---

 

November 6, 2008

Page 2 of 13

___________________________

Commercial mortgage loans and residential construction loans are originated with the intent to hold them as investments. The investment period of these loans is generally for a period of less than one year. The determination to hold these loans as investments is made at the time of origination and the loans are classified at that time as “Mortgage Loans on Real Estate and Construction Loans, Net of Allowances for Losses.” The loans are carried at their adjusted principal balance in accordance with paragraph 8a of SOP 01-6.

Notes to Consolidated Financial Statements

Note 1- Significant Accounting Policies

Mortgage Operations, page 53

2.

We have reviewed your response to prior comment seven from our letter dated September 25, 2008.  You state that for mortgages originated and held for investment, mortgage fee income and related expenses are recognized when the loan is originated.  Please tell us how your policy complies with the applicable guidance in paragraphs 5-7 of SFAS 91.

Response:

Our earlier response was incomplete as it suggested that all mortgage loans are originated with the intent to hold them as investments. However, for purposes of clarity, it should be noted that only commercial mortgage loans and residential construction loans are originated with the intent to hold such loans as investments, as further described in our response to comment 1 above. Long-term residential mortgage loans are only originated to be sold to investors under purchase commitments. Management intends to include the following disclosures in future filings:

For long-term residential mortgages originated and sold to third-party investors, mortgage fee income and related expenses are recognized when such loans are sold.

Commercial mortgage loans and residential construction loans that are originated and held for investment are carried at their principal balances adjusted for chargeoffs, the related allowance for loan losses, and net deferred fees or costs on originated loans. The Company defers related material loan origination fees, net of related direct loan origination costs, and amortizes the net fees over the term of the loans. As of December 31, 2007, the net deferred origination fees were $156,000. The Company determined that these net fees were not material enough to defer.

Accordingly, the Company believes it complies with the applicable guidance of paragraphs 5-7 of SFAS 91.

Note 3—Investments, page 64

3.

We have reviewed your response to prior comment eight from our letter dated September 25, 2008.  Please revise your proposed disclosures to provide additional information concerning the primary categories of fixed maturity and equity securities in unrealized loss positions at December 31, 2006 and 2007.  For example:

 

 

 

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November 6, 2008

Page 3 of 13

___________________________

 

·

Discuss in detail, the information you considered in reaching the conclusion that the impairments within the “corporate securities and other public utilities” and “mortgage backed securities” categories within fixed investment securities are not other than temporary.

Response:

On a quarterly basis, the Company reviews its fixed investment securities related to corporate securities and other public utilities, consisting of bonds and preferred stocks that are in a loss position. The review involves an analysis of the securities in relation to historical values, price earnings ratios and projected earnings and revenue growth rates. Based on the analysis, a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other than temporary, the security is written down to the impaired value and an impairment loss is recognized.

Mortgage backed securities are included in investments in fixed maturity securities, typically held to maturity, and carried at amortized cost in the balance sheet. Because the investments are to be held to maturity, the investments are only written down to their fair value if the investments have a rating of as low as six by the National Association of Insurance Commissioners (NAIC), which rating is equivalent to a C or lower rating by Moody's or Standard & Poor's.

·

Discuss in detail, the information you considered in reaching the conclusion that the impairments within the “industrial, miscellaneous and all other” category within equity securities are not other than temporary.

Response:

On a quarterly basis, the Company reviews its investment in industrial, miscellaneous and all other equity securities that are in a loss position.  The review involves an analysis of the securities in relation to historical values, price earnings ratios, projected earnings and revenue growth rates. Based on the analysis, a determination is made whether a security will likely recover from the loss position within a reasonable period of time. If it is unlikely that the investment will recover from the loss position, the loss is considered to be other than temporary, the security is written down to the impaired value and an impairment loss is recognized.

·

Disclose the number of investment positions that are in an unrealized loss position;

·

Disclose the severity and duration of the impairment(s); and

·

Disclose any other information you considered relevant in reaching your conclusion that the above investments were not other than temporarily impaired.

·

Provide us with your proposed disclosures.  Refer to paragraph 17b of FSP115-1/124-1.

The following are the proposed disclosures related to paragraph 17b and other requirements of FSP115-1/124-1:

 

 

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November 6, 2008

Page 4 of 13

___________________________

Fixed Maturity Securities

The following tables summarize unrealized losses on fixed-maturities securities, which are carried at amortized cost, at December 31, 2007 and 2006. The unrealized losses were primarily related to interest rate fluctuations or spread-widening, and mortgage and other asset-backed securities. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related fixed-maturity securities:

		Unrealized								Unrealized
		Losses for								Losses for
		Less than				No. of				More than				No. of				Total
		Twelve				Investment				Twelve				Investment				Unrealized
		Months				Positions				Months				Positions				Loss
At December 31, 2007
Interest rate or spread widening		$	1,682,779				66			$	1,169,203				71			$	2,851,982
Mortgage and other asset-backed securities			176,709				5				293,678				9				470,387
Total unrealized losses		$	1,859,488				71			$	1,462,881				80			$	3,322,369
Fair Value		$	28,688,080							$	27,653,726							$	56,341,806
At December 31, 2006
Interest rate or spread widening		$	365,512				82			$	466,096				37			$	831,608
Mortgage and other asset-backed securities			20,563				2				310,921				10				331,484
Total unrealized losses		$	386,075				84			$	777,017				47			$	1,163,092
Fair Value		$	28,690,897							$	23,549,487							$	52,240,384

As of December 31, 2007, the average market value of the related fixed maturities was 94.4% of amortized cost compared to 97.8% of amortized cost as of December 31, 2006.  No other-than-temporary impairment loss was considered necessary for these fixed maturities as of December 31, 2007.

Equity Securities

The following tables summarize unrealized losses on equity securities, which were carried at estimated fair value based on quoted trading prices at December 31, 2007 and 2006.  The unrealized losses were primarily the result of decreases in market value due to overall equity market declines. The tables set forth unrealized losses by duration and number of investment positions, together with the fair value of the related equity securities available for sale:

 

 

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November 6, 2008

Page 5 of 13

___________________________

		Unrealized								Unrealized
		Losses for								Losses for
		Less than				No. of				More than				No. of				Total
		Twelve				Investment				Twelve				Investment				Unrealized
		Months				Positions				Months				Positions				Losses
At December 31, 2007
Non-redeemable preferred stock		$	-							$	3,632				2			$	3,632
Public utilities			2,870				1				10,757				1				13,627
Banks, trusts and insurance companies			21,662				1				-								21,662
Industrial, miscellaneous and all other			80,333				6				407,264				5				487,597
Total unrealized losses		$	104,865				8			$	421,653				8			$	526,518
Fair Value		$	494,728							$	85,453							$	580,181
At December 31, 2006
Non-redeemable preferred stock		$	-							$	2,718				2			$	2,718
Public utilities			-								10,557				1				10,557
Banks, trusts and insurance companies			-								21,265				1				21,265
Industrial, miscellaneous and all other			304				1				434,786				8				435,090
Total unrealized losses		$	304				1			$	469,326				12			$	469,630
Fair Value		$	22,238							$	123,739							$	145,977

As of December 31, 2007, the average market value of the related equity securities available for sale was 52.4% of the original investment compared to 23.7% of the original investment as of December 31, 2006.   The intent of the Company was to retain equity securities for a period of time sufficient to allow for the recovery in fair value.  However, the Company may sell equity securities during a period in which the fair value has declined below the amount of the original investment. In certain situations new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security.  No other-than-temporary impairment loss on equity securities was determined to exist as of December 31, 2007.

Form 10-Q for Fiscal Quarter Ended June 30, 2008

Management’s Discussion and Analysis

Mortgage Operations, page 17

4.

We have reviewed your response to prior comment nine from our letter dated September 25, 2008.  Please provide us with the following additional information to help us better understand the loan sale, repurchase and transfer transactions:

·

Tell us the date the loans were originally sold and provide us with a thorough analysis of how the sales met the criteria for sale accounting in paragraph 9 of SFAS 140;

·

Tell us the date of the repurchase;

·

Tell us the date of the transfer from the held for sale to held for investment category;

·

Tell us when you determined the third party investors were not able to settle the loans sold to them;

·

Tell us whether you received, or whether the third party investor received, income on the loans during the time period between the sale and repurchase;

 

 

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November 6, 2008

Page 6 of 13

___________________________

 

·

Tell us how you determined the fair value of the loans when they were sold, repurchased and transferred; and

·

Provide us with the journal entries you recorded for the sale, repurchase and transfer.

Response:

As stated in our response to Comment 7 in the September 25, 2008 comment letter, for mortgage loans sold to third-party investors, mortgage fee income and related expenses are recognized at the time the mortgage loans meet the sales criteria for financial assets, which criteria are as follows:  (1) the transferred assets have been isolated from the Company and its creditors, (2) the transferee has the right to pledge or exchange the mortgage loans, and (3) the Company does not maintain effective control over the transferred mortgage loans. All rights and title to the mortgage loans are assigned to unrelated third-party investors, such as Countrywide Bank or Well Fargo Home Mortgage, including any investor commitments for these loans prior to their purchasing these loans under the purchase commitments. These loans are sold without recourse to the Company. Under related agreements, repurchase may be required in the event of fraud in the loan application process by others or due to errors in the underwriting process.  Based on this analysis, the Company believes that the sales of the mortgage loans met the criteria for sale accounting in paragraph 9 of SFAS 140.

The following table identifies the long-term residential mortgage loans, the dates the loans were originally sold, the dates the loans were repurchased, which is within a few days of the date the Company was notified that the investor was not going to settle the loan, and the dates the loans should have been transferred from “Mortgage Loans Sold to Investors” to “Mortgage Loans on Real Estate” (held-for-investment):

										Date
										Transferred
			Date		Loan					to Mortgage
			Originally		Principal			Date		Loans Held
Loan No.			Sold		Amount			Repurchased		for Investment	Comment
	0000359018		1/3/2007			$     80,618		5/25/2007		5/25/2007
	0000353101		1/8/2007			336,179		4/5/2007		4/5/2007
	0000359820		1/8/2007			97,266		7/5/2007		7/5/2007
	0000358565		1/10/2007			98,024		4/6/2007		4/6/2007
	0000361386		1/24/2007			272,520		4/19/2007		4/19/2007
	0000361909		1/26/2007			118,526		4/18/2007		4/18/2007
	0000362032		1/26/2007			221,139		5/25/2007		5/25/2007
	0000360538		2/1/2007			151,384		7/5/2007		7/5/2007
	0000364462		2/14/2007			176,512		4/19/2007		4/19/2007
	0000364111		2/16/2007			140,230		4/19/2007		4/19/2007
	0000365108		2/22/2007			228,779		7/5/2007		7/5/2007
	0000363101		2/28/2007			343,754		5/16/2007		5/16/2007
	0000363543		3/1/2007			229,188		5/16/2007		5/16/2007
	0000363163		3/2/2007			283,182		5/25/2007		5/25/2007
	0000367001		3/6/2007			413,528		7/5/2007		7/5/2007
	0000366253		3/13/2007			165,249		7/18/2007		7/18/2007
	0000367878		3/19/2007			94,479		7/23/2007		7/23/2007
	0000368126		3/22/2007			76,734		6/8/2007		6/8/2007

 

 

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November 6, 2008

Page 7 of 13

___________________________

										Date
										Transferred
			Date		Loan					to Mortgage
			Originally		Principal			Date		Loans Held
Loan No.			Sold		Amount			Repurchased		for Investment	Comment
	0000368489		3/22/2007			$     93,720		7/5/2007		7/5/2007
	0000369548		3/22/2007			223,105		7/18/2007		7/18/2007
	0000369672		4/2/2007			407,882		7/18/2007		7/18/2007
	0000371402		4/5/2007			139,194		4/5/2007		4/5/2007
	0000371240		4/5/2007			212,093		4/5/2007		4/5/2007
	0000370997		4/17/2007			114,759		7/25/2007		7/25/2007
	0000372876		4/20/2007			260,916		8/3/2007		8/3/2007
	0000371498		4/26/2007			426,805		7/25/2007		7/25/2007
	0000373859		5/3/2007			262,122		7/25/2007		7/25/2007
	0000373738		5/3/2007			260,564		7/25/2007		7/25/2007
	0000373805		5/3/2007			324,505		8/3/2007		8/3/2007
	0000372868		5/4/2007			161,550		8/15/2007		8/15/2007
	0000377442		5/10/2007			292,355		5/10/2007		5/10/2007
	0000376305		5/21/2007			245,272		8/15/2007		8/15/2007
	0000378002		5/22/2007			298,889		7/23/2007		7/23/2007
	0000374865		5/23/2007			528,019		5/23/2007		5/23/2007
	0000373779		5/25/2007			404,022		7/23/2007		7/23/2007
	0000379701		5/30/2007			395,096		8/17/2007		8/17/2007
	0000376921		5/31/2007			359,532		5/29/2007		5/29/2007
	0000379859		5/31/2007			96,415		7/23/2007		7/23/2007
	0000377932		6/1/2007			174,760		8/16/2007		8/16/2007
	0000378701		6/5/2007			874,890		7/24/2007		7/24/2007
	0000377762		6/6/2007			320,170		8/15/2007		8/15/2007
	0000378301		6/6/2007			545,500		8/17/2007		8/17/2007
	0000379200		6/6/2007			175,922		8/17/2007		8/17/2007
	0000378219		6/8/2007			700,898		6/8/2007		6/8/2007
	0000380975		6/11/2007			232,393		7/23/2007		7/23/2007
	0000378523		6/15/2007			234,502		8/16/2007		8/16/2007
	0000378492		6/19/2007			434,552		8/15/2007		8/15/2007
	0000380891		6/28/2007			210,581		8/24/2007		8/24/2007
	0000383783		6/28/2007			276,201		9/5/2007		9/5/2007
	0000383111		6/29/2007			450,297		10/15/2007		10/15/2007
	0000384760		7/5/2007			59,556		9/7/2007		9/7/2007	Second mortgage
	0000384048		7/6/2007			67,345		10/2/2007		10/2/2007
	0000383321		7/6/2007			87,273		9/7/2007		9/7/2007	Second mortgage
	0000384014		7/6/2007			121,398		9/7/2007		9/7/2007	Second mortgage
	0000384301		7/12/2007			89,339		11/2/2007		11/2/2007

 

 

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November 6, 2008

Page 8 of 13

___________________________

										Date
										Transferred
			Date		Loan					to Mortgage
			Originally		Principal			Date		Loans Held
Loan No.			Sold		Amount			Repurchased		for Investment	Comment
	0000386724		7/13/2007			$   367,577		10/23/2007		10/23/2007
	0000384842		7/18/2007			91,326		9/7/2007		9/7/2007	Second mortgage
	0000383794		7/20/2007			12,711		9/7/2007		9/7/2007	Second mortgage
	0000384918		7/20/2007			69,096		9/7/2007		9/7/2007	Second mortgage
	0000384902		7/23/2007			275,615		8/8/2007		8/8/2007
	0000383208		7/23/2007			288,808		10/2/2007		10/2/2007
	0000380779		7/23/2007			32,612		11/2/2007		11/2/2007
	0000387455		7/23/2007			148,091		9/7/2007		9/7/2007	Second mortgage
	0000386316		7/27/2007			76,040		1/10/2008		1/10/2008
	0000387760		7/27/2007			52,415		9/7/2007		9/7/2007	Second mortgage
	0000387513		7/30/2007			321,637		11/8/2007		11/8/2007
	0000386848		7/30/2007			23,552		9/7/2007		9/7/2007	Second mortgage
	0000388152		7/30/2007			45,805		9/7/2007		9/7/2007	Second mortgage
	0000388498		7/31/2007			377,907		11/6/2007		11/6/2007
	0000383602		7/31/2007			518,174		11/8/2007		11/8/2007
	0000386780		7/31/2007			110,480		9/7/2007		9/7/2007	Second mortgage
	0000388472		7/31/2007			33,492		9/7/2007		9/7/2007	Second mortgage
	0000386048		7/31/2007			133,116		9/7/2007		9/7/2007	Second mortgage
	0000388621		7/31/2007			101,723		9/7/2007		9/7/2007	Second mortgage
	0000388419		7/31/2007			172,853		9/7/2007		9/7/2007	Second mortgage
	0000383603		7/31/2007			63,680		9/7/2007		9/7/2007	Second mortgage
	0000386202		8/2/2007			291,258		9/12/2007		9/12/2007
	0000386108		8/2/2007			183,349		9/12/2007		9/12/2007
	0000387770		8/2/2007			142,583		9/24/2007		9/24/2007
	0000387432		8/2/2007			149,738		10/9/2007		10/9/2007
	0000387785		8/2/2007			59,554		10/15/2007		10/15/2007
	0000385514		8/3/2007			107,018		11/2/2007		11/2/2007
	0000386886		8/3/2007			190,418		11/6/2007		11/6/2007
	0000388616		8/3/2007			146,115		11/6/2007		11/6/2007
	0000383933		8/3/2007			141,977		11/8/2007		11/8/2007
	0000389017		8/3/2007			24,313		9/7/2007		9/7/2007	Second mortgage
	0000388687		8/3/2007			47,523		9/7/2007		9/7/2007	Second mortgage
	0000385541		8/3/2007			82,294		9/7/2007		9/7/2007	Second mortgage
	0000384348		8/6/2007			163,561		11/6/2007		11/6/2007
	0000387151		8/8/2007			186,961		11/6/2007		11/6/2007
	0000380328		8/8/2007			730,330		11/8/2007		11/8/2007
	0000389674		8/8/2007			45,424		9/7/2007		9/7/2007	Second mortgage

 

 

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November 6, 2008

Page 9 of 13

___________________________

										Date
										Transferred
			Date		Loan					to Mortgage
			Originally		Principal			Date		Loans Held
Loan No.			Sold		Amount			Repurchased		for Investment	Comment
	0000383148		8/8/2007			$    124,616		9/7/2007		9/7/2007	Second mortgage
	0000383141		8/10/2007			498,008		11/6/2007		11/6/2007
	0000389295		8/10/2007			211,963		11/6/2007		11/6/2007
	0000388263		8/10/2007			184,244		11/6/2007		11/6/2007
	0000388413		8/10/2007			51,402		9/7/2007		9/7/2007	Second mortgage
	0000389373		8/10/2007			50,438		9/7/2007		9/7/2007	Second mortgage
	0000390584		8/10/2007			20,728		9/7/2007		9/7/2007	Second mortgage
	0000387861		8/13/2007			64,435		9/7/2007		9/7/2007	Second mortgage
	0000390568		8/15/2007			180,303		11/6/2007		11/6/2007
	0000387977		8/16/2007			448,085		11/6/2007		11/6/2007
	0000391441		8/17/2007			35,183		9/7/2007		9/7/2007	Second mortgage
	0000389620		8/20/2007			48,660		9/7/2007		9/7/2007	Second mortgage
	0000392712		8/22/2007			90,105		9/7/2007		9/7/2007	Second mortgage
	0000391266		8/23/2007			285,985		2/6/2008		2/6/2008
	0000389032		8/23/2007			388,488		3/22/2008		3/22/2008
	0000389795		8/23/2007			116,754		9/7/2007		9/7/2007	Second mortgage
	0000390829		8/27/2007			61,284		9/7/2007		9/7/2007	Second mortgage
	0000389080		8/27/2007			58,159		9/7/2007		9/7/2007	Second mortgage
	0000388125		8/28/2007			163,487		10/18/2007		10/18/2007
	0000391848		8/28/2007			279,006		1/10/2008		1/10/2008
	0000388411		8/30/2007			105,766		11/6/2007		11/6/2007
	0000393413		8/31/2007			61,416		10/23/2007		10/23/2007
	0000391526		8/31/2007			170,101		11/6/2007		11/6/2007
	0000390635		8/31/2007			488,577		11/6/2007		11/6/2007
	0000392717		8/31/2007			76,395		11/6/2007		11/6/2007
	0000392283		8/31/2007			291,486		11/6/2007		11/6/2007
	0000393295		8/31/2007			213,907		2/6/2008		2/6/2008
	0000386777		8/31/2007			284,456		3/22/2008		3/22/2008
	0000390339		8/31/2007			50,432		9/7/2007		9/7/2007	Second mortgage
	0000391531		8/31/2007			20,993		9/7/2007		9/7/2007	Second mortgage
	0000392734		9/6/2007			16,450		9/7/2007		9/7/2007	Second mortgage
	0000393755		9/14/2007			307,655		11/6/2007		11/6/2007
	0000397794		9/28/2007			490,469		11/6/2007		11/6/2007
	0000394599		10/3/2007			34,484		2/6/2008		2/6/2008
	0000398973		10/12/2007			193,848		1/30/2008		1/30/2008
	0000397237		10/18/2007			229,819		10/26/2007		10/26/2007
	0000397546		10/18/2007			290,205		2/6/2008		2/6/2008

 

 

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November 6, 2008

Page 10 of 13

___________________________

										Date
										Transferred
			Date		Loan					to Mortgage
			Originally		Principal			Date		Loans Held
Loan No.			Sold		Amount			Repurchased		for Investment	Comment
	0000397836		10/29/2007			$    249,140		1/17/2008		1/17/2008
	0000401347		11/1/2007			285,493		2/6/2008		2/6/2008
	0000400563		11/2/2007			178,995		3/3/2008		3/3/2008
	0000399618		11/2/2007			380,195		3/3/2008		3/3/2008
	0000401874		11/2/2007			333,152		3/3/2008		3/3/2008
	0000401129		11/7/2007			185,702		1/17/2008		1/17/2008
	0000398717		11/7/2007			144,115		3/3/2008		3/3/2008
	0000402579		11/8/2007			76,192		3/3/2008		3/3/2008
	0000401965		11/15/2007			115,918		1/17/2008		1/17/2008
	0000401640		11/19/2007			211,187		1/17/2008		1/17/2008
	0000403657		11/19/2007			126,225		3/22/2008		3/22/2008
	0000403623		11/19/2007			93,729		3/22/2008		3/22/2008
	0000402731		11/19/2007			312,154		3/22/2008		3/22/2008
	0000392356		11/28/2007			64,205		2/6/2008		2/6/2008
	0000403834		12/3/2007			177,994		2/15/2008		2/15/2008
	0000405179		12/3/2007			63,509		3/22/2008		3/22/2008
	0000404076		12/3/2007			272,738		3/22/2008		3/22/2008
	0000405156		12/3/2007			300,564		3/22/2008		3/22/2008
	0000403313		12/3/2007			231,169		3/22/2008		3/22/2008
	0000404161		12/3/2007			414,833		3/22/2008		3/22/2008
	0000403460		12/3/2007			269,530		3/22/2008		3/22/2008
	0000406217		12/3/2007			367,155		3/22/2008		3/22/2008
	0000398830		12/3/2007			265,824		4/5/2008		4/5/2008
	0000399498		12/5/2007			133,408		4/5/2008		4/5/2008
	0000402910		12/7/2007			84,303		3/22/2008		3/22/2008
	0000404475		12/7/2007			104,584		3/22/2008		3/22/2008
	0000405718		12/10/2007			403,441		4/2/2008		4/2/2008
	0000401355		12/13/2007			198,604		4/2/2008		4/2/2008
	0000403433		12/21/2007			60,372		3/6/2008		3/6/2008
	0000404292		12/21/2007			561,902		4/14/2008		4/14/2008
	0000406046		12/31/2007			355,669		4/2/2008		4/2/2008
	0000407797		12/31/2007			419,647		4/14/2008		4/14/2008
	0000408472		12/31/2007			271,094		4/14/2008		4/14/2008
	0000407451		1/3/2008			101,156		3/6/2008		3/6/2008
	0000405587		1/3/2008			88,655		5/2/2008		5/2/2008
	0000409219		1/10/2008			256,620		5/7/2008		5/7/2008
	0000410311		1/17/2008			101,733		5/2/2008		5/2/2008

 

 

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November 6, 2008

Page 11 of 13

___________________________

										Date
										Transferred
			Date		Loan					to Mortgage
			Originally		Principal			Date		Loans Held
Loan No.			Sold		Amount			Repurchased		for Investment	Comment
	0000405832		1/17/2008			$     286,063		5/2/2008		5/2/2008
	0000409945		1/17/2008			153,398		5/2/2008		5/2/2008
	0000411123		1/17/2008			359,280		5/7/2008		5/7/2008
	0000410513		1/17/2008			295,687		5/7/2008		5/7/2008
	0000408350		1/25/2008			148,812		5/2/2008		5/2/2008
						$36,290,743

Generally, the Company received notices within six months from third-party investors that they were not going to settle loans the Company had sold to them. As the demand for mortgage loans declined in the secondary mortgage market, the Company began receiving notices from investors within a shorter time period. The Company determined that the third-party investors were not able to settle the loans sold to them on the dates that the Company was required to repurchase the unsettled loans. The Company repurchased the loans pursuant to the loan purchase agreements with the warehouse banks.

The second mortgage loans listed in the table above were funded by the Company and sold to third-party investors.  As a result, the dates on which the investors notified the Company that they would not be settling the second mortgage loans were not well documented in the Company’s records.  However, the dates have been estimated for purpose of preparing the above table based upon information available to management and the time period when the demand declined in the secondary mortgage market.

The financial statements reflect that the transfer of the mortgage loans from “Mortgage Loans Sold to Investors” to “Mortgage Loans on Real Estate” occurred during June 2008. The misclassification at December 31, 2007 of the loans repurchased in 2007 as “Mortgage Loans Sold to Investors” did not have any effect on the carrying amount of those loans since they were repurchased at par. Therefore, management does not believe that restatement of the December 31, 2007 financial statements for the reclassification of the loans repurchased to “Mortgage Loans on Real Estate” is necessary. The loan sale revenue recorded on the sale of the mortgage loans was reversed on the date the loans were repurchased and, as a result, the adjustment to revenue was recorded in the correct period.

As standard in the industry, the Company received payments on the mortgage loans during the time period between the sale date and the settlement or repurchase date. At the same time the Company paid interest to warehouse banks pursuant to the loan purchase agreements.

At the time the loans were sold to third-party investors, fair value was determined by the unexpired lock commitments to purchase the loans by investors. At the time of repurchase and transfer, the loans were determined to be held for investment and fair value of the loans was determined to be the unpaid principal balances adjusted for chargeoffs, the related allowance for loan losses, and net deferred fees or costs on originated loans.

 

 

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November 6, 2008

Page 12 of 13

___________________________

The following example illustrates the typical flow of transactions relating to originating and selling mortgage loans. The example presents the basic funding transactions and omits various loan origination costs. A warehouse bank will typically fund an agreed-upon amount of the mortgage loans, which vary by warehouse bank. The warehouse bank is technically the initial purchaser of mortgage loans under the terms of a loan purchase agreement between the warehouse bank and the Company until such time as the loans are settled (and purchased) by the investor under a loan purchase commitment between the investor and the Company. The following illustrates a $100,000 hypothetical mortgage loan that is funded at 96%, or $96,000, by a warehouse bank. The remaining $4,000 to fund the loan and $2,000 to pay the broker commission expense, less $500 of loan origination revenue, or a net amount of $5,500, is funded by the Company. The mortgage fee income related to loan sales revenue is typically equal to the amount the Company pays to a broker for commission expense, or $2,000 in this example. The journal entry at the date the loan is closed is as follows:

	Mortgage loans sold to investors		$5,500
	Commission expense		2,000
	Origination fee receivable		500
		Cash		$5,500
		Mortgage fee income – loan sales revenue		2,000
		Mortgage fee income – origination fee revenue		500

Under the terms of the loan purchase commitment agreement, the third-party investor is committed to purchase the loan at a fixed price, which is 102%, or $102,000 in this example. However, the Company is able to earn additional revenue if it is able to meet certain criteria, such as delivering the loan documentation in a certain amount of time or preparing and submitting the loan documentation without error. This additional revenue is recorded at the time of settlement. In this example, the Company was able to meet the specified criteria and received an additional 0.5%, or $500, of incentive revenue. At the time of settlement, the investor thus paid 102.5% of the par value of the loan, or $102,500, to the warehouse bank. The warehouse bank retained $96,000 thereof and paid $6,500 to the Company. The Company recognized an additional $500 of revenue when the loan was settled. The journal entry at the time of settlement with the investor is as follows:

	Cash		$6,500
		Mortgage loans sold to investors		$5,500
		Mortgage fee income – loan sales revenue		500
		Origination fee receivable		500

If the loan is not settled by the investor, the Company repurchases the loan from the warehouse bank for 96% of the loan face amount, or $96,000. The Company recognizes the loss on the failure to settle the loan by reversing the loan sales revenue and recognizes the mortgage loan as an investment at its fair value on the date repurchased, which in this example is the par value of the loan. The journal entry to record the repurchase of the mortgage loan for investment purposes is as follows:

	Mortgage loans on real estate		$100,000
	Mortgage fee income – loan sales revenue		2,000
		Cash		$96,000
		Mortgage loans sold to investors		5,500
		Origination fee receivable		500

At the various dates as shown in the above tables, the Company repurchased mortgage loans from the warehouse banks that did not settle, recorded the mortgage loans repurchased as an increase to “Mortgage Loans Sold to Investors” and recognized the losses by reversing the loan sales revenue as shown in the above journal entries. On June 30, 2008, the Company transferred the mortgage loans repurchased from “Mortgage Loans Sold to Investors” to its investment account, “Mortgage Loans on Real Estate” with the following journal entry:

	Mortgage loans on real estate		$36,290,743
		Mortgage loans sold to investors		$36,290,743

 

 

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November 6, 2008

Page 13 of 13

___________________________

5.

You state that the $36,291,000 of mortgage loans not sold to investors was included in the line item mortgage loans made within cash used in investing activities.  Based on your response, it appears that no cash was exchanged with third party investors to repurchase the loans.  Please tell us your basis for including this amount within cash used in investing activities, rather non-cash investing activities.  Refer to paragraph 32 of SFAS 95.

Response:

Upon further review, management has revised its response relating to the cash flows on the mortgage loans repurchased. As discussed in Response 4, a significant number and amount of the mortgage loans repurchased were sold to investors and repurchased during the year ended December 31, 2007, others were sold during 2007 and repurchased during 2008, and a few additional loans were sold and repurchased during the six months ended June 30, 2008.

For the mortgage loans sold and repurchased during 2007 in the amount of $24,740,179, the transfer to “Mortgage Loans on Real Estate” on June 30, 2008 was a non-cash investing activity. For the remaining mortgage loans sold during 2007 or 2008 and repurchased during 2008, the $11,550,564 paid during 2008 to repurchase the mortgage loans was an investing use of cash during 2008. The Company intends to modify its statement of cash flows for the nine months ended September 30, 2008 to properly disclose the mortgage loans repurchased during 2007 and transferred during 2008 as non-cash investing activities.

 

In connection with the Company’s responses to the comments, the Company hereby acknowledges as follows:

·

The Company is responsible for the adequacy and accuracy of the disclosure in the filing;

·

The staff comments or changes to disclosure in response to staff comments do not foreclose the Commission form taking any action with respect to the filing; and

·

The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

If you have any questions, please do not hesitate to call me at (801)264-1060 or (801)287-8171.

	Very truly yours,
	/s/ Stephen M. Sill
	Stephen M. Sill
	Vice President, Treasurer and
	Chief Financial Officer

 

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