1283683--3/15/2007--HOMEBANC

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{loan, real, estate}

{tax, income, asset}

{stock, price, share}

{investment, property, distribution}

{loss, insurance, financial}

{debt, indebtedness, cash}

{provision, law, control}

{financial, litigation, operation}

{personnel, key, retain}

{cost, operation, labor}

{product, market, service}

{condition, economic, financial}

{stock, price, operating}

{system, service, information}

{interest, director, officer}

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{cost, regulation, environmental}

Risks Related to our Business We originate mortgage loans primarily in the Southeast, and the currently prevailing adverse mortgage market conditions in that region have negatively affected our loan originations and the ability of our customers to repay their loans. We are a relatively undiversified mortgage banking company that is heavily reliant upon the mortgage banking industry. Our decision to no longer elect to have our public company treated as a REIT beginning in 2007 could negatively affect our business, financial condition, results of operations and the price of our securities. If we are unable to complete in a timely fashion or in a manner that is favorable to us any transaction associated with our decision to no longer elect to have our public company be treated as a REIT, our business, financial condition, results of operations and the price of our securities could be negatively affected. Our debt facilities are subject to margin calls based on the lender s valuation of our loan collateral. An unanticipated large margin call could harm our liquidity and our business, financial condition, results of operations and the price of our securities could be negatively affected. If we do not generate sufficient liquidity, we will be unable to conduct our operations as planned. We may not realize the expected benefits from our recent expense reduction measures. We may not be able to fully realize the expected tax benefits from the net operating losses realized at HBMC. We are a defendant in purported class action lawsuits and may not prevail in these matters. Our past operating results may not be indicative of our future operating results, due to several key factors, including changes in our business model. We sold substantially all of our MBS portfolio during the first quarter of 2007. We have used part of the net proceeds from the sale of our MBS portfolio to effect a stock repurchase program. To the extent we are unable or choose not to add new assets to our investment portfolio, the size of our investment portfolio, and the net interest income that we realize from that portfolio, will decline substantially in future periods. Certain of the mortgage products that we offer may expose us to greater credit risks than traditional mortgage loans, including, without limitation, the risks of delinquencies and/or credit losses. Increases in interest rates may adversely affect our costs and the market values of our assets. Increases in interest rates may negatively affect our asset mix and earnings and could increase our competition in the purchase money mortgage market. We may be unable to effectively mitigate the risk of changes in interest rates. Increases in interest rates may result in a decrease in our net interest margin because of the adjustable-rate borrowings that we utilize to fund ARM and hybrid ARM loans, which may have interest rate caps and/or fixed interest rates for an initial period of time. We leverage our portfolio, which magnifies any income or losses that we incur in respect of our assets. Our financing facilities impose restrictions on our operations. We may not be able to issue additional equity securities as a means of funding our operations. We have sought and received waivers and amendments to our financing facilities to cure past defaults. A prolonged economic slowdown or declining real estate values could reduce our growth and profitability. Our business would suffer if we are unable to sell or securitize the mortgage loans that we originate. The loss of key purchasers of our mortgage loans or a reduction in prices paid could harm our business, financial condition and results of operations. We have limited experience servicing mortgage loans, which could lead to higher levels of delinquencies and losses. Our mortgage servicing rights may increase the volatility of our earnings. We may be required to repurchase mortgage loans that we have sold or to indemnify the purchasers. We may suffer losses from defaulted mortgage loans. We may be subject to losses due to fraudulent and negligent acts on the part of loan applicants, vendors and our associates or in situations where we obtain less than full documentation with respect to our mortgage loans. We seek to price our mortgage loan products to reflect risk, but our pricing terms may not protect us from loss. We face competition that could adversely affect our market share and revenues. Changes in U.S. economic conditions may adversely affect the performance of mortgage loans, particularly adjustable-rate mortgage loans. An increase in loan prepayments may negatively affect the yields on our assets. The mortgage loans that we hold are subject to the risks of delinquency and foreclosure loss. We have limited experience in making critical accounting estimates, and our financial statements may be materially affected if our estimates prove to be inaccurate. Changes in state laws could adversely affect our mortgage loan originations, sales and securitization transactions. We rely on key personnel, the loss of whom could impair our ability to successfully operate our business. Our Chief Executive Officer, Mr. Race, has a number of important management responsibilities, which could limit his ability to perform the functions required by the positions that he currently holds. We face intense competition for qualified personnel. We have a limited operating history with respect to securitizing mortgage loans and managing a portfolio of mortgage loans and related mortgage assets, which may affect our ability to complete securitizations on favorable terms. The loss of our SMAs, or our inability to create SMAs in new markets, could negatively affect our mortgage loan origination volume. We may not realize the expected results from our SMAs. Risks associated with the geographic expansion of our business may adversely affect our business, financial condition and results of operations. A decline in the fair value of our assets may limit our ability to borrow additional funds. To the extent we are unable to adapt to and implement technological changes involving the loan origination process, we may have difficulty remaining competitive, and our loan origination business may be adversely affected. An interruption in service or breach in the security of our information systems could impair our ability to originate or service loans on a timely basis and may result in lost business, which may never be recovered. Our business operations are subject to complex laws and regulations. We use consumer credit reports, which are subject to regulation and may expose us to litigation or enforcement actions. New legislation may restrict our ability to make mortgage loans, which would negatively affect our revenues. The mortgage banking business, including our business, is seasonal, which may result in variations in our operating results and could adversely affect our business. Hurricanes and other natural disasters may adversely affect our business. Risks Related to our Securities We presently do not intend to pay any dividends on our common stock in the foreseeable future. Our ability to pay dividends on shares of our capital stock may be limited. Our ability to pay dividends is further limited by the requirements of Georgia law. Changes in market interest rates may adversely affect the prices of our capital stock. Our stock price and trading volume may be volatile, which could result in substantial losses to our shareholders. As a result of deteriorating market conditions, we may be unable to continue to meet the listing requirements of the NYSE or another national securities exchange or automated quotation system. We may issue additional shares of our common and preferred stock in the future, which would dilute your ownership if you did not, or were not permitted to, invest in the additional issuances. We may issue debt and equity securities which are senior to our common stock and preferred stock as to distributions and in liquidation, which could negatively affect the value of our common and preferred stock. Tax Risks Related to our Business and Structure Failure to qualify as a REIT in our 2006 taxable year, or any prior period, would negatively affect our operations and our ability to make distributions to our shareholders. REIT distribution requirements could negatively affect our liquidity, profitability and future growth. Risks Related to our Company, Structure and Change in Control Provisions Maintenance of our investment company act exemption imposes limits on our operations and limits our holdings of MBS. All of our executive officers have agreements that provide them with benefits in the event their employment is terminated following a change of control, which could discourage a change of control. Certain provisions of Georgia law and our articles of incorporation and bylaws could hinder, delay or prevent a change in control of our company, which could have an adverse effect on the value of our common stock.

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1283683--3/15/2007--HOMEBANC_CORP