compared to the three months ended March 31,
2004 (in thousands): Volume
    
    
    Rate
    
    
    TotalInterest earning assets:Manufactured housing loans
    
    $
    4,113
    
    
    $
    (534
    )
    
    $
    3,579Investment securities
    
    
    726
    
    
    
    45
    
    
    
    771Other
    
    
    14
    
    
    
    32
    
    
    
    46Total interest income
    
    $
    4,853
    
    
    $
    (457
    )
    
    $
    4,396Interest bearing liabilities:Loan funding facilities
    
    $
    1,771
    
    
    $
    470
    
    
    $
    2,241Repurchase agreement -
investment securities
    
    
    139
    
    
    
    16
    
    
    
    155Notes
payable - servicing
advances
    
    
    (24
    )
    
    
    19
    
    
    
    (5
    )Total interest expense
    
    $
    1,886
    
    
    $
    505
    
    
    $
    2,391Increase in net interest income
    
    
    
    
    
    
    
    
    
    $
    2,005
 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
$0.4 million, or 13.8% to $3.3 million compared to $2.9 million. The average serviced loan
portfolio on which servicing fees are collected increased
approximately $79.6 million, or 6.1% from
$1.29 billion to $1.38 billion. The increase relates primarily to fees from new loans originated
that are financed on our short term securitization facility with Citigroup. The weighted average
service fee rate increased slightly 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. Also commissions
and fees related to force placed
insurance increased 50.0% from $0.2 million to $0.3 million. 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. 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   The provision for credit losses increased 5.3% to $2.0 million from $1.9 million. Net
charge-offs against the allowance for loan loss decreased 9.0% from
$3.3 million, to $3.0 million.
As a percentage of average outstanding principal balance total net charge-offs on an annualized
basis decreased to 2.1% compared to 3.4%. We expect net charge-offs as a percentage of average
outstanding principal balance to continue to decrease in the future due to the fact that the
owned portfolio of loans at March 31, 2005 has a larger concentration of loans originated in the
years 2002 through 2005 than was the case for the owned portfolio at March 31, 2004. A change to
our underwriting practices and credit scoring model in 2002 has resulted in higher credit quality
of loans originated since 2002. Non-interest Expenses Personnel expenses increased approximately $1.1 million, or 25.0%, to $5.5 million compared to
$4.4 million. The increase is primarily the result of a $0.4 million increase in stock
compensation expense related to restricted stock granted to certain officers and employees, a $0.3
million increase in annual performance bonus accrual and an increase in the number of full time
equivalent employees from 258 to 263, largely related to staffing
needs from our compliance efforts for Sarbanes-Oxley compliance. Loan origination and servicing expenses increased approximately 6.7%, to $414,000 compared to
$388,000. The increase is primarily a result of an increase in custodial bank and other servicing
related fees related to the general growth of the servicing portfolio as we continue to securitize
our new loan originations. Other operating expenses, which consist of occupancy and equipment, professional fees, travel
and entertainment and miscellaneous expenses increased approximately $0.3 million to $1.9 million,
or approximately 18.8%, compared to $1.6 million, the details of which are discussed below. Occupancy and equipment, office expense and telephone expense remained relatively constant at
approximately $1.0 million as we continue to recognize the cost saving benefits related to the
consolidation of some of our servicing and origination functions in our Fort Worth, Texas and
Southfield, Michigan offices. Professional fees increased approximately $271,000 or 279.4%, to $368,000 compared to $97,000.
The primary reason for the increase was due to additional fees related to our year end audit and
Sarbanes-Oxley compliance related costs. Travel and entertainment expenses increased approximately $47,000 or 17.8%, to $311,000
compared to $264,000, primarily as a result of our expanded marketing programs. 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   Miscellaneous expenses increased approximately $129,000 or 37.4%, to $474,000 compared to
$345,000. The increase was primarily the result of an increase of approximately $105,000 in
director and officer liability insurance which was $286,000 compared to $181,000. The increase was
due to our conversion to a publicly traded company following our initial public offering in May
2004. Receivable Portfolio and Asset Quality Net loans receivable outstanding increased 11.9% to $630.2 million at March 31, 2005 compared
to $563.3 million at December 31, 2004. Loans receivable are comprised of installment contracts
and mortgages collateralized by manufactured houses and in some instances real estate. New loan originations for the quarter ended March 31, 2005 increased 28.3% to $58.5 million
compared to $45.6 million for the quarter ended March 31, 2004. 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. Also, on March 30, 2005 we purchased a portfolio of 431
manufactured housing loans with an outstanding principal balance of approximately $30.7 million
from Residential Funding Corporation. The portfolio had a weighted average coupon rate of 7.31%
and weighted average remaining term of 26.8 years. 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. At March 31, 2005, net book value of this pool was approximately $37.9 million.
No adjustment to the carrying value of this loan pool was necessary at March 31, 2005. 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): March 31,
    
    
    December 31,2005
    
    
    2004Principal balance loans receivable
    
    $
    638,622
    
    
    $
    572,973Number of loans receivable
    
    
    14,583
    
    
    
    13,358Average loan balance
    
    $
    44
    
    
    $
    43Weighted average loan coupon (a)
    
    
    9.69
    %
    
    
    9.86
    %Weighted average initial term
    
    21 years
    
    
    20 years
    Delinquency
statistics for the manufactured housing loan portfolio are as follows (dollars in
thousands): March 31, 2005
    
    
    December 31, 2004No. of
    
    
    Principal
    
    
    % of
    
    
    No. of
    
    
    Principal
    
    
    % ofDays delinquent
    
    Loans
    
    
    Balance
    
    
    Portfolio
    
    
    Loans
    
    
    Balance
    
    
    Portfolio31-60
    
    
    168
    
    
    $
    6,156
    
    
    
    1.0
    %
    
    
    146
    
    
    $
    5,253
    
    
    
    0.9
    %61-90
    
    
    60
    
    
    
    2,465
    
    
    
    0.4
    %
    
    
    80
    
    
    
    3,014
    
    
    
    0.5
    %Greater than 90
    
    
    155
    
    
    
    6,274
    
    
    
    1.0
    %
    
    
    195
    
    
    
    7,637
    
    
    
    1.3
    %
 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   We define non-performing loans as those loans that are 90 or more days delinquent in
contractual principal payments. For the quarter ended March 31, 2005 the average outstanding
principal balance of non-performing loans was approximately $7.3 million compared to $6.7 million
for the quarter ended March 31, 2004. However, non-performing loans as a percentage of average
loan receivables decreased to 1.3% for the quarter ended March 31, 2005 compared to 1.8% for the
quarter ended March 31, 2004, primarily as a result of higher average balances and improved credit
quality in the loan portfolio. At
March 31, 2005 we held 176 repossessed houses owned by us compared to 177 houses at
December 31, 2004. The book value of these houses, including repossession expenses, based on the
lower of cost or market value was approximately $3.5 million at March 31, 2005 compared to $3.4
million at December 31, 2004, an increase of $0.1 million
or 2.9%. The allowance for credit losses was $5.3 million at March 31, 2005 and December 31, 2004.
Despite the 11.9% increase in net loan receivable balance, the allowance for credit losses remained
relatively flat due to significant improvement in delinquency rates at March 31, 2005. Loans
delinquent over 60 days decreased $2.0 million or 18.7% from $10.7 million at December 31, 2004 to
$8.7 million at March 31, 2005. The allowance for credit losses as a percentage of net loans
receivable was approximately .83% at March 31, 2005 compared to
approximately .93% at December 31,
2004. Net charge-offs were $3.0 million for the quarter ended
March 31, 2005, compared to $3.3
million for the quarter ended March 31, 2004. Based on the analysis we performed related to the
allowance for credit losses, we believe that our allowance for credit losses is currently adequate
to cover inherent losses in our loan portfolio. In the past, our predecessor companies sold loans with recourse. We regularly evaluate the
recourse liability for adequacy by taking into consideration factors such as changes in outstanding
principal balance of the portfolios of loans sold with recourse; trends in actual and forecasted
portfolio performance, including delinquency and charge-off rates; and current economic conditions
that may affect a borrowers ability to pay. If actual results differ from our estimates, we may be
required to adjust our liability accordingly. There was no increase to the liability for the
quarter ended March 31, 2005 or 2004. At March 31, 2005, the reserve for loan recourse liability
was $5.7 million as compared to $6.6 million at December 31, 2004, a decrease of 13.6%. The
remaining principal balance of all loans sold with recourse at March 31, 2005 was $49.3 million
versus $51.5 million at December 31, 2004, a decrease of 4.3%. Our
asset quality statistics for the quarter ended March 31, 2005
reflect our continued
emphasis on the credit quality of our borrowers and the improved underwriting and origination
practices we put into place. Continued improvement in delinquency statistics and recovery rates
are expected to result in lower levels of non-performing assets and net charge-offs. Long term,
lower levels of non-performing assets and net charge-offs 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. 23




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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
housing loans originated
by third parties and expand our loan servicing operations. At March 31, 2005 we had approximately
$5.6 million in available cash and cash equivalents. As a REIT, we are required to distribute at
least 90% of our REIT taxable income (as defined in the Internal Revenue Code) 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 quarter ended March 31, 2005, totaled $69.5
million versus $50.5 million for the quarter ended March 31, 2004. Cash used to originate and
purchase loans increased 48.9%, or $28.9 million, to $88.0 million for the quarter ended March 31,
2005 compared to $59.1 million for the quarter ended March 31, 2004. The increase is the result of
increased origination volume and the purchase of approximately $30.7 million in principal balance
of manufactured housing loans in March 2005. Principal collections on manufactured housing loans
receivable totaled $16.3 million for the quarter ended March 31, 2005 as compared to $11.4 million
for the quarter ended March 31, 2004 an increase of $4.9 million, or 43.0%. The increase in
collections is primarily related to the increase in the average outstanding loan portfolio balance,
which was $582.4 million for the quarter ended March 31, 2005 compared to $386.4 million for the
quarter ended March 31, 2004 in addition to improved credit quality and decreased delinquency as a
percentage of outstanding loan receivable balance. Cash used in investing activities was $0.7 million in the quarter ended March 31, 2005 versus
$29.1 million for the quarter ended March 31, 2004. The primary reason for this decrease was the
purchase of approximately $32.0 million in securitization bonds in the quarter ended March 31, 2004
compared to the purchase of approximately $4.1 million of securitization bonds in the quarter ended
March 31, 2005. The bonds were purchased at a discount to par of approximately 2.0% in the
quarter ended March 31, 2005 compared to a discount to par of 18.7% in the quarter ended March 31,
2004. The primary source of cash during the quarter ended March 31, 2005 was approximately $65.5
million in net proceeds from notes payable used to finance loan receivables. This is compared to
$55.0 million in net proceeds from notes payable used to finance loan receivables, $23.5 million
from a repurchase agreement to finance the purchase of the securitization bonds and approximately
$9.6 million from the issuance of 1,000,000 million shares of our common stock, in the quarter
ended March 31, 2004. 24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   On
May 12, 2005, we completed a securitized financing transaction
for approximately $190.0 million of loans, which was funded by issuing bonds in the approximate amount of $165.3 million, at
a duration weighted average interest cost of 5.30%. We structured the transaction to issue classes
of bonds with different estimated maturity dates and average lives to better meet investor demands. We currently have a short term securitization facility used for warehouse financing with
Citigroup Global Markets Realty Corp. (Citigroup) (formerly Salomon Brothers Realty Corporation).
Under the terms of the agreement we pledge loans as collateral and in turn are advanced funds.
The facility has a maximum advance amount of $200 million, an advance rate equal to 85% of the
unpaid principal balance of the pool of loans pledged and an annual interest rate equal to LIBOR
plus a spread. The facility also includes a $15 million supplemental advance amount that is
collateralized by our residual interests in the 2004-A and 2004-B securitizations. The facility
matures on March 23, 2006. At March 31, 2005 the outstanding balance on the facility was
approximately $183.7 million. We currently have three separate repurchase agreements with Citigroup for the purpose of
financing the purchase of investments in three asset backed securities with principal balances of
$32.0 million, $3.1 million and $3.7 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
March 31, 2005 the repurchase agreements had outstanding principal balances of approximately $18.1
million, $1.8 million and $2.2 million, respectively. Typically the repurchase agreements are
rolled over for 30 day periods when they expire. Annual interest rates on the agreements are equal
to LIBOR plus a spread. We currently have a revolving credit facility with JPMorgan Chase Bank, N.A. (as successor by
merger to Bank One, NA). Under the terms of the facility we can borrow up to $5 million for the
purpose of funding required principal and interest advances on manufactured housing 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 expiration date of the facility is
December 31, 2005. At March 31, 2005 the outstanding balance on the facility was approximately
$2.0 million. 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations   Cash
generated from operations and borrowings under our Citigroup facility
should enable us to
meet our liquidity needs for at least the next nine 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. Our long-term liquidity and capital requirements consist primarily of funds necessary to
originate and hold manufactured housing loans, acquire and hold manufactured housing 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 houses 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. 26




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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, under which we paid interest at various LIBOR rates plus a spread
totaled $207.9 million and $160.5 million at March 31, 2005 and March 31, 2004, respectively. If
LIBOR increased or decreased by 1.0% during the three months ended March 31, 2005 and 2004, we
believe our interest expense would have increased or decreased by approximately $0.4 million and
$53,500, respectively based on the $149.4 million and $213.9 million average balance outstanding
under our variable rate debt facilities for the three months ended March 31, 2005 and March 31,
2004, respectively. For the three months ended March 31, 2004, the increase or decrease in
interest expense related to an increase or decrease in LIBOR was mitigated somewhat because our
average variable rate debt outstanding was hedged for portions of the period through the use of
interest rate swap agreements thus minimizing the effect of changes in the benchmark LIBOR rate.
We had no variable rate interest earning assets outstanding during the three months ended March 31,
2005 and 2004. 27




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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
March 31, 2005. 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 (dollars in thousands). Maturity0 to 3
    
    
    4 to 12
    
    
    1 to 5
    
    
    Over 5months
    
    
    months
    
    
    years
    
    
    years
    
    
    TotalAssetsCash and equivalents
    
    $
    5,598
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,598Restricted cash
    
    
    10,653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,653Loans receivable, net
    
    
    3,013
    
    
    
    9,489
    
    
    
    84,279
    
    
    
    533,463
    
    
    
    630,244Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,772
    
    
    
    40,772Furniture, fixtures and equipment, net
    
    
    217
    
    
    
    680
    
    
    
    1,823
    
    
    
    
    
    
    
    2,720Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,277
    
    
    
    32,277Other assets
    
    
    11,641
    
    
    
    9,174
    
    
    
    6,847
    
    
    
    2,633
    
    
    
    30,295Total assets
    
    $
    31,122
    
    
    $
    19,343
    
    
    $
    92,949
    
    
    $
    609,145
    
    
    $
    752,559Liabilities and Stockholders EquityWarehouse financing
    
    $
    868
    
    
    $
    182,871
    
    
    $
    
    
    
    $
    
    
    
    $
    183,739Securitization financing
    
    
    1,491
    
    
    
    4,588
    
    
    
    40,511
    
    
    
    268,925
    
    
    
    315,515Repurchase agreements
    
    
    22,141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,141Notes payable  servicing advances
    
    
    1,977
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,977Recourse liability
    
    
    334
    
    
    
    863
    
    
    
    2,937
    
    
    
    1,531
    
    
    
    5,665Other liabilities
    
    
    16,831
    
    
    
    318
    
    
    
    
    
    
    
    812
    
    
    
    17,961Total liabilities
    
    
    43,642
    
    
    
    188,640
    
    
    
    43,448
    
    
    
    271,268
    
    
    
    546,998Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    125Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252
    
    
    
    252Paid-in-capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219,121
    
    
    
    219,121Accumulated other comprehensive loss
    
    
    (2
    )
    
    
    (5
    )
    
    
    (36
    )
    
    
    (327
    )
    
    
    (370
    )Unearned stock compensation
    
    
    (581
    )
    
    
    (1,268
    )
    
    
    (282
    )
    
    
    
    
    
    
    (2,131
    )Retained deficit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,436
    )
    
    
    (11,436
    )Total stockholders equity
    
    
    (583
    )
    
    
    (1,273
    )
    
    
    (318
    )
    
    
    207,735
    
    
    
    205,561Total liabilities and stockholders equity
    
    $
    43,059
    
    
    $
    187,367
    
    
    $
    43,130
    
    
    $
    479,003
    
    
    $
    752,559Interest sensitivity gap
    
    $
    (11,937
    )
    
    $
    (168,024
    )
    
    $
    49,819
    
    
    $
    130,142Interest sensitivity gap
    
    $
    (11,937
    )
    
    $
    (179,961
    )
    
    $
    (130,142
    )
    
    
    Cumulative interest sensitivity gap to
total interest earning assets
    
    
    (1.59
    %)
    
    
    (23.91
    %)
    
    
    (17.29
    %)
    
    
    
 28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk   We believe the negative effect of a rise in interest rates is reduced by the anticipated
securitization of our loans receivable and our use of forward interest rate locks, which fixes our
cost of funds associated with the loans over the lives of such loans. In February 2005, we entered into a forward starting interest rate swap for the purpose of
locking in the benchmark interest rate on our securitization transaction completed in May 2005. On
the start date of the swap we began paying a fixed rate of 4.44% and receiving a floating rate of
2.69% on a notional balance of $132.9 million, which would approximate 90% of the expected balance
of the bonds to be sold in the securitization transaction. A rise in rates during the interim
period would increase our borrowing cost in the securitization, but the increase would be offset by
the increased value in the right to pay a lower fixed rate during the term of the securitized deal
making the hedge highly effective. On May 3, 2005, the hedge was terminated. Because interest
rates had fallen slightly during the interim period the cost to terminate the swap was
approximately $0.4 million. This cost will be amortized over the expected life of the
securitization transaction. 29




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk   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 March 31, 2005
(dollars in thousands): Contractual Maturity2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalInterest sensitive assetsLoans receivable
    
    $
    10,333
    
    
    $
    13,549
    
    
    $
    14,922
    
    
    $
    16,433
    
    
    $
    18,098
    
    
    $
    556,909
    
    
    $
    630,244Average interest rate
    
    
    9.69
    %
    
    
    9.69
    %
    
    
    9.69
    %
    
    
    9.69
    %
    
    
    9.69
    %
    
    
    9.69
    %
    
    
    9.69
    %Interest bearing deposits
    
    
    15,972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,972Average interest rate
    
    
    1.54
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.54
    %Loan sale proceeds receivable
    
    
    318
    
    
    
    360
    
    
    
    299
    
    
    
    249
    
    
    
    207
    
    
    
    461
    
    
    
    1,894Average interest rate
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %
    
    
    1.50
    %Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,772
    
    
    
    40,772Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.93
    %
    
    
    7.93
    %Residual interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    724
    
    
    
    724Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.00
    %
    
    
    15.00
    %Total interest sensitive
assets
    
    $
    26,623
    
    
    $
    13,909
    
    
    $
    15,221
    
    
    $
    16,682
    
    
    $
    18,305
    
    
    $
    598,866
    
    
    $
    689,606Interest sensitive liabilitiesWarehouse financing
    
    $
    2,605
    
    
    $
    181,134
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    183,739Average interest rate
    
    
    4.00
    %
    
    
    4.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.00
    %Securitization financing
    
    
    4,472
    
    
    
    6,425
    
    
    
    7,087
    
    
    
    7,820
    
    
    
    8,625
    
    
    
    281,086
    
    
    
    315,515Average interest rate
    
    
    4.51
    %
    
    
    4.51
    %
    
    
    4.51
    %
    
    
    4.51
    %
    
    
    4.51
    %
    
    
    4.51
    %
    
    
    4.51
    %Repurchase agreements
    
    
    22,141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,141Average interest rate
    
    
    3.31
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.31
    %Note payable
- servicing
advance
    
    
    1,977
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,977Average interest rate
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.50
    %Recourse liability
    
    
    863
    
    
    
    901
    
    
    
    697
    
    
    
    548
    
    
    
    435
    
    
    
    1,886
    
    
    
    5,330Average interest rate
    
    
    10.41
    %
    
    
    10.41
    %
    
    
    10.41
    %
    
    
    10.41
    %
    
    
    10.41
    %
    
    
    10.41
    %
    
    
    10.41
    %Total interest sensitive
liabilities
    
    $
    32,058
    
    
    $
    188,460
    
    
    $
    7,784
    
    
    $
    8,368
    
    
    $
    9,060
    
    
    $
    282,972
    
    
    $
    528,702
 30




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##### Table of Contents



Item 4. Disclosure Controls and Procedures We maintain controls and procedures designed to ensure that we are able to collect the
information that is required to be disclosed in the reports we file with the SEC, and that the
information is recorded, processed, summarized and reported within the time periods specified under
applicable SEC rules. Our Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining these procedures. As required by the rules established by the SEC,
they also are responsible for the evaluation of, and reporting on the effectiveness of these
procedures. Based on their evaluation of our disclosure controls and procedures which took place as of the
end of the period covered by this report, the Chief Executive Officer and the Chief Financial
Officer believe that these procedures are effective to ensure that we are able to record, process,
summarize and report the information we are required to disclose in the reports we file with the
SEC within the required time period. Internal Controls Over Financial Reporting We maintain a system of internal controls designed to provide reasonable assurance that
transactions are executed in accordance with managements general or specific authorization.
Transactions are recorded as necessary to (1) permit preparation of financial statements in
conformity with generally accepted accounting principles, and (2) maintain accountability for
assets. 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
interpretive 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. 31




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##### Table of Contents



PART II            OTHER INFORMATION 
 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 on Form 8-K. During the period covered by this report, we filed the following Current Reports on Form 8-K: (i) Form 8-K, dated February 23, 2005 furnished for the purpose of reporting, under
Item 2.02 (Results of Operations and Financial Condition), our preliminary unaudited
financial results for the year ended December 31, 2004. (ii) Form 8-K, dated March 14, 2005 furnished for the purpose of reporting, under Item
2.02 (Results of Operations and Financial Condition), our financial results for the
year ended December 31, 2004. (iii) Form 8-K dated March 31, 2005 furnished for the purpose of reporting, (A) under
Item 2.02 (Results of Operations and Financial Condition), corrections to our
previously announced financial results for the period ended December 31, 2003 and the
year ended December 31, 2004, and (B) under Item 4.02  (Non-Reliance on Previously
Issued Financial Statements or a Related Audit Report or Completed Interim Review),
that our previously issued financial statements for the period ended December 31, 2003
and the first three quarters of 2004 should not be relied upon, and that we would
restate these financial statements to make necessary accounting corrections. 32




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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: May 16, 2005 ORIGEN FINANCIAL, INC.BY:
    
    /s/ W. Anderson Geater Jr.W. Anderson Geater Jr., ChiefFinancial Officer and Secretary(Duly authorized officer and principalfinancial officer)
 33




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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.