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Profits, Record Fundings at Delta

$1.2 billion Q1 originations

May 8, 2007

By MortgageDaily.com staff

Delta Financial Corp. continued to be among the few nonprime lenders to report a quarterly profit.

First quarter production was $1.2 billion -- the highest ever, according to an earnings announcement today. Fundings, which are usually slower early in the year, ascended from $1.1 billion the prior quarter and were 31 percent higher than the previous year.

Fixed-rate originations accounted for 94 percent of the latest numbers, the statement said. Mortgage brokers generated more than half of first quarter volume.

"Since we remained focused on originating fixed-rate loans, and largely avoided riskier esoteric mortgage products such as interest-only adjustable-rate mortgage loans and 80/20 mortgage loans, among others, we have not had to materially change our underwriting guidelines, which can have a significant impact on loan volume and profitability" said Delta President and CEO Hugh Miller in the announcement. "Instead, during the first quarter of 2007, we merely fine-tuned our existing underwriting guidelines and began increasing our weighted-average coupon, which we believe will improve our future profitability."

The total cost to originate the latest volume was 1.7 percent, Delta reported. An average premium of 3.4 percent was earned on $177 million in whole loan sales.

Net income was $4.9 million in the latest quarter, The Woodbury, N.Y.-based company said. While earnings were off from $8 million in the fourth quarter, the profit contrasts massive losses recently reported by companies such as Residential Capital LLC. A year earlier, earnings were $6.6 million.

Factors driving the earnings decline included a reduction in whole-loan sales, the winding down of excess cash flow certificates and a dilution of shares from an April equity offering, Miller said.

"While we are not immune to the effects of the current challenging market conditions and potential future market disruptions, we believe we are well positioned to continue to grow as we believe that the demand for subprime loans remains strong," Miller added. "We anticipate that our second quarter 2007 earnings will increase over the first quarter 2007."

Delta noted it increased its total credit facilities to $2.5 billion from $1.75 billion subsequent to the first quarter. RBS Greenwich Capital, Citigroup, Bank of America, JPMorgan Chase and Deutsche Bank each carry an $0.5 billion line.

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