1325228--3/23/2007--CLAYTON_HOLDINGS

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{system, service, information}

{loan, real, estate}

{provision, law, control}

{product, market, service}

{stock, price, share}

{personnel, key, retain}

{regulation, change, law}

{competitive, industry, competition}

{customer, product, revenue}

{acquisition, growth, future}

{debt, indebtedness, cash}

{stock, price, operating}

{property, intellectual, protect}

{control, financial, internal}

{financial, litigation, operation}

Risks Related to Our Business and Industry Adverse changes in the mortgage-backed securities, or MBS, market, particularly in the non-agency or non-conforming sector, the mortgage lending industry or the housing market could result in a reduced demand for our services. Our profitability can be affected by fluctuations in the volume of activity in the non-prime mortgage lending market. Higher rates of loss in pools of loans that we service could result in lower demand for our services and damage to our reputation as a loan servicer. A sustained downturn in the residential mortgage loan origination business, which is a cyclical industry, may adversely affect our business and harm our operations. The market for our services is highly competitive, and if we are not able to compete effectively, our business and results of operations may be adversely affected. The loss of one or more of our largest clients could adversely affect our business and results of operations. If we are inefficient in delivering services to our customers, our profit margins may decrease and we may not be able to compete effectively. Clients can terminate engagements with us at any time. Maintaining our professional reputation is critical to our future success, and any damage to our reputation may adversely affect our business and results of operations. Our engagements may result in professional liability. If we are not able to maintain accurate, comprehensive or reliable systems and data, we could experience reduced demand for our services. Our business could be adversely affected if we are unable to safeguard the security and privacy of the personal financial information we receive. An interruption in or breach of our information systems may result in lost business. If we lose the services of certain key executive officers, we may not be able to execute our business strategy, manage our growth or compete effectively. Our business could suffer if we are unable to recruit and retain qualified independent loan review specialists. Efforts to expand our product offerings beyond our current markets may not succeed. We may make acquisitions that prove unsuccessful or strain or divert our resources. We may not be able to manage our growth or meet marketplace demands effectively. Changes in the regulation of our business and our failure to comply with applicable laws and regulations may adversely affect our business and results of operations. Third parties may claim we are infringing their intellectual property rights, or may infringe upon or design around our intellectual property rights. Our loan agreement contains operating and financial covenants that may restrict our business and financing activities. We have begun to, and will in the future, incur significant increased costs as a result of our operating as a public company, and our management will be required to devote substantial time and expense to various compliance issues. If we have material weaknesses in our internal controls or the actions we have taken to remediate previously identified inadequacies in our internal controls prove ineffective, there could be an adverse effect on our financial reporting. Risks Related to the Common Stock and Our Capital Structure There is a limited history of a trading market for our common stock, and the market price of our common stock may be highly volatile or may decline regardless of our operating performance. Future sales of our shares could adversely affect the market price of our common stock. Our directors and certain significant stockholders exercise significant control over Clayton. We may require additional capital in the future, which may not be available to us. Issuances of our equity securities to provide this capital may dilute your ownership in us. Provisions in our certificate of incorporation and by-laws may deter third parties from acquiring us. Section 203 of the Delaware General Corporation Law may delay, defer or prevent a change in control that our stockholders might consider to be in their best interests.

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1325228--3/23/2007--CLAYTON_HOLDINGS_INC