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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission File No. 1-31753

CapitalSource Inc.

(Exact name of registrant as specified in its charter)


Delaware		35-2206895
(State of Incorporation)		(I.R.S. Employer Identification No.)

4445 Willard Avenue, 12th Floor
Chevy Chase, MD 20815
(Address of Principal Executive Offices, Including Zip Code)

(800) 370-9431
(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:


(Title of Each Class)		(Name of Exchange on Which Registered)

Common Stock, par value $0.01 per share		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes þ No

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 o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.


	þ	Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

The aggregate market value of the Registrant’s Common Stock, par value $0.01 per share, held by nonaffiliates of the Registrant, as of June 30, 2006 was approximately $2,437,531,000.

As of February 15, 2007, the number of shares of the Registrant’s Common Stock, par value $0.01 per share, outstanding was 183,822,181.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of CapitalSource Inc.’s Proxy Statement for the 2007 annual meeting of shareholders, a definitive copy of which will be filed with the SEC within 120 days after the end of the year covered by this Form 10-K, are incorporated by reference herein as portions of Part III of this Form 10-K.

TABLE OF CONTENTS


		Page

PART I
Item 1.	Business		2
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		34
Item 2.	Properties		34
Item 3.	Legal Proceedings		36
Item 4.	Submission of Matters to a Vote of Security Holders		36

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		36
Item 6.	Selected Financial Data		39
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		72
	Management Report on Internal Controls Over Financial Reporting		73
	Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Internal Controls Over Financial Reporting		74
Item 8.	Consolidated Financial Statements and Supplementary Data		75
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		134
Item 9A.	Controls and Procedures		134
Item 9B.	Other Information		134

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		135
Item 11.	Executive Compensation		135
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		135
Item 13.	Certain Relationships and Related Transactions, and Director Independence		135
Item 14.	Principal Accounting Fees and Services		135

PART IV
Item 15.	Exhibits and Financial Statement Schedules		136
Signatures			137
Index to Exhibits			138
Certifications

PART I

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K, including the footnotes to our audited consolidated financial statements included herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative. Our ability to predict results or the mutual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. All statements regarding our expected financial position, business and financing plans are forward-looking statements. All forward-looking statements speak only to events as of the date on which the statements are made. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section. We undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date on which the statement is made.

The information contained in this section should be read in conjunction with our audited consolidated financial statements and related notes and the information contained elsewhere in this Form 10-K, including that set forth under Item 1A, Risk Factors.


ITEM 1.	BUSINESS

Overview

We are a commercial lending, investment and asset management company focused on the middle market. We operate as a real estate investment trust (“REIT”) and provide senior and subordinated commercial loans, invest in real estate, engage in asset management and servicing activities, and invest in residential mortgage assets. We expect to formally make an election to REIT status for 2006 when we file our tax return for the year ended December 31, 2006.

On January 1, 2006, we began operating as two reportable segments: 1) Commercial Lending & Investment and 2) Residential Mortgage Investment. Our Commercial Lending & Investment segment includes our commercial lending and investment business, and our Residential Mortgage Investment segment includes all of our activities related to our residential mortgage investments. For financial information about our segments, see Note 24, Segment Data, in our audited consolidated financial statements for the year ended December 31, 2006.

Through our commercial lending and investment activities, our primary goal is to be the leading provider of financing to middle market businesses that require customized and sophisticated financing. We provide a wide range of financial products that we negotiate and structure on a client-specific basis through direct interaction with the owners and senior managers of our clients. We also originate and participate in broadly syndicated debt financings for larger businesses. We seek to add value to our clients’ businesses by providing tailored financing that meets their specific business needs and objectives.

The financing needs of our clients are often specific to their particular business or situation. We believe we can most successfully meet these needs and manage risk through industry or sector expertise and flexibility in structuring financings. We offer a range of senior and subordinate mortgage loans, real estate lease financing, asset-based loans, cash flow loans, and equity investments to our clients. Because we believe specialized industry and/or sector knowledge is important to successfully serve our client base, we originate, underwrite and manage our financings through three focused commercial financing businesses organized around our areas of expertise. Focusing our efforts in these specific sectors, industries and markets allows us to rapidly design and implement

products that satisfy the special financing needs of our clients. During 2006, we also began to make direct real estate investments and provide real estate lease financing to certain clients.

Our commercial finance and investment businesses are:


	•	Healthcare and Specialty Finance, which generally provides first mortgage loans, asset-based revolving lines of credit, real estate lease financing and other cash flow loans to healthcare businesses and a broad range of other companies;

	•	Structured Finance, which generally engages in commercial and residential real estate finance and also provides asset-based lending to finance companies; and

	•	Corporate Finance, which generally provides senior and subordinate loans through direct origination and participation in widely syndicated loan transactions.

As of December 31, 2006, we had 1,072 loans outstanding under which we had funded an aggregate of $7.9 billion and committed to lend up to an additional $4.1 billion to our clients. Although we make loans as large as $400.0 million, our average commercial loan size was $7.3 million as of December 31, 2006, and our average loan exposure by client was $11.3 million as of December 31, 2006. Our commercial loans generally have a maturity of two to five years with a weighted average maturity of 3.23 years as of December 31, 2006. Substantially all of our commercial loans require monthly interest payments at variable rates and, in many cases, our commercial loans provide for interest rate floors that help us maintain our yields when interest rates are low or declining. We price our loans based upon the risk profile of our clients. As of December 31, 2006, our geographically diverse client base consisted of 692 clients with headquarters in 47 states, the District of Columbia, Puerto Rico, and select international locations, primarily in Canada and the United Kingdom.

To optimize our REIT structure, we invest in certain residential mortgage assets. As of December 31, 2006, the balance of our residential mortgage investment portfolio was $5.8 billion, which included investments in residential mortgage loans and residential mortgage-backed securities (“RMBS”).

Developments during Fiscal Year 2006

During 2006, we diversified our business to include real estate lease financing products and asset management services. We also continued to enhance our existing product and service offerings by improving our syndication capabilities and by participating in an increased number of syndicated loan transactions. In addition, we broadened our client base and the markets we serve by opening our first international office located in London.

During 2006, we began acquiring real estate for long-term investment purposes, all of which involved healthcare properties. All of these facilities are leased to clients through the execution of long-term, triple-net operating leases. We had $722.3 million in direct real estate assets as of December 31, 2006, which consisted primarily of land and buildings. We view these transactions as long-term financings for the seller/tenant of these facilities for which we receive rent, which generally escalates per terms set forth in the lease, and a real estate investment that may increase in value over time.

During 2006, we grew our asset management business. We completed our first collateralized loan obligation (“CLO”) issuance comprising a portfolio of originated and acquired cash flow loans. We also opened warehouse facilities for two additional CLOs that we intend to close over the next 12 months. In addition to our CLO business, we are party to a joint venture to acquire distressed and other types of debt investments. As with our CLOs, we are the asset manager for this joint venture and receive a fee for managing the assets owned by the joint venture. We view these and other potential asset management businesses as complementary opportunities for us to leverage our commercial finance expertise into managing financial assets owned by third parties. We intend to further build out our asset management businesses by focusing on additional product types, which, for example, may include managing subordinated debt and equity investments for others.

During 2006, we enhanced our syndication capabilities and increased our participation in syndicated loan transactions. Our syndication strategy for loans we originate allows us to limit our exposure to larger loans and typically results in greater fee income relative to our loan exposure than we receive for originating and holding the entire loan. As of December 31, 2006, we had syndicated $1.6 billion of loans in addition to the $7.9 billion of

commercial loans held in our portfolio. Our enhanced syndication capabilities also provide us with opportunities to selectively purchase portions of loans originated by other lenders. By participating in these syndicated loans we are able to increase our loan portfolio without incurring the higher costs we incur for directly originating loans. As of December 31, 2006, approximately 10% of the $7.9 billion aggregate outstanding balance of our commercial loan portfolio comprised loans for which we are not the agent.

Loan Products, Service Offerings and Investments

Commercial Lending & Investment Segment

The types of loan products and services offered by each of our commercial finance businesses share common characteristics, and we generally underwrite the same types of loans across our three commercial finance businesses using similar criteria. When opportunities arise, we may offer a combination of products to a particular client. This single source approach often allows us to close transactions faster than our competitors by eliminating the need for complicated and time-consuming intercreditor negotiations. Our primary commercial loan products, services and investments are as follows:


	•	Senior Secured Asset-Based Loans. Asset-based loans are collateralized by specified assets of the client, generally the client’s accounts receivable and/or inventory. A loan is a “senior” loan when we have a first priority lien in the collateral securing the loan.

	•	First Mortgage Loans. We make term loans secured by first mortgages. We make mortgage loans to clients including owners and operators of senior housing and skilled nursing facilities; owners and operators of office, industrial, hospitality, multi-family and residential properties; resort and residential developers; hospitals and companies backed by private equity firms that frequently take out mortgages in connection with buyout transactions.

	•	Senior Secured Cash Flow Loans. Cash flow loans are made based on our assessment of a client’s ability to generate cash flows sufficient to repay the loan and to maintain or increase its enterprise value during the term of the loan. Our senior cash flow term loans generally are secured by a security interest in all or substantially all of a client’s assets. In some cases, the equity owners of a client pledge their stock in the client to us.

	•	Direct Real Estate Investments. During 2006, we began acquiring real estate for long-term investment purposes. These real estate investments are generally leased to clients through the execution of long-term, triple-net operating leases. Under a typical triple-net lease, the client agrees to pay a base monthly operating lease payment, subject to annual escalation, and all facility operating expenses, as well as make capital improvements. Our acquisition of these direct real estate investments are sometimes structured as sale-leaseback transactions, in which we purchase the clients’ real estate and simultaneously lease it back to them through the execution of a long-term, triple-net operating lease.

	•	Term B, Second Lien and Mezzanine Loans. We make Term B, second lien and mezzanine loans. A Term B loan is a loan that shares a first priority lien in a client’s collateral with the lenders on a client’s senior loan but that comes after senior secured term loans in order of payment preference upon a borrower’s liquidation, and accordingly, generally involves greater risk of loss than a senior secured loan. Term B loans are senior loans and, therefore, are included with senior secured loans in our portfolio statistics. A second lien loan is a loan that has a lien on the client’s collateral that is junior in order of priority and also comes after the senior loans in order of payment. We also make mezzanine loans that may be either cash flow or real estate based loans. A mezzanine loan is a loan that does not share in the same collateral package as the client’s senior loans, may have no security interest in any of the client’s assets and comes after senior loans in order of payment preference. A mezzanine loan generally involves greater risk of loss than a senior loan.

	•	Equity Investments. We commonly acquire equity in a borrower at the same time and on substantially the same terms as the private equity sponsor that is investing in the borrower with our loan proceeds. These equity investments generally represent less than 5% of a borrower’s equity. We do not agree to any interest rate or other lending concessions in the loans we make to these borrowers in return for the opportunity to make these investments.


	•	HUD Mortgage Originations. As a strategic supplement to our real estate lending business, we also act as an agent for the United States Department of Housing and Urban Development, or HUD, for the origination of federally insured mortgage loans through the Federal Housing Authority, or FHA. Because we are a fully approved FHA Title II mortgagee, we have the ability to originate, underwrite, fund and service mortgage loans insured by the FHA. FHA is a branch of HUD which works through approved lending institutions to provide federal mortgage and loan insurance for housing and healthcare facilities.

Residential Mortgage Investment Segment


	•	Residential Mortgage-Backed Securities. We invest in RMBS, which are securities collateralized by residential mortgage loans. These securities include mortgage-backed securities whose payments of principal and interest are guaranteed by the Federal National Mortgage Association (“Fannie Mae”) or Freddie Mac (hereinafter, “Agency MBS”). We also invest in RMBS issued by non-government-sponsored entities that are credit-enhanced through the use of subordination or in other ways that are inherent in a corresponding securitization transaction (hereinafter, “Non-Agency MBS”). Substantially all of our Agency and Non-Agency MBS are collateralized by adjustable rate mortgage loans, including hybrid adjustable rate mortgage loans. We account for our Agency MBS as debt securities that are classified as trading investments and included in mortgage-backed securities pledged, trading on our accompanying audited consolidated balance sheets. We generally account for our Non-Agency MBS as debt securities that are classified as available-for-sale and included in investments on our accompanying audited consolidated balance sheets.

	•	Mortgage-Related Receivables. During 2006, we purchased beneficial interests in special purpose entities (“SPEs”) that acquired and securitized pools of residential mortgage loans. We determined that we were the primary beneficiary of these SPEs and, therefore, consolidated the assets and liabilities of such entities for financial statement purposes. We also determined that the SPEs’ interest in the underlying mortgage loans constituted, for accounting purposes, receivables secured by the underlying mortgage loans. As a result, through consolidation, we recognized on our accompanying audited consolidated balance sheet mortgage-related receivables, as well as the principal amount of related debt obligations incurred by SPEs to fund the origination of such receivables. Such mortgage-related receivables maintain all of the economic attributes of the underlying mortgage loans legally held in trust by such SPEs and, as a result of our interest in such SPEs, we maintain all of the economic benefits and related risks of ownership of the underlying mortgage loans.

As of December 31, 2006, our portfolio of loan products, service offerings and investments by type was as follows (percentages by gross carrying values):

Loan Products, Service Offerings and Investments by Type


(1)	Includes Term B loans.

Commercial Lending & Investment Segment Overview

Commercial Lending & Investment Segment Portfolio Composition


	December 31,
	2006		2005
	($ in thousands)
Commercial loans	$	7,850,198	$	5,987,743
Direct real estate investments		722,303		—
Equity investments		150,090		126,393

Total	$	8,722,591	$	6,114,136

Commercial Lending Portfolio Composition

Our total commercial loan portfolio reflected in the portfolio statistics below includes loans, loans held for sale and receivables under reverse-repurchase agreements. The composition of our commercial loan portfolio by loan type and by commercial finance business as of December 31, 2006 and 2005 was as follows:


	December 31,
	2006				2005
	($ in thousands)

Composition of loan portfolio by loan type:
Senior secured asset-based loans (1)	$	2,599,014	33	%	$	2,022,123	34	%
First mortgage loans (1)		2,542,222	32			1,970,709	33
Senior secured cash flow loans (1)		2,105,152	27			1,740,184	29
Subordinate loans		603,810	8			254,727	4

Total	$	7,850,198	100	%	$	5,987,743	100	%

Composition of loan portfolio by business:
Healthcare and Specialty Finance	$	2,775,748	35	%	$	2,281,419	38	%
Structured Finance		2,839,716	36			1,909,149	32
Corporate Finance		2,234,734	29			1,797,175	30

Total	$	7,850,198	100	%	$	5,987,743	100	%


(1)		Includes Term B loans.

As of December 31, 2006, our commercial loan portfolio was well diversified, with 1,072 loans to 692 clients operating in multiple industries. We use the term “client” to mean the legal entity that is the party to whom we lend pursuant to a loan agreement with us. As of December 31, 2006, our Healthcare and Specialty Finance, Structured Finance and Corporate Finance businesses had commitments to lend up to an additional $2.1 billion, $1.5 billion and $0.5 billion, respectively, to 304, 216 and 172 existing clients, respectively. Commitments do not include transactions for which we have signed commitment letters but not yet signed loan agreements. Throughout this section, unless specifically stated otherwise, all figures relate to our commercial loans outstanding as of December 31, 2006.

Our commercial loan and direct real estate investment portfolio by industry as of December 31, 2006 was as follows (percentages by gross carrying values as of December 31, 2006):

Commercial Loan and Direct Real Estate Investment Portfolio By Industry (1)


(1)		Industry classification is based on the North American Industry Classification System (NAICS).

As of December 31, 2006, our commercial loans ranged in size from $0.1 million to $380.7⁽²⁾ million, per loan, and direct real estate investments ranged in size from $0.2 million to $16.7 million, per property. Our commercial loan and direct real estate investment portfolio by asset balance as of December 31, 2006 was as follows:

Commercial Loan and Direct Real Estate Investment Portfolio By Asset Balance


(2)		This balance represents loans on 79 properties in 6 states owned by one of our clients.

Our commercial loan portfolio by client balance as of December 31, 2006 was as follows:

Commercial Loan Portfolio By Client Balance

We may have more than one loan to a client and its related entities. For purposes of determining the portfolio statistics in this Annual Report on Form 10-K, we count each loan or client separately and do not aggregate loans to related entities.

No client accounted for more than 10% of our total revenues in 2006. The principal executive offices of our clients were located in 47 states and the District of Columbia. As of December 31, 2006, the largest geographical concentration was Florida, which made up approximately 17% of the outstanding aggregate balance of our commercial loan and direct real estate investment portfolio. In addition, 3% of our commercial loan and direct real estate investment portfolio as of December 31, 2006 comprised international borrowers, primarily located in Canada and the United Kingdom. Our largest loan was $380.7 million and the combined total of our largest ten loans represented 15% of our commercial loan portfolio as of December 31, 2006.

Our commercial loan and direct real estate investment portfolio by geographic region as of December 31, 2006 was as follows:

Commercial Loan and Direct Real Estate Investment Portfolio By Geographic Region


(1)		Includes all states that have a loan balance that is less than 1% of the aggregate outstanding balance of our commercial loan portfolio.

Our commercial loans primarily provide financing at variable interest rates. To mitigate the risk of declining yields if interest rates fall, we sometimes include an interest rate floor in our loans. Whether we are able to include an interest rate floor in the pricing of a particular loan is determined by a combination of factors, including the potential client’s need for capital and the degree of competition we face in the origination of loans of the proposed type.

Our commercial loans generally have stated maturities at origination that generally range from two to five years. As of December 31, 2006, the weighted average maturity and weighted average remaining life of our entire commercial loan portfolio was approximately 3.23 years and 3.16 years, respectively. Our clients typically pay us an origination fee based on a percentage of the commitment amount and may also be required to pay a prepayment penalty for at least the first two years following origination. They may also pay us a fee based on any undrawn commitments, as well as a collateral management fee in the case of our asset-based revolving loans.

The number of loans, average loan size, number of clients and average loan size per client by commercial finance business as of December 31, 2006 were as follows:


							Average Loan
	Number		Average		Number of		Size per
	of Loans		Loan Size		Clients		Client
	($ in thousands)

Composition of loan portfolio by finance business:
Healthcare and Specialty Finance		445	$	6,238		304	$	9,131
Structured Finance		255		11,136		216		13,147
Corporate Finance		372		6,007		172		12,993

Overall loan portfolio		1,072		7,323		692		11,344

Direct Real Estate Investments

During 2006, we began acquiring real estate for long-term investment purposes. These real estate investments primarily consist of skilled nursing facilities, currently leased to clients through the execution of long-term, triple-net operating leases. We had $722.3 million in direct real estate investments as of December 31, 2006, which consisted primarily of land and buildings.

See Item 2, Properties, for information about our direct real estate investment properties.

Residential Mortgage Investment Segment Overview

Portfolio Composition

We invest directly in residential mortgage investments. As of December 31, 2006 and 2005, our portfolio of residential mortgage investments was as follows:


	December 31,
	2006		2005
	($ in thousands)

Mortgage-related receivables(1)	$	2,295,922	$	—
Residential mortgage-backed securities:
Agency		3,502,753		2,290,952
Non-Agency		34,243		—

Total	$	5,832,918	$	2,290,952


(1)		Represents secured receivables that are backed by adjustable rate residential prime mortgage loans.

As of December 31, 2006, our portfolio of Agency MBS included 1-year adjustable-rate and hybrid adjustable-rate RMBS with varying fixed period terms issued and guaranteed by Fannie Mae or Freddie Mac. The coupons on the loans underlying these securities are fixed for a specified period of time and then reset annually thereafter. The weighted average net coupon of Agency MBS in our portfolio was 4.89% as of December 31, 2006, and the weighted average reset date for the portfolio was approximately 46 months.

As further discussed in Note 4, Mortgage-Related Receivables and Related Owners Trust Securitizations, of our accompanying audited consolidated financial statements for the year ended December 31, 2006, we had $2.3 billion in mortgage-related receivables that were secured by prime residential mortgage loans as of December 31, 2006. As of December 31, 2006, the weighted average interest rate on such receivables was 5.38%, and the weighted average contractual maturity was approximately 29 years.

Financing

We depend on external financing sources to fund our operations. We employ a variety of financing arrangements, including repurchase agreements, secured and unsecured credit facilities, term debt, convertible debt, subordinated debt and equity. We expect that we will continue to seek external financing sources in the future. Our existing financing arrangements are described in further detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.

Competition

Our markets are highly competitive and are characterized by competitive factors that vary based upon product and geographic region. We compete with a large number of financial services companies, including:


	•	specialty and commercial finance companies;

	•	commercial banks;

	•	REITS and other real estate investors;

	•	private investment funds;


	•	investment banks;

	•	insurance companies; and

	•	asset management companies.

Some of our competitors have substantial market positions. Many of our competitors are large companies that have substantial capital, technological and marketing resources. Some of our competitors also have access to lower cost capital. We believe we compete based on:


	•	in-depth knowledge of our clients’ industries or sectors and their business needs from information, analysis, and effective interaction between the clients’ decision-makers and our experienced professionals;

	•	our breadth of product offerings and flexible and creative approach to structuring financings that meet our clients’ business and timing needs; and

	•	our superior client service.

Regulation

Some aspects of our operations are subject to supervision and regulation by governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, among other things:


	•	regulate credit activities, including establishing licensing requirements in some jurisdictions;

	•	regulate mortgage lending activities, including establishing licensing requirements;

	•	establish the maximum interest rates, finance charges and other fees we may charge our clients;

	•	govern secured transactions;

	•	require specified information disclosures to our clients;

	•	set collection, foreclosure, repossession and claims handling procedures and other trade practices;

	•	regulate our clients’ insurance coverage;

	•	regulate our HUD mortgage origination business;

	•	prohibit discrimination in the extension of credit and administration of our loans; and

	•	regulate the use and reporting of certain client information.

In addition, many of the healthcare clients of Healthcare and Specialty Finance are