Conforming residential mortgage loans are loans that adhere to the underwriting guidelines of the government sponsored entities, or GSEs. Non-conforming residential mortgage loans are loans that do not meet the underwriting guidelines of the GSEs, typically because of one or a combination of the following: loan size, borrower credit profile, loan to value ratio, documentation or type of loan. These non-conforming loans are often categorized as subprime, alt-A and jumbo loans.

Mortgage loans are typically purchased from banks, mortgage companies and other originators and then assembled into pools by a governmental, quasi-governmental or private entity. The entity then issues mortgage-backed securities, or MBS, which represent claims on the principal and interest payments made by borrowers on the loans in the pool, a process known as securitization. MBS issued by GSEs are referred to as agency MBS, and have comprised a majority of the MBS that have been issued. A growing segment of the MBS market includes private-label, or non-agency, issuers such as capital markets firms and banks.

Non-conforming mortgage loan originations have increased substantially in recent years, growing from $390 billion in 2000 to $1.5 trillion in 2004. It is believed that the increasing size of the non-agency MBS market has contributed significantly to the availability of capital for non-conforming mortgage loan originations. Together with the growth in non-conforming loan originations, there has been corresponding growth in the non-agency MBS market activity for these mortgage products.

The Company’s due diligence services primarily help loan buyers and sellers make better decisions on how they price portfolios and manage risk. The Company consults with its clients to customize the scope of each due diligence assignment based on factors such as the client\'s history and experience with the seller, the size and experience of the seller, the representations and warranties to be provided to the buyer, the type of loan and the quality of the data. The Company provides its services through its internal proprietary systems including the Clayton Loan Analysis System, or CLAS, its High Cost Analyzer, or HCA, its pool of independent loan review specialists and its employees. The Company provides due diligence services on residential, commercial and consumer loans.

The Company’s conduit support services provide the technology and systems required to manage key aspects of a buyer\'s loan acquisition pipeline, including overall process management, due diligence, fulfillment, funding and integration with third-party service providers. Typically, conduits act as the financial intermediary between loan originators and investors. The Company provides its clients with a modular, customized platform to support their purchase of individual mortgage loans and small and mid-size mortgage pools from a variety of originators, regardless of volume.

Through the Company’s staffing services, clients obtain access to qualified independent mortgage professionals to augment their staff on both a long- and short-term basis. Clients can utilize these mortgage professionals to manage special projects and satisfy cyclical or unforeseen demand, while reducing human resource cost and risk. The Company typically provides these services to its clients as part of an existing or potentially broader relationship.

The Company provides its proprietary compliance testing engine through the High Cost Analyzer suite, or HCA, to market participants including loan originators. HCA is an on-line tool that is used to verify that loans comply with the most recent and relevant predatory lending regulations at the federal, state and local levels.

The Company’s surveillance and special servicing businesses extend its services beyond the origination and securitization process to the later stages in the life of a loan, including ongoing monitoring and management of loans. These services also provide performance data which the Company believes, when linked to data collected in its up-front transaction management services, will allow its clients to more effectively assess risk at the point of underwriting/origination.

Cost of services was $63.7 million for the six months ended June 30, 2005, an increase of $19.1 million or 42.8%, compared to cost of services of $44.6 million for the six months ended June 30, 2004.

Compensation expense was $46.8 million for the six months ended June 30, 2005, an increase of $17.0 million or 57.1%, compared to compensation expense of $29.8 million for the six months ended June 30, 2004.

Operating expenses were $24.6 million for the six months ended June 30, 2005, an increase of $17.6 million or 251.3%, compared to operating expenses of $7.0 million for the six months ended June 30, 2004.

Interest expense, net was $3.8 million for the six months ended June 30, 2005, an increase of $3.7 million, compared to interest expense, net of $0.1 million for the six months ended June 30, 2004.