Irvine, Calif.-based ECC Capital Corp. has filed with the Securities and Exchange Commission for its initial public offering as a real estate investment trust (REIT).

ECC was formed in April for the purpose of building and managing a portfolio of high-yielding nonconforming residential mortgages. The company will acquire Encore Credit Corp., a national mortgage company that originates nonconforming residential loans, concurrently with the closing of this offering. Prior to its being acquired by ECC, Encore's strategy was to originate and sell in the whole-loan market.

Upon completion of the merger, ECC plans to finance its portfolio of adjustable-rate loans primarily through on-balance sheet securitizations in an effort to generate a more stable earnings stream independent of origination volume, as stated in the filing. However, the majority of the fixed-rate loans originated will continue to be sold on a whole-loan servicing-released basis through Encore.

Encore will continue originating, funding and selling loans held for sale - also performing some origination functions for loans in the portfolio - while ECC will fund the loans retained in the portfolio. The company intends to use some of the proceeds from the IPO, as well as funds borrowed from warehouse and repurchase facilities, to finance its originations.

The company is also developing a retail operation and is looking to originate retail loans sometime during the third quarter. In early 2005, Encore plans to transfer the retail operation to Bravo Credit, another REIT subsidiary.

Encore began its lending operations in March 2002, originating roughly $4.6 billion in nonconforming loans in 2003, and roughly $3.8 billion during the six months ended June 30, 2004. The weighted average FICO score on loans originated during that six-month period was 609, whereas the weighted average loan-to-value ratio was 79.37%.

Also during those six months, Encore expanded its workforce by hiring 76 additional account executives, with an average of six years of experience in the nonconforming industry. In all, 52 of the new hires are located in states where Encore had done an aggregate of less than 20% of its total loan originations during that timeframe.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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