UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, ~~2005~~2007

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

For the transition period from to

Commission File No. 001-32245

LOGO

~~HomeBanc~~HOMEBANC ~~Corp~~CORP.

(Exact name of registrant as specified in its charter)

Georgia		20-0863067
(State of incorporation)		(I.R.S. Employer Identification Number)
2002 Summit Boulevard Suite 100 Atlanta, Georgia		30319
2002 Summit Boulevard, Suite 100 Atlanta, Georgia		30319
(Address of principal executive offices)		(Zip Code)

(404) 459-7400

Registrant’s telephone number, including area code:

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 x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerate filer, or a non-accelerated filer. ~~(as~~See ~~defined~~definition inof ~~Exchange~~“accelerated ~~Act~~filer and large accelerated filer” in Rule 12b-2~~): YES ¨ NO x~~ of the Exchange Act.

~~Indicate~~Large ~~the~~accelerated ~~number~~filer ¨ Accelerated offiler x Non-accelerated ~~shares~~filer ¨ ~~outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:~~

Class		Shares Outstanding at May 10, 2005
Common Stock, $0.01 par value per share		56,426,117

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): YES ¨ NO x


Class		Outstanding at May 7, 2007
Common Stock, $.01 par value per share		51,446,546 shares

Index

		Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)		59
Condensed Consolidated Balance Sheet		59
Condensed Consolidated Statement of Operations		610
Condensed Consolidated Statement of Changes in Shareholders’ Equity		711
Condensed Consolidated Statement of Cash Flows		812
Notes to Condensed Consolidated Financial Statements (Unaudited)		9
Notes to Condensed Consolidated Financial Statements		13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1825
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2840
Item 4. Controls and Procedures		2942
Part II. Other Information
Item 1. Legal Proceedings		3042
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 1A. Risk Factors		43
Item 3. Defaults Upon Senior Securities		30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 4. Submission of Matters to a Vote of Security Holders		30
Item 3. Defaults Upon Senior Securities		45
Item 5. Other Information		30
Item 4. Submission of Matters to a Vote of Security Holders		45
Item 6. Exhibits		31
Item 5. Other Information		45
Signatures		33
Item 6. Exhibits		45
Signatures		48

IMPORTANT INFORMATION ABOUT THIS REPORT

In this Quarterly Report on Form 10-Q, which we refer to as this “Report,” the words “Company,” “we,” “us” and “our” mean HomeBanc Corp., including its subsidiaries, as well as HomeBanc Corp.’s predecessors and their subsidiaries. “HBMC” refers to HomeBanc Mortgage Corporation, which became our wholly-owned subsidiary pursuant to a reorganization that we effected in connection with our initial public offering (“IPO”), which was completed on July 19, 2004. Prior to the reorganization, HBMC was wholly-owned by HBMC Holdings, LLC, which we refer to in this Report as “Holdings.” Except as otherwise indicated, we refer throughout this Report to the reorganization as having been completed prior to the period covered by this Report.

SPECIAL CAUTIONARY ~~NOTICE~~NOTE REGARDING FORWARD-LOOKING STATEMENTS

~~REGARDING~~Some ~~FORWARD~~of the statements made in this Report are “forward-~~LOOKING~~looking ~~STATEMENTS~~statements” within the meaning, and subject to the protections, of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Some of the statements made in this Report are “forward-looking statements” within the meaning, and subject to the protections, of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, or the “Exchange Act.”

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “hope,” “project,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “could,” “intend,” “seek,” “outlook,” “target,” and other similar words and expressions of the future. Such forward-looking statements include, without limitation, statements regarding:

• our ~~business~~consideration ~~strategy~~and possible pursuit of strategic alternatives, including, without limitation, changes in our operating model;

• ~~expected~~our ~~benefits~~business tostrategy, usincluding, ofwithout ~~the~~limitation, ~~change~~our inrecent ~~our~~and ~~business~~anticipated changes to that strategy and ~~our~~the ~~operation~~anticipated aseffects aof ~~REIT~~these new strategies;

• ~~expected~~alternative ~~benefits~~strategies tothat uswe ~~from~~may ~~our~~consider ~~investments~~to inincrease ~~strategic~~our ~~marketing~~loan ~~alliances~~origination volume;

• ~~future~~projected ~~performance,~~loan ~~including~~origination ~~Generally Accepted Accounting Principles, or “GAAP,” earnings, developments or market forecasts~~volume;

• ~~forward-looking~~our ~~accounting~~ability ~~and~~to ~~financial~~operate ~~statement~~more ~~impacts~~efficiently ~~as a result of our change~~ in ~~business~~2007 ~~strategy~~ and ~~our~~future ~~operation as a REIT~~periods;

•

expected savings from the restructuring of our field operations;

•

expected costs associated with our expense reduction efforts and reinvestment in our business;

•

the reduction in costs, and increase in productivity, of our strategic marketing alliances (“SMAs”), as well as our projected SMA costs in 2007;

•

our ability to maintain our high level of customer service;

•

our ability to grow our business, including, without limitation, through geographic growth and the opening of new stores;

•

new store openings in 2007, and the timing of operating those stores on a break-even and accretive basis;

•

expected benefits to us from our investments in SMAs;

•

future performance, including earnings under accounting principles generally accepted in the United States of America (“GAAP”), developments or market forecasts;

•

projected leverage ratios, capital needs and the timing of future financings; and

•

projected capital expenditures.

It is important to note that the description of our business, in general, and our ~~mortgage-backed~~financings ~~securities~~through ~~financings~~the issuance of collateralized debt obligations (“CDOs”), in particular, is a statement about our operations as of a specific point in time. It is not meant to be construed as an investment policy, and the types of assets we hold, the products that we offer, the amount of leverage we use, the liabilities we incur, our hedging activities, our corporate structure (including, without limitation, the election, for as long as we may continue to do so, of our public company to be treated as a real estate investment trust (“REIT”)) our business strategy and other characteristics of our business assets and liabilities are subject to reevaluation and change from time to time without notice.

The forward-looking statements may not be realized due to a variety of factors, including, without limitation:

•

our inability to successfully identify, consummate and realize the anticipated benefits of one or more strategic transactions or other corporate changes that we may pursue;

•

our inability to obtain all required approvals and consents, and pay all expenses, to implement any strategic alternative that we may decide to undertake in the future, including, without limitation, a change in our operating model, as well as our inability to determine a means of completing such strategic alternative upon terms that are favorable to us;

•

the risk that our current strategy may prove to be inconsistent with market conditions or strategic alternatives that we may consider and pursue, and the corresponding risk that we might further revise our strategy;

•

our inability to successfully apply our business strategy, including, without limitation, our recent changes to that strategy;

•

our inability to successfully implement the cost reduction measures and other streamlining and efficiency measures that we have identified, and our inability to effectively operate our business after taking such measures;

•

unanticipated changes in the mortgage market or the further deterioration of economic and real estate market conditions in our markets generally, and in particular in our Florida markets;

•

the failure of our strategies and plans designed to improve the profitability of our mortgage origination business, including, without limitation, those strategies and plans related to improving the efficiency of the infrastructure, origination process and other aspects of our mortgage origination business, as well as those strategies and plans related to maintaining and increasing the level of our mortgage loan origination volume;

•

the failure of our strategies and plans designed to position us to grow our business in future periods and to maintain and improve our book value in the long-term;

•

our inability to effectively restructure our field operations and to realize the anticipated benefits of that restructuring, including, without limitation, as a result of any increases in the salaries that we pay to our field employees and the increase of any other costs associated with our field operations;

•

our inability to continue to meet our high customer service standards, and to maintain positive customer relationships generally, including, without limitation, after implementing our cost reduction measures and other strategic plans;

•

our inability to apply the net proceeds from the sale of mortgage-backed securities (“MBS”) in the manner that we anticipate, whether as a result of market conditions, relationships with third parties, unanticipated uses of capital or otherwise;

•

failures in our assumptions underlying the value of our business and our common stock and, accordingly, the anticipated accretive value of our recently completed share repurchase program;

•

risks related to managing our SMAs to reduce the overall cost of SMAs while increasing their productivity, including, without limitation, risks related to terminating certain SMA relationships and the risk that our loan origination volume may suffer;

•

risks related to our ability to maintain investor confidence and market credibility as we revise our business strategy and corporate model;

•

risks related to changes in our executive management team, including, without limitation, the risk that members of our management team have been given additional management responsibilities, which could limit their ability to perform the functions required by their position;

•

the risks that we may be unable to sell assets on attractive terms, such sales would result in the loss of the returns from the assets sold, and we may not realize the expected benefits from employing the liquidity created from such sales;

•

the risks of changes in interest rates and the yield curve on our mortgage loan production, our product mix, our interest rate sensitive assets and liabilities, and our net interest margin;

•

mortgage loan prepayment assumptions and estimated lives of loans and the estimates used to value our mortgage servicing rights (“MSRs”);

•

risks inherent in originating and holding mortgage loans, including the risks of early principal repayment and fluctuations in collateral values;

•

risks related to the high concentration of our mortgage loan originations in the Southeast in general and Florida in particular;

•

risks in our ability to attract and retain experienced loan officers;

•

the effects of weather-related events that may result in property damage and increased costs of property ownership, as well as a reduction in mortgage loan origination volume or an alteration of the timing of mortgage loan closings;

•

risks associated with expansion of our business, including expansion into new geographic markets and the introduction of new mortgage loan products and growth through acquisitions;

•

our inability to open new stores on a timely and effective basis, if at all, whether as a result of market conditions, the lack of qualified personnel to staff those stores on terms that are attractive to us, the financial performance and liquidity of our company, or otherwise, and our ability to operate those stores on a profitable basis;

•

risks inherent in the application of our accounting policies as described in the footnotes to the consolidated financial statements included in our filings with the SEC;

•

risks of maintaining trading securities and securities held available for sale whose value must be marked to market in our periodic consolidated financial statements;

•

pricing pressure that could negatively impact gain on sale relative to the amount of loans sold, which have been exacerbated in recent periods as we have sold more of the mortgage loans that we originate into the secondary market;

•

future economic or business conditions and general consumer confidence and spending habits;

• governmental monetary and fiscal policies, as well as legislative and regulatory changes, including changes in tax laws and regulations, applicable to both corporate and individual taxpayers, and changes in the regulation of government-sponsored enterprises (“GSEs”), such as Fannie Mae and Freddie Mac, and the related changes in their required capital and activities;

• federal and state regulations governing the ~~risks~~mortgage oflending industry and the risk that changes in ~~interest~~or ~~rates~~in onthe ~~our~~application ~~mortgage~~of ~~loan~~such ~~production~~regulations ~~and~~may adversely impact our ~~interest~~business ~~rate~~or ~~sensitive~~make ~~assets~~compliance ~~and~~more ~~liabilities~~difficult or expensive;

• interest rate risks and credit risks of customers and counterparties;

•

loan loss experience and the rate of loan charge-offs;

• ~~risks~~the ~~inherent~~uncertainties inand ~~originating~~costs ~~mortgage~~of ~~loans~~litigation, including, without limitation, the ~~risks~~litigation ofthat ~~principal~~is ~~repayment~~described in this Report, and ~~fluctuations~~the inrisk ~~collateral~~that ~~values~~we will be required to establish larger reserves for that litigation and any other litigation to which we may become subject, which would negatively affect our financial condition and results of operations;

• the percentage of mortgage loan applications that will result in closed loans;

• loss experience arising from alleged breaches of representations and warranties provided to third-party buyers of mortgage loans originated by us ~~and sold to third parties~~;

3• risks in our ability to meet the requirements for operation of our public company, for as long as we may continue to do so, as a REIT;

•

our limited experience as a servicer of mortgage loans;

•

competition that we face from a wide variety of local, regional, national and other originators and sellers of mortgage loans, and changes in the secondary mortgage market and investors therein;

•

risks in our ability to raise additional capital or enter into additional financing arrangements on terms that are attractive to us, if at all;

•

the failure of assumptions underlying accounting estimates including, without limitation, the allowance for loan losses (the “Allowance”); reserves for contingency losses anticipated in association with investor repurchase and indemnification requests; and litigation reserves;

•

the risks of mergers, acquisitions, joint ventures and/or divestitures, including, without limitation, the related time and costs of implementing such transactions, failure to identify all favorable alternatives, and the possible failure to integrate operations or achieve expected gains, revenue growth and/or expense savings from such transactions;

•

changes in GAAP and related industry practices;

• risks in our ability to execute new changes in our business strategy and to meet the requirements for operation as a REIT;

• competition that we face, as well as the general effects of competition from a wide variety of local, regional, national and other originators and sellers of mortgage loans, and changes in the secondary mortgage market and investors therein;

• risks in our ability to raise additional capital or enter into additional financing arrangements on terms that are attractive to us;

• the failure of assumptions underlying the establishment of reserves for possible loan losses and other estimates, including those used to develop hedging and interest rate risk management strategies;

• the uncertainties of costs of litigation;

• the risks of entering new markets or introducing new products;

• the risks of mergers, acquisitions, joint ventures and/or divestitures, including, without limitation, the related time and costs of implementing such transactions, and the possible failure to integrate operations or achieve expected gains, revenue growth and/or expense savings from such transactions;

• changes in generally accepted accounting principles and related industry practices;

•

difficulties with, or changes in the cost or effectiveness of, technology and/or products;

• general volatility of the capital markets and the market price of our common and preferred stock;

•

changes in our industry or in the rate of growth in the markets that we serve;

• the ~~effects~~risk ofthat ~~war~~we orwill ~~other~~not ~~conflict,~~be ~~acts~~able ofto ~~terrorism,~~purchase ~~natural~~mortgage ~~disasters~~loans orfrom ~~other~~third ~~catastrophic~~parties ~~events~~for ~~that~~our ~~may~~investment ~~affect~~portfolio ~~general~~on ~~economic~~terms ~~conditions~~that are attractive to us;

• the effects of ~~weather-related~~war ~~events~~or ~~that~~other ~~may~~conflict, ~~result~~acts inof ~~property~~terrorism, ~~damage~~natural asdisasters ~~well~~or asother acatastrophic ~~reduction~~events, inincluding ~~mortgage~~hurricanes, ~~loan~~that ~~origination~~may ~~volume~~affect orgeneral aneconomic ~~alteration of the timing when mortgage loans close~~conditions; and

• other factors and other information discussed in ~~the~~this ~~Company’s~~Report, including, without limitation, those discussed under “Risk Factors” in Item 1A of Part II of this Report and in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2004,~~2006 ~~including,~~and ~~without~~in ~~limitation,~~our ~~those~~other ~~discussed~~filings ~~under~~with ~~“Risk factors,” in~~ the ~~Annual~~Securities ~~Report~~and onExchange ~~Form 10-K~~Commission.

All written or oral statements that are made by or are attributable to the Company are expressly qualified in their entirety by this cautionary notice. You should not place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made. We have no obligation and do not undertake to publicly update, revise or correct any of the forward-looking statements after the date of this Report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise, except as may be required by law.

IMPORTANT INFORMATION REGARDING OUR STRATEGIC PLANS

Since 2003, we have changed our strategic plan in a number of important ways. This Report contains financial and other information relating to historical periods during which we made significant changes to our strategic plans. It is very important that you read and consider the following summary of our historical and current strategic plans in conjunction with the other information contained in this Report.

This is a summary of some of the more important aspects of the historical and current changes in our strategic plan. Because it is only a summary, it may not provide the level of detail, or the related statistical and other information, that may be important to you. For a more complete understanding of our historical and current strategic plans, and the effects of those plans on our financial condition and results of operations, you should review carefully all of the information contained in this Report, including, without limitation, the information set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as all of the information contained in our other historical and future filings that we make with the SEC.

Our Background

Prior to the formation of HomeBanc Corp. in 2004:

•

HBMC was a privately held mortgage loan origination company that sold, in whole loan and securitized form, substantially all of the mortgage loans that it originated to third parties;

•

HBMC realized gain on sale income from the sales of the mortgage loans that it originated;

•

HBMC did not have, and did not seek to create, a significant investment portfolio of mortgage loans or other assets; and

•

HBMC routinely transferred the servicing responsibilities on mortgage loans that it originated, other than construction-to-permanent loans during the construction phase, to third-party servicers shortly after the origination of the loans, until December 2003, when HBMC began to also retain servicing on substantially all of its nonconforming interest-only adjustable-rate mortgage loans and a limited number of Fannie Mae mortgage loans that it sold.

Our Initial Public Offering and Reorganization

In July 2004, we completed our IPO and a related corporate reorganization, which resulted in HomeBanc Corp. becoming a publicly held, parent holding company of HBMC. We also elected for HomeBanc Corp. to be treated as a REIT for federal income tax purposes, which, among other things, required us to distribute to our shareholders at least 90% of our REIT taxable income.

Following our IPO and corporate reorganization, we implemented the following new strategy:

•

we continued to sell to third parties a majority of the fixed-rate mortgage loans that we originated, and we earned revenue reported as gain on sale of mortgage loans; and

•

we began to build a leveraged portfolio of the prime adjustable-rate mortgage (“ARM”) loans that we originated, that met our investment criteria and that we funded by issuing CDOs in connection with our securitizations, and began to earn revenue reported as net interest income.

We believed that this REIT/portfolio model would create greater tax efficiencies, enable us to take advantage of what we perceived as being inappropriate pricing in the secondary market for certain mortgage loan products, and provide greater returns and value to our shareholders.

Because market conditions in 2005 were relatively favorable, we were able to increase our mortgage loan origination volume and the size of our investment portfolio during that period. Consistent with our strategic plan at that time, we were able to realize gain on sale income from the sale of our fixed-rate mortgage loans and net interest income from our investment portfolio, comprised largely of ARM loans. Given our experience in 2004 and 2005, we believed that the differences between our income for GAAP purposes, on the one hand, and our REIT taxable income, on the other hand, would naturally narrow over time.

Strategic Changes Made in Response to the Adverse Market Conditions in 2006

In 2006, we began to face, and suffer from, severely adverse market conditions in the mortgage loan origination industry, especially in Florida, one of our primary markets. Our mortgage loan origination volume began to decrease to levels significantly lower than those we enjoyed in previous periods.

In response to these adverse market conditions, we took the following steps during 2006:

•

In an effort to generate greater short-term income, and to continue to narrow the difference between our GAAP income and our REIT taxable income, we began to sell substantially all of the mortgage loans that we originated; and

•

In lieu of transferring mortgage loans to our investment portfolio, we began to purchase and hold MBS to supplement our net interest income.

However, two trends worked to negate the anticipated benefits from this change in strategy:

•

Competitive conditions in the secondary market created pricing compression, which, in turn, reduced the amount of gain on sale income that we realized from selling mortgage loans into the secondary market; as a result, although we sold significantly greater amounts of mortgage loans, we generated only modest incremental returns from those sales; and

•

Our decision to purchase MBS, which tend to generate a lower net interest margin than mortgage loans, to “replace” the mortgage loans that we otherwise would have transferred to our portfolio, but instead sold, resulted in a decrease in the net interest income from our investment portfolio.

In addition, during 2006, we also began retaining servicing rights in respect of a greater percentage of the ARM loans that we sold to unrelated third parties, and in August 2006, we began retaining servicing rights in respect of substantially all of the conforming mortgage loans sold to, or included in MBS guaranteed by, Fannie Mae and Freddie Mac.

Our Current Strategic Plans for 2007

We have identified and initiated a number of other strategic measures for 2007 that are designed to improve our operating efficiencies and opportunities for growth:

•

in the first quarter of 2007, we sold substantially all of our securities available for sale as a means of generating liquidity, and we determined that, in the near term, we would not make any additional significant purchases of MBS to be held in our investment portfolio at the REIT;

•

in February 2007, we announced a $16.5 million share repurchase program, pursuant to which we used a portion of the net proceeds from the sale of our MBS portfolio to repurchase $9.7 million of our common stock during the first quarter of 2007 and $6.8 million during the second quarter of 2007;

•

we intend to use the remaining proceeds from the sale of our MBS portfolio for (1) liquidity and other general corporate purposes, (2) costs associated with potential strategic alternatives, including, without limitation, changes to our corporate operating structure and (3) capital management purposes, including, but not limited to, potentially refinancing outstanding debt and trust preferred securities;

•

we may contribute to HBMC the ownership interest in certain of our securitization trusts, which are nearing their “clean up call”; HBMC will have greater flexibility than us in selling or funding the underlying loans;

•

we have undertaken significant cost reduction measures that include reducing the number of our associates, reducing the number of and expenses associated with our SMAs, streamlining our origination process, “right-sizing” our corporate infrastructure and improving efficiencies throughout our organization;

•

we expect to supplement our mortgage loan portfolio through purchases, from time to time, of mortgage loans, which meet our investment criteria, from other originators;

•

we began to originate mortgage loans through a direct lending channel; and

•

we opened a new store location in Nashville, Tennessee in April 2007, and we intend to open two new stores in other new markets in 2007.

In addition, we continue to opportunistically consider any number of alternative and/or additional strategic plans that may be or become available to us, and we may change our strategy at any time to pursue any such alternative or additional strategies. The preceding description of our current strategy speaks only as of the date hereof and is subject to, among other things, our ability to execute that strategy on terms that are favorable to us. Accordingly, you should not rely upon the preceding description of our strategy.

PART I

Item 1.

Financial Statements

HomeBanc Corp. and Subsidiaries

Condensed Consolidated Balance Sheet (Unaudited)

	March 31, 2005			December 31, 2004
	March 31, 2007			December 31, 2006
	(Dollars in thousands, except per share data)
Assets
Cash	$	2811,~~345~~241		$	1220,~~232~~987
Restricted cash		~~617~~79,794			6128,~~877~~033
Mortgage loans held for sale, net		~~273~~383,~~434~~532			~~252~~379,~~378~~299
Mortgage loans held for investment, net of allowance of $3,398 and $2,870, respectively		3,655,922			2,937,156
Mortgage loans held for investment, net of allowance of $3,596 and $4,040, respectively		4,183,798			4,372,998
Mortgage servicing rights, net		5,517			5,097
Mortgage servicing rights		54,831			43,908
Accounts receivable		66,576			34,972
Receivable from custodian		58,779			77,612
Prepaid assets, net		3,200			3,551
Trading securities		41,325			4,824
Premises and equipment, net		33,994			33,025
Securities available for sale		87,958			1,366,426
Securities held to maturity (fair value of $182,255 and $187,014, respectively)		183,362			188,193
Accrued interest receivable		16,998			22,387
Premises and equipment, net		45,325			45,406
Goodwill, net		39,995			39,995
Deferred tax assets, net		15,524			11,973
Deferred tax asset, net		18,269			23,225
Other assets		47264,~~232~~588			22109,~~697~~371
Total assets	$	45,~~170~~469,~~356~~795		$	36,~~359~~822,~~953~~664
Liabilities and shareholders’ equity
Warehouse lines of credit	$	~~242~~437,~~087~~371		$	~~333~~404,~~783~~765
Aggregation credit facilities		479,839			869,429
Repurchase agreements		400,522			1,527,470
Loan funding payable		9488,~~622~~684			6963,~~831~~855
Other liabilities		37,531			49,981
Accrued interest payable		7,670			9,144
Collateralized debt obligations		2,959,594			1,785,900
Other liabilities		65,788			94,832
Total liabilities		3,813,673			3,108,924
Collateralized debt obligations		4,075,193			4,277,026
Minority interest		11			16
Junior subordinated debentures representing obligations for trust preferred securities		175,260			175,260
Commitments and contingencies (Note 8)		—			—
Total liabilities		5,250,488			6,552,352
Minority interest		135			42
Commitments and contingencies (Note 11)
Shareholders’ equity:
Preferred Stock – par value $0.01 per share; 25,000,000 shares authorized; no shares issued and outstanding		—			—
Preferred stock — par value $.01; 25,000,000 shares authorized; 2,000,000 shares issued and outstanding at March 31, 2007 and December 31, 2006		47,992			47,992
Common Stock – par value $0.01 per share; 150,000,000 shares authorized; 56,426,117 and 45,501,117 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively		564			455
Common stock — par value $.01; 150,000,000 shares authorized; 57,081,946 and 56,898,898 shares issued at March 31, 2007 and December 31, 2006, respectively		570			568
Additional paid-in capital		~~388~~278,~~300~~712			~~294~~277,~~809~~800
Accumulated deficit		(5387,~~508~~644	)		(4564,~~950~~065	)
Accumulated other comprehensive income		21,316			1,699
Treasury stock, at cost; 3,697,952 and 82,184 shares at March 31, 2007 and December 31, 2006, respectively		(10,581	)		(673	)
Total shareholders’ equity		356,672			251,013
Accumulated other comprehensive (loss) income		(9,877	)		8,648
Total liabilities and shareholders’ equity	$	4,170,356		$	3,359,953
Total shareholders’ equity		219,172			270,270
Total liabilities and shareholders’ equity	$	5,469,795		$	6,822,664

The accompanying notes are an integral part of these condensed consolidated financial statements.

HomeBanc Corp. and Subsidiaries

Condensed Consolidated Statement of Operations (Unaudited)

	Three Months Ended March 31,
	2005			2004
	2007			2006
	(Dollars in thousands, exceptper share data)
	(Dollars in thousands, except per share data)
Revenues:
Net gain on sale of mortgage loans	$	8,583		$	11,460
Net interest income:
Other revenue		1,064			475
Interest income:
Interest income		42,051			4,925
Mortgage loans, including fees	$	73,305		$	85,027
Interest expense		(30,416	)		(4,066	)
Securities available for sale		13,826			2,812
Net interest income		11,635			859
Securities held to maturity		2,771			2,547
Provision for loan losses		528			208
Total interest income		89,902			90,386
Net interest income after provision for loan losses		11,107			651
Total interest expense		(83,974	)		(61,508	)
Total revenues		20,754			12,586
Net interest income		5,928			28,878
Provision for loan losses		341			39
Net interest income after provision for loan losses		5,587			28,839
Net gain on sale of mortgage loans		3,793			7,051
Net gain on sale of securities available for sale		12,474			—
Mortgage servicing income, net		663			960
Other revenue		1,610			1,622
Total revenues		24,127			38,472
Expenses:
Salaries and associate benefits, net		1524,~~055~~810			1018,~~116~~823
Marketing and promotions		64,~~354~~022			46,~~944~~602
Occupancy and equipment expense		3,805			8,910
Occupancy and equipment		4,085			4,147
Depreciation and amortization		12,~~873~~044			12,~~266~~233
Interest expense, other		—			378
Minority interest		61			52
Minority interest		25			24
Other operating expense		7,728			6,325
Other operating expense		4,708			2,879
Total expenses		42,750			38,182
Total expenses		31,820			28,517
(Loss) income before income taxes		(18,623	)		290
Loss before income taxes		(11,066	)		(15,931	)
Income tax expense (benefit)		3,948			(696	)
Income tax benefit		(3,508	)		(6,831	)
(Loss) income before cumulative effect of change in accounting principle		(22,571	)		986
Net loss	$	(7,558	)	$	(9,100	)
Cumulative effect of change in accounting principle, net of taxes of $0 and $171, respectively		—			270
Net loss per share of common stock outstanding:
Net (loss) income	$	(22,571	)	$	1,256
Basic and diluted	$	(0.15	)	$	(1.40	)
Net (loss) income attributable to holders of common stock	$	(23,821	)	$	520
Weighted-average shares of common stock outstanding:
(Loss) earnings per share of common stock outstanding:
Basic and diluted		51,691,950			6,482,573
(Loss) income before cumulative effect of change in accounting principle
Basic and diluted	$	(0.42	)	$	0.00
Cumulative effect of change in accounting principle
Basic and diluted	$	—		$	0.00
Net (loss) income
Basic and diluted	$	(0.42	)	$	0.01
Dividends declared per share of common stock outstanding	$	—		$	—
Weighted average shares of common stock outstanding:
Basic		56,365,803			56,335,272
Diluted		56,365,803			57,520,873

The accompanying notes are an integral part of these condensed consolidated financial statements.

610

HomeBanc Corp. and Subsidiaries

Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

	Common Stock Shares	Common Stock		Additional Paid-in Capital			Accumulated Deficit				Accumulated Other Comprehensive Income			Total Shareholders’ Equity
	Preferred StockShares	PreferredStock		Common StockShares		CommonStock			Additional Paid-inCapital				AccumulatedDeficit				TreasuryStock			Accumulated OtherComprehensiveIncome (Loss)			Total Shareholders’Equity
	(Dollars in thousands)
Balance at January 1, 2005	45,501,117	$	455	$	294,809		$	(45,950	)		$	1,699		$	251,013
Balance at January 1, 2007	2,000,000	$	47,992	56,898,898		$	568		$	277,800			$	(64,065	)		$	(673	)	$	8,648		$	270,270
Comprehensive income*:
Comprehensive loss*:
Net loss	—		—	—	—		—	~~(7,558~~	)	—		—		(22,571	~~(7,558~~)	)		—			—			(22,571	)
Other comprehensive income, net of taxes:
Other comprehensive loss, net of taxes
Net change in unrealized gain on cash flow hedges (net of taxes of $42)	—		—		—			—				19,617			19,617
Change in net unrealized gains and losses on available for sale securities	—		—	—			—			—				—				—			(11,609	)		(11,609	)
Total comprehensive income															12,059
Change in net unrealized gains and losses on cash flow hedges	—		—	—			—			—				—				—			(6,916	)		(6,916	)
Issuance of common stock through public offering	10,925,000		109		92,891			—				—			93,000
Total comprehensive loss																								(41,096	)
Stock-based compensation	—		—	183,048	~~600~~		2	—		1,979		—		—	~~600~~			—			—			1,981
Balance at March 31, 2005	56,426,117	$	564	$	388,300		$	(53,508	)		$	21,316		$	356,672
Forfeitures of awards under the Sales Equity Plan	—		—	—			—			183				—				(183	)		—			—
Common stock purchased under a share repurchase program	—		—	—			—			—				—				(9,725	)		—			(9,725	)
Preferred stock dividends declared ($0.625 per share)	—		—	—			—			(1,250	)			—				—			—			(1,250	)
Cumulative effect of change in accounting principle	—		—	—			—			—				(1,008	)			—			—			(1,008	)
Balance at March 31, 2007	2,000,000	$	47,992	57,081,946		$	570		$	278,712			$	(87,644	)		$	(10,581	)	$	(9,877	)	$	219,172

* Total comprehensive ~~loss~~income for the three months ended March 31, ~~2004~~2006 was $923.19 million.

The accompanying notes are an integral part of these condensed consolidated financial statements.

711

HomeBanc Corp. and Subsidiaries

Condensed Consolidated Statement of Cash Flows (Unaudited)

	Three Months Ended March 31,
	2005			2004
	2007			2006
	(Dollars in thousands)
Operating activities
Net loss	$	(7,558	)	$	(9,100	)
Net (loss) income	$	(22,571	)	$	1,256
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		12,~~873~~044			12,~~266~~233
Provision for loan losses		528			208
Net amortization of premium/accretion of discount on investment securities		(863	)		(75	)
Provision for losses associated with certain loan sales and mortgage loans held for sale		674			400
Provision for loan losses		341			39
Capitalization of mortgage servicing rights		(1,186	)		(4,235	)
Provision for losses associated with certain loan sales and mortgage loans held for sale		183			649
Amortization and impairment of mortgage servicing rights		766			265
Gain on sale of securities available for sale		(12,474	)		—
Loss on disposal of premises and equipment		33			5,475
Capitalization of mortgage servicing rights		(12,611	)		(3,636	)
Stock-based compensation		600			—
Change in fair value of mortgage servicing rights		1,688			138
Minority interest		(5	)		7
Loss on disposal of premises and equipment		298			—
Deferred taxes		(3,508	)		(7,465	)
Stock-based compensation, net		1,850			1,213
Decrease (increase) in restricted cash		6,260			(202	)
Compensation expense for Sales Equity Plan, net		131			220
Increase in mortgage loans held for sale, net		(21,730	)		(145,744	)
Cumulative effect of change in accounting principle		—			(441	)
(Increase) decrease in accounts receivable		(31,604	)		18,290
Minority interest		93			(20	)
Decrease (increase) in prepaid assets		351			(456	)
Deferred taxes		3,948			(493	)
(Increase) decrease in other assets		(4,961	)		31
Decrease (increase) in restricted cash		48,239			(100	)
Decrease in other liabilities		(12,450	)		(796	)
Increase in mortgage loans held for sale, net		(4,233	)		(125,328	)
Net cash used in operating activities		(71,917	)		(142,056	)
Increase in trading securities		(36,501	)		(4,449	)
Decrease in receivable from custodian		18,833			30,909
Decrease (increase) in accrued interest receivable		5,389			(1,551	)
(Increase) decrease in other assets		(158,789	)		7,376
(Decrease) increase in accrued interest payable		(1,474	)		2,128
Decrease in other liabilities		(16,597	)		(19,450	)
Net cash used in operating activities		(183,076	)		(109,382	)
Investing activities
Originations of mortgage loans held for investment and principal collections, net		(719,294	)		(376,914	)
Net principal collections of mortgage loans held for investment		185,515			157,126
Purchases of premises and equipment, net		(2,~~875~~261	)		(54,~~608~~218	)
Net cash used in investing activities		(722,169	)		(382,522	)
Purchases of investment securities available for sale		—			(296,039	)
Proceeds from the sale of securities available for sale		1,232,028			—
Proceeds from maturities and prepayments of investment securities available for sale		48,028			4,917
Purchases of investment securities held to maturity		—			(147,245	)
Proceeds from maturities and prepayments of investment securities held to maturity		4,971			5,006
Net cash provided by (used in) investing activities		1,468,281			(280,453	)
Financing activities
(Decrease) increase in warehouse and aggregation credit facilities, net		(481,286	)		470,510
Increase in warehouse credit facilities, net		32,606			194,097
Net change in loan funding payable		24,791			52,907
(Decrease) increase in repurchase agreements, net		(1,126,948	)		439,461
Proceeds from debt issuance		1,257,516			—
Net change in loan funding payable		24,829			23,725
Repayment of debt		(83201,~~822~~833	)		—(321,847	)
Proceeds from issuance of common stock, net		93,000			—
Proceeds from the issuance of preferred stock, net		—			47,609
Other		—			(92	)
Purchase of shares under share repurchase program		(9,725	)		—
Net cash provided by financing activities		810,199			523,325
Purchase of shares under Sales Equity Plan		—			(551	)
Net increase (decrease) in cash		16,113			(1,253	)
Cash dividends paid		(13,880	)		(16,592	)
Cash and cash equivalents at beginning of period		12,232			1,722
Net cash (used in) provided by financing activities		(1,294,951	)		365,902
Cash and cash equivalents at end of period	$	28,345		$	469
Net decrease in cash		(9,746	)		(23,933	)
Cash and cash equivalents at beginning of period		20,987			41,505
Cash and cash equivalents at end of period	$	11,241		$	17,572
Supplemental disclosures
Non-cash investing and financing activities:
Cumulative effect of change in accounting principle	$	(1,008	)	$	—
Transfers to other real estate from mortgage loans held for investment		3,344			2,001
Change in net unrealized gains and losses on available for sale securities		(11,609	)		(2,003	)
Change in net unrealized gains and losses on cash flow hedges		(6,916	)		24,606

The accompanying notes are an integral part of these condensed consolidated financial statements.

812

HomeBanc Corp. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Organization and Basis of Presentation

~~HomeBanc~~Description ~~Corp. (“HomeBanc” or the “Company”) is a Georgia corporation engaged in the business~~ of ~~mortgage~~Business banking. The Company was formed on March 17, 2004 to, among other things, hold and service residential mortgage loans. The Company completed its initial public offering (the “Offering”) of 38,750,000 shares of common stock on July 19, 2004. The gross proceeds from the Offering were approximately $288.6 million, excluding the costs related to the Offering, principally $17.3 million in underwriting fees. As more fully discussed below, immediately prior to the Offering, the Company completed a corporate reorganization, through a merger with an affiliate, to meet the requirements for qualification as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company has elected to be taxed as a REIT beginning with the tax year ending December 31, 2004.

InHomeBanc ~~connection~~Corp. ~~with~~(“HomeBanc” or the “Company’s”) ~~reorganization,~~is ~~the~~a ~~Company~~Georgia ~~issued~~corporation ~~6,751,107~~engaged ~~shares~~in the business of ~~its~~mortgage ~~common~~banking. ~~stock~~The toCompany ~~HBMC~~was ~~Holdings,~~formed ~~LLC~~on ~~(“Holdings”)~~March 17, a2004 ~~holding company~~to, ~~for~~among ~~entities~~other ~~engaged~~things, inhold ~~the~~and ~~business~~service ofresidential mortgage ~~banking~~loans. InThe ~~return,~~Company ~~the~~completed ~~Company~~its ~~received~~initial ~~all~~public ofoffering (the ~~outstanding~~“Offering”) ~~capital~~of ~~stock~~38,750,000 shares of ~~Holdings’~~its ~~wholly-owned~~common stock ~~subsidiary~~on July 19, ~~Abetterwayhome Corp~~2004. ~~Abetterwayhome~~Immediately ~~Corp.,~~prior into ~~turn~~the Offering, ~~owned Holdings’~~the ~~principal~~Company ~~operating~~completed ~~entity~~a corporate reorganization, ~~HomeBanc~~through ~~Mortgage~~a ~~Corporation~~merger ~~(“HBMC”),~~with an ~~originator~~affiliate, ofto ~~residential~~meet ~~mortgage~~the ~~loans.~~requirements Asfor qualification as a ~~result~~real ofestate investment trust (“REIT”) under the ~~reorganization~~Internal Revenue Code of 1986, as amended (the ~~Company~~“Code”). ~~temporarily~~The ~~became~~Company aelected ~~wholly-owned~~to ~~subsidiary~~be oftaxed ~~Holdings~~as ~~and~~a ~~the owner~~REIT ofbeginning ~~HBMC~~with ~~and~~the ~~all~~tax ofyear ~~Holdings’~~ending ~~other~~December 31, ~~subsidiaries~~2004.

InThe ~~July 2004~~Company, ~~Holdings~~ ~~distributed~~through its wholly-owned subsidiary, ~~prior~~HomeBanc toMortgage ~~the~~Corporation ~~Offering~~(“HBMC”), ~~6,101,677~~originates ~~shares~~residential ofmortgage ~~the~~loans ~~HomeBanc~~through ~~Corp.~~its ~~common~~21 ~~stock~~store ~~that~~locations itand ~~received~~its in126 ~~the~~realtor ~~reorganization~~store-in-store tolocations in the ~~holders~~states of ~~its~~Georgia, ~~preferred~~Florida ~~units~~and North Carolina. ~~The~~HBMC’s ~~total~~mortgage ~~value~~product ofofferings ~~the~~include ~~distribution~~conforming ~~was~~Fannie ~~equal~~Mae toand ~~the~~Freddie ~~aggregate~~Mac ~~value~~mortgage ofloans, FHA/VA government-insured mortgage loans, adjustable-rate mortgage loans, including construction-to-permanent and insecond-lien ~~payment~~mortgage ofloans, ~~the~~nonconforming ~~capital~~jumbo ~~accounts~~loans and a limited volume of sub-prime mortgage loans, ~~including~~which ~~accumulated~~it originates but ~~unpaid~~does ~~distributions~~not hold for investment. The Company’s strategy emphasizes retail residential mortgage loan originations, ofprimarily ~~the~~purchase ~~preferred~~money ~~units~~mortgages, aswhich ofare originated in connection with the ~~date~~purchase and sale of real property. The Company augments its production strategy through the ~~closing~~formation of ~~the~~strategic ~~Offering.~~marketing ~~This~~alliances (“SMAs”) ~~transaction~~with ~~has~~residential ~~been~~realtors ~~accounted~~and ~~for~~home inbuilders who have a ~~manner~~significant ~~similar~~presence toin aits ~~pooling~~markets. As of ~~interests~~March 31, ~~and~~ 2007, the ~~condensed~~Company ~~consolidated~~had ~~financial~~139 ~~statements~~SMAs, 96 of ~~the~~which ~~Company~~were ~~include~~with ~~the~~residential ~~combined~~realtors ~~entities~~and ~~from~~43 ~~the~~of ~~earliest~~which ~~date~~were ~~presented.~~with home builders.

~~The~~At March 31, 2007, the Company ~~completed~~had athe ~~second~~following ~~public~~subsidiaries: ~~equity~~HBMC; ~~offering~~HomeBanc onFunding ~~February~~Corp.; 9HomeBanc Funding Corp. II; HMB Acceptance Corp. (“Acceptance”); HomeBanc Title Partners, ~~2005~~LLC of(“Title 10Partners”); HMB Mortgage Partners,~~925~~ LLC (“Mortgage Partners”); and BH Mortgage Partners,~~000~~ ~~shares~~LLC (“BH Mortgage”). All of ~~its~~these ~~common~~entities ~~stock~~are ~~priced~~direct ator ~~$9.10~~indirect wholly-owned ~~per~~subsidiaries ~~share~~of the Company, except for Title Partners, a joint venture in which ~~included~~First ~~the~~American ~~exercise~~ Title Insurance, an agent offering title insurance to customers of the ~~underwriters’~~Company, ~~option~~owns toa ~~purchase~~15% 1equity interest,~~425~~ and except for BH Mortgage,~~000~~ ~~additional~~a joint ~~shares~~venture ofin ~~common~~which ~~stock~~an toaffiliate ~~cover~~of ~~over~~Atlanta-~~allotments~~based homebuilder, Brayson Homes, owns a 49% equity interest. ~~The~~HBMC ~~net~~has ~~proceeds~~elected, through the 2006 tax year, to be treated as a taxable REIT subsidiary (“TRS”) of the Company. HomeBanc Funding Corp., ~~including~~HomeBanc ~~proceeds~~Funding ~~from~~Corp. ~~the~~II ~~exercise~~and Acceptance are treated as qualified REIT subsidiaries. Mortgage Partners, a single-member limited liability company, is a wholly-owned subsidiary of HBMC. Mortgage Partners became the ~~underwriters’~~owner, ~~over-allotment~~effective July 1, ~~option~~2006, of a 51% interest in BH Mortgage. BH Mortgage was ~~$93~~created to originate mortgage loans with borrowers, including purchasers of homes built by Brayson Homes.0 The Company consolidates BH Mortgage consistent with Statement of ~~million~~Financial ~~after~~Accounting ~~deducting~~Standard ~~underwriting~~(“SFAS”) ~~discounts~~No. 94, ~~commissions~~Consolidation ~~and~~of ~~other~~All ~~related~~Majority-Owned ~~expenses~~Subsidiaries.

~~The~~In ~~Company~~addition, ~~through~~at ~~HBMC~~March 31, 2007, ~~originates~~the ~~residential~~Company ~~mortgage~~held ~~loans~~all ~~through~~of ~~its~~the 21equity ~~store~~interests ~~locations~~in ~~and~~the ~~its~~following ~~129~~Delaware ~~realtor~~statutory ~~store~~trusts: HomeBanc Mortgage Trust 2004-in1 (the “2004-~~store~~1 ~~locations~~Trust”); inHomeBanc Mortgage Trust 2004-2 (the ~~States~~“2004-2 ofTrust”); ~~Georgia,~~HomeBanc ~~Florida~~Mortgage ~~and~~Trust 2005-1 ~~North~~(the ~~Carolina.~~“2005-1 ~~HBMC’s~~Trust”); ~~mortgage~~HomeBanc ~~product~~Mortgage ~~line~~Trust ~~includes conforming~~2005-2 ~~FNMA/FHLMC~~(the ~~mortgage~~“2005-2 ~~loans,~~Trust”); ~~FHA/VA~~HomeBanc ~~government~~Mortgage Trust 2005-~~insured~~3 ~~mortgage~~(the ~~loans,~~“2005-3 ~~adjustable~~Trust”); HomeBanc Mortgage Trust 2005-~~rate~~4 ~~mortgage~~(the ~~loans,~~“2005-4 ~~including~~Trust”); ~~construction~~HomeBanc Mortgage Trust 2005-to5 (the “2005-~~permanent~~5 ~~and~~Trust”); ~~second~~HomeBanc Mortgage Trust 2006-~~lien~~2 ~~mortgage~~(the ~~loans,~~“2006-2 ~~nonconforming~~Trust”); ~~jumbo~~HMB ~~loans~~Capital ~~and~~Trust aI ~~limited~~(“Capital ~~volume~~Trust ofI”); ~~sub-prime~~HMB ~~mortgage~~Capital Trust IV (“Capital Trust IV”); and HMB Capital Trust V ~~loans~~(“Capital Trust V”). ~~The~~These trusts are bankruptcy-remote Delaware statutory trusts used in connection with the Company’s ~~strategy~~securitization ~~emphasizes~~and ~~retail~~financing ~~residential~~activities ~~mortgage~~and ~~loan~~are ~~originations,~~disregarded ~~primarily~~entities ~~purchase~~for ~~money~~federal ~~mortgages~~income tax purposes. ~~The~~In accordance ~~Company~~with ~~executes~~accounting ~~its~~principles ~~strategy~~generally ~~through~~accepted in the ~~formation~~United States of ~~strategic~~America ~~marketing~~(“GAAP”), ~~alliances~~all of these entities, except Capital Trust I, Capital Trust IV and Capital Trust V are consolidated for financial reporting purposes. HomeBanc Mortgage Trust 2006-1 (the “~~SMAs~~2006-1 Trust”) ~~with~~and HomeBanc Mortgage Trust 2007-1 (the “2007-1 Trust”) are qualifying special purpose entities used in securitizations accounted for as sales and are, therefore, not ~~residential~~consolidated. ~~realtors~~For tax purposes, the 2006-1 Trust and ~~home~~the ~~builders~~2007-1 ~~who~~Trust have been structured as real estate mortgage investment conduits. Title Partners is a ~~significant~~limited ~~presence~~partnership infor ~~their~~federal ~~markets~~income tax purposes. AsHomeBanc ofFunding ~~March~~Corp.; ~~31,~~HomeBanc Funding Corp. II; Acceptance; the 2004-1 Trust; the 2004-2 Trust; the 2005,-1 Trust; the 2005-2 Trust; the 2005-3 Trust; the 2005-4 Trust; the 2005-5 Trust; and the 2006-2 Trust are all bankruptcy-remote special purpose entities utilized in the financing of the Company’s ~~had~~operations. ~~230~~Capital ~~SMAs~~Trust I, 88Capital ofTrust ~~which~~IV and Capital Trust V were ~~with~~formed ~~residential~~to ~~realtors~~purchase ~~and~~junior ~~142~~subordinated debentures from the Company funded by the issuance of ~~which~~trust ~~were~~preferred ~~with~~securities ~~home~~to ~~builders~~provide financing for the Company’s operations.

~~Historically,~~13 HomeBanc sold a substantial number of the mortgage loans that it originated to third parties in whole loan and securitized form. As a result, the substantial majority of the Company’s revenue prior to January 1, 2004 was gain on sale of mortgage loans. During 2004, the Company began holding and servicing certain mortgage loans, primarily adjustable-rate mortgage loans with rates based on the London Interbank Offered Rate (“LIBOR”), for investment. HomeBanc expects to continue to hold and service these types of loans for investment in the future. These loans are financed by equity and debt, primarily through the issuance of adjustable-rate notes through securitization transactions treated as secured borrowings of HomeBanc in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The entities used to complete the securitization transactions are not qualifying special purpose entities under SFAS No. 140 and are, therefore, consolidated. The Company has sold, and presently expects to continue selling, the majority of the fixed-rate mortgage loans that it originates. This change in the business model has resulted in a shift in revenue sources from gain on sale of mortgage loans to net interest income earned primarily on the adjustable-rate (including hybrid) mortgage loan portfolio held for investment.

At March 31, 2005, the Company had the following subsidiaries: HBMC; Abetterwayhome Corp.; HomeBanc Funding Corp.; HomeBanc Funding Corp. II; HMB Acceptance Corp.; Abetterwayhome Finance, LLC; Abetterwayhome Finance, LLC II; and HomeBanc Title Partners, LLC. All of these subsidiaries are wholly-owned by the Company, except for HomeBanc Title Partners, LLC, a joint venture in which Security First Title Affiliates, Inc., an agent offering title insurance to customers of the Company, owns a 15% equity interest. HBMC and Abetterwayhome Corp. have each made elections to be treated as a taxable REIT subsidiary. HomeBanc Funding Corp.; HomeBanc Funding Corp. II; and HMB Acceptance Corp. are treated as qualified REIT subsidiaries. Abetterwayhome Finance, LLC and Abetterwayhome Finance, LLC II are single-member limited liability companies disregarded for

~~federal~~All ~~income~~material ~~tax~~intercompany ~~purposes~~transactions ~~and~~have ~~treated~~been ~~for~~eliminated such purposes as branches of Abetterwayhome Corp. HomeBanc Mortgage Trust 2004-1; HomeBanc Mortgage Trust 2004-2; HomeBanc Mortgage Trust 2005-1; and HomeBanc Mortgage Trust 2005-2 are bankruptcy-remote Delaware statutory trusts used in ~~connection with the Company’s securitization activities and are exempt from taxation~~consolidation. InCertain ~~accordance~~prior ~~with~~period ~~accounting principles~~balances ~~generally~~have accepted in the United States (“GAAP”), these entities are consolidated. HomeBanc Title Partners, LLC is a limited partnership for federal income tax purposes. HomeBanc Funding Corp.; HomeBanc Funding Corp. II; HMBbeen ~~Acceptance~~reclassified ~~Corp.;~~to ~~Abetterwayhome~~conform ~~Finance,~~to LLC; Abetterwayhome Finance, LLC II; HomeBanc Mortgage Trust 2004-1; HomeBanc Mortgage Trust 2004-2; HomeBanc Mortgage Trust 2005-1; and HomeBanc Mortgage Trust 2005-2 are all bankruptcy-remote special purpose entities utilized in the ~~financing~~current ~~of the Company’s operations~~presentation.

InThe ~~the~~mortgage ~~opinion~~lending ofbusiness ~~management,~~is ~~the~~seasonal ~~condensed~~as ~~consolidated~~it ~~financial~~is ~~statements~~tied ~~reflect~~to ~~all~~home ~~adjustments~~sales, ~~consisting only of normal recurring accruals,~~ which ~~are~~typically ~~necessary~~rise ~~for the fair presentation of the financial condition and results of~~during ~~operations for~~ the ~~interim~~spring ~~periods presented. Certain information~~ and ~~disclosures~~summer ~~normally~~seasons ~~included in notes to consolidated financial statements have been condensed or omitted pursuant to applicable rules~~ and ~~regulations~~decline ofduring the ~~Securities~~fall and ~~Exchange~~ ~~Commission~~winter ~~(the “SEC”)~~seasons. ~~Due~~The toeffect ~~the cyclical and seasonal nature~~ of ~~the~~this ~~mortgage~~seasonality ~~banking industry~~is, ~~the~~at ~~results~~times, ofoffset ~~operations~~by ~~for~~mortgage ~~the~~refinancing ~~interim~~activity, ~~periods~~which ~~reported~~is ~~herein~~primarily ~~are~~driven ~~not~~by ~~necessarily~~prevailing ~~indicative~~mortgage ofinterest ~~results to be expected for the full year or for any other periods~~rates.

~~All~~Unless ~~material~~the ~~intercompany~~context ~~transactions have~~otherwise ~~been~~requires, ~~eliminated~~for inpurposes ~~consolidation.~~of ~~Certain~~these ~~balances~~notes into the ~~prior~~condensed ~~period~~consolidated ~~have~~financial ~~been~~statements, ~~reclassified~~the to“Company” ~~conform~~refers to HomeBanc and the entities ~~current~~it ~~presentation~~consolidates, as discussed above.

Unless the context otherwise requires, for purposes of these notes to the condensed consolidated financial statements, the “Company” refers to HomeBanc and its subsidiaries.

Note 2. Summary of Significant Accounting Policies

~~Use~~The following is an updated discussion of ~~Estimates~~the Company’s significant accounting policies:

The accounting and reporting policies of HomeBanc and its subsidiaries conform with GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Examples of estimates include the adequacy of the allowance for loan losses (the “Allowance”), estimates of contingency losses on repurchases of loans arising from representation and warranty claims, and estimates of fair value of financial instruments. Accordingly, actual results and future estimates could differ from the estimates presented.

The following is a summary of the more significant accounting policies of HomeBanc.

Transfers of Financial Assets

From time to time, the Company sells or securitizes mortgage loans. These transfers of financial assets are accounted for as sales for financial reporting purposes when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the assets have been isolated from the Company; (2) the transferee obtains the right, free of conditions that constrain it from taking advantage of that right, to pledge or exchange the transferred assets; and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Transfers of financial assets not meeting these sale criteria are treated as secured borrowings. Tax treatment for transfers of financial assets is dependent upon the particular facts and circumstances but does not necessarily match the treatment applied for financial reporting purposes.

Mortgage Loans Held for Sale

Mortgage loans held for sale include mortgage loans and any related deferred origination fees and costs. Deferred net fees or costs are not amortized during the period the loans are held for sale, but are recognized when the loans are sold. Mortgage loans held for sale are carried at the lower of aggregate cost or estimated fair market value as determined by aggregate outstanding commitments from investors or current investor yield requirements. Any adjustment to the carrying amount of loans resulting from the application of SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities, is considered in the determination of lower of cost or estimated fair market value. Net unrealized losses are recognized in a valuation allowance by charges to income.

Gains and losses on the sale of loans are recognized at the settlement date and are determined by the difference between the selling price and the carrying value of the loans sold. These transactions are treated as sales in accordance with SFAS No. 140. At the time of sale, a reserve is established for estimated contingencies in the form of loss indemnification related to customary standard representations and warranties made in connection with the sale. Prior to 2004, the Company sold substantially all of the mortgage loans that it originated on a servicing-released basis to various investors. The Company currently sells, on a servicing-released basis, the majority of the fixed-rate mortgage loans it originates and retains for investment the majority of the adjustable-rate mortgage loans, as well as the related servicing rights.

The majority of the loans originated by the Company are in the states of Georgia, Florida and North Carolina. As a result, real estate values in these markets impact the credit risk of loans held for sale.

Mortgage Loans Held for Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered held for investment. Loans held for investment are recorded at their unpaid principal balance together with the net unamortized deferred loan origination costs and fees. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to income over the lives of the related loans. Unearned income is amortized into income over the estimated life of the loan using methods that approximate the interest method. Interest income is accrued based on the outstanding principal amount and contractual terms of each individual loan.

Allowance for Loan Losses

The Company began to maintain an Allowance as it began to accumulate mortgage loans for investment in the first quarter of 2004. Additions to the Allowance are based on assessments of certain factors, including historical loan loss experience of similar types of loans, the Company’s loan loss experience, the amount of past due and nonperforming loans, specific known risks, the value of collateral securing the loans, and current and anticipated economic and interest rate conditions. Evaluation of these factors requires that the Company’s management make subjective estimates and judgments that may change or prove to be incorrect. Additions to the Allowance are provided through a charge to earnings. Subsequent recoveries, if any, are credited to the Allowance.

Nonperforming Loans and Impaired Loans

The accrual of interest on loans is discontinued at the time the loan is 90 days past due, unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. Loans are generally charged off in the period in which an event occurs that confirms the existence of a loss. In all cases, loans are treated as non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans past due 90 days or more totaled $4.0 million and $3.9 million at March 31, 2005 and December 31, 2004, respectively. There were no loans past due 90 days or more still accruing interest at March 31, 2005 or December 31, 2004.

All current period interest accrued but not collected for loans that are treated as non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Under SFAS No. 114, Accounting by Creditors for Impairment of a Loan, a loan is considered impaired when, based on current information, the Company believes it is probable that the Company will not receive all amounts due in accordance with the contractual terms of the underlying loan agreement. The fair value of the loan is then compared with the recorded investment in the loan to determine whether or not a specific reserve is necessary. Due to the fact that all of the Company’s loans held for investment are collateral-dependent, a loan’s fair value is determined using the fair value of the underlying collateral. In accordance with SFAS No. 114, the Company reviews its loans for impairment collectively because they represent a large group of homogenous loans.

Mortgage Servicing Rights and Servicing Income

Mortgage servicing rights (“MSRs”) are recognized when a mortgage loan is sold, on a servicing-retained basis, to a third party. In connection with the sale of mortgage loans, a portion of the cost of originating each loan is allocated to the MSRs based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service the loan, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The expense related to capitalized MSRs is amortized into other revenue in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans.

MSRs are evaluated for impairment based upon the fair value of the MSRs as compared to their amortized cost. Impairment is determined by stratifying the MSRs into tranches based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.

Servicing fee income is recognized monthly on an accrual basis, based upon the terms of the underlying agreement. Generally, such agreements provide for fees based upon a percentage of the outstanding balance of the related loans. Servicing activities include the monthly collection of principal, interest and escrow payments, and the performance of certain accounting and reporting functions on behalf of mortgage investors. Ancillary fees, including late fees, are recognized as collected.

Commencing in December 2003, the Company began retaining the servicing rights for those loans that it found economically attractive to service, namely a portion of the nonconforming mortgage loans and a limited number of loans sold to Fannie Mae. The Company also services construction-to-permanent loans during the construction phase of these mortgage loans. In addition, the Company generally has serviced loans that are the subject of sale transactions for up to 30 days after the loans are sold.

Goodwill and Intangibles

Goodwill relates to the excess of purchase price over net assets acquired in business combinations. Prior to 2002, the Company amortized goodwill over 20 years utilizing the straight-line method. Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which resulted in the cessation of the amortization of goodwill. Accumulated amortization was $3.6 million at both March 31, 2005 and 2004. Under SFAS No. 142, goodwill and intangible assets are deemed to have indefinite lives and are not amortized but are subjected to impairment testing.

The carrying value of goodwill for the Company is subject to at least an annual assessment for impairment by applying a fair value-based test. If the carrying value exceeds the fair value, goodwill is impaired. The Company regularly evaluates whether events and circumstances have occurred that indicate the value of goodwill may not be recoverable. In evaluating whether impairment exists, the Company uses a discounted cash flow analysis. The calculation of cash flows begins with an estimation of net earnings in several trend scenarios, taking into account anticipated effective tax rates, over the next 10 years, including forecasted, high performance, low performance and worst-case trends. A terminal value based on an estimated earnings multiple is added to each scenario at the end of 10 years to determine total cash flows. A discount factor, approximating HomeBanc’s cost of capital, is then applied to each cash flow scenario to determine the present value. The present value of each scenario is then weighted based on the probability of occurrence as assessed by management. The resulting weighted-average present value is compared to the recorded equity. As long as the weighted-average present value is greater, goodwill is not considered to be impaired. HomeBanc performed its annual test for impairment of goodwill as of the designated testing date during the fourth quarter of 2004 and determined that, at that time, there was no impairment. Subsequent to the annual test, there have been no events or circumstances indicating the value of goodwill may not be recoverable.

Stock-Based Compensation

The Company has elected to adopt the recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which requires a fair-value-based method of accounting for stock options and similar equity awards. The fair value of equity incentives granted is estimated on the date of grant using a Black-Scholes option-pricing model or other fair value estimation methods, as appropriate. Forfeitures are appropriately recognized as they occur. In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment, which requires that forfeitures be estimated at grant date and factored into the associated compensation expense calculation. SFAS 123(R) required adoption for interim periods beginning after June 15, 2005. The Company previously planned to adopt this standard as of January 1, 2005; however, on April 14, 2005, the SEC approved Release No. 33-8568 (the “SEC release”) delaying the effective date of SFAS No. 123(R) making it effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. As a result of the issuance of the SEC Release, the Company will adopt this standard on January 1, 2006 and is still in the process of quantifying the impact that implementation will have upon the Company’s financial condition, results of operations and cash flows.

Income Taxes

AsThe ~~long~~Company asadopted itthe ~~maintains~~provisions ~~its~~of ~~election~~the ~~and~~Financial ~~qualification~~Accounting asStandards aBoard ~~REIT,~~(“FASB”) ~~HomeBanc,~~Interpretation as(“FIN”) aNo. 48, ~~stand-alone~~Accounting ~~entity~~ for ~~income~~Uncertainty ~~tax~~in ~~purposes,~~Income ~~will not be subject to taxation. HomeBanc’s taxable REIT subsidiaries are subject to taxation. For those entities~~Taxes, ~~HomeBanc~~an ~~accounts~~interpretation ~~for~~of ~~income taxes in accordance with~~ SFAS No. 109, Accounting for Income Taxes, ~~which~~effective ~~requires~~January 1, ~~an asset and liability approach for accounting and reporting of income taxes~~2007. ~~The~~As ~~provision~~a ~~for~~result ~~income taxes is comprised~~ of ~~taxes~~adoption, ~~that~~the ~~are currently payable and deferred taxes that relate to~~Company ~~temporary~~recognized ~~differences~~an ~~between~~increase ~~the book basis and tax basis~~ of ~~assets~~approximately ~~and~~$1.0 ~~liabilities~~million ~~that will result~~ in ~~deductible~~the orliability ~~taxable~~for ~~amounts~~unrecognized ~~in future years when such assets and liabilities are recovered or settled. Deferred~~ tax ~~assets~~benefits, ~~and~~which ~~liabilities~~was ~~are measured~~accounted ~~using~~for ~~enacted~~as ~~tax~~an ~~rates~~increase ~~expected~~ to ~~apply to taxable income in~~ the ~~years~~January 1, in2007, ~~which~~accumulated ~~temporary~~deficit ~~differences are expected to be realized or settled~~balance. ~~Recognition~~To ofthe ~~certain~~extent ~~deferred~~the ~~tax~~uncertain ~~assets~~positions isare ultimately ~~based upon management’s belief that~~disallowed, ~~based upon~~there ~~historical~~would ~~earnings~~be ~~and~~no ~~anticipated~~affect ~~future~~on ~~earnings,~~the ~~normal~~annual ~~operations~~effective ~~or available~~ tax ~~planning~~rate, ~~strategies~~as ~~will~~a ~~generate~~corresponding ~~sufficient~~change ~~future taxable income to realize these benefits. When,~~ in the ~~opinion~~Company’s ofdeferred ~~management,~~tax ~~it is “more likely than not” that the~~ asset ~~will be realized, no~~ valuation allowance iswould ~~established~~offset ~~for~~the ~~deferred tax assets~~disallowance.

~~Reserve~~The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for ~~Contingencies~~calendar years prior to 2003. HBMC is currently under examination by the Internal Revenue Service for its 2004 tax year. It is likely that the examination will be completed within the next 12 months, and it is possible that the balance of unrecognized benefits related to positions taken in the year under examination could decrease. The balance could also decrease due to the expiration of the statute of limitations for specific jurisdictions. The total decrease in balance could be as much as $0.6 million.

~~The~~It is the policy of the Company to recognize ~~maintains~~interest aexpense ~~reserve~~as ~~for~~accrued ~~contingencies~~or ~~that~~penalties ~~represents~~as ~~estimated~~incurred ~~losses~~as ona ~~repurchases~~component ~~arising~~of ~~from~~income ~~representation~~tax ~~and~~expense. ~~warranty~~During ~~claims~~the ~~and~~three ~~probable~~months ~~obligations~~ended ~~related~~March 31, to2007 ~~disputes~~and ~~with~~2006, ~~investors~~the onCompany ~~contractual~~did ~~obligations~~not ~~with~~recognize ~~respect~~any interest or penalties pertaining to ~~loans~~income ~~sold~~taxes. As of ~~The~~March 31, ~~reserve~~2007, isthe ~~included~~Company inhas ~~other~~recorded ~~liabilities~~no inliability for the ~~condensed~~payment ~~consolidated~~of ~~balance~~interest ~~sheet.~~or ~~Further~~penalties ~~discussion~~related onto uncertain tax positions as the ~~reserve~~liability ~~for~~would ~~contingencies~~only isdecrease ~~included~~its inrecorded ~~Note~~net 8,operating ~~“Commitments~~loss carryforward and ~~Contingencies~~would not result in the payment of taxes if the positions were not upheld by the taxing authorities.”

12Accounting for Certain Hybrid Financial Instruments

~~Table~~During February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments, which nullifies the guidance from the FASB’s Derivatives Implementation Group (“DIG”) in Issue D1, Application of ~~Contents~~Statement 133 to Beneficial Interests in Securitized Financial Assets, which deferred the bifurcation requirements of SFAS No. 133 for certain beneficial interests. The impacts of SFAS No. 155 are to: (1) provide a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation; (2) clarify that only the simplest separations of interest payments and principal payments qualify for the exception from derivative accounting afforded to interest-only strips and principal-only strips; (3) require that beneficial interests in securitized financial assets be analyzed to determine whether they are freestanding derivatives or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation; (4) clarify that concentrations of credit risk in the form of subordination are not embedded derivatives; and (5) allow a qualifying special purpose entity to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument. SFAS No. 155 is effective for all instruments acquired, issued or subject to a remeasurement event occurring after the beginning of the first fiscal year that begins after September 15, 2006. The Company adopted SFAS No. 155 as of January 1, 2007, and the adoption did not have a material impact on its financial condition, results of operations or cash flows.

~~Derivative~~Recent ~~Financial~~Accounting ~~Instruments~~ Pronouncements

InOn ~~accordance~~September 15, ~~with~~2006, the FASB issued SFAS No. ~~133~~ 157, ~~the~~Fair ~~Company~~Value ~~records~~Measurements, ~~all~~which ~~derivative~~provides ~~financial~~guidance ~~instruments~~on inhow ~~the~~companies ~~condensed~~should ~~consolidated balance sheet at~~measure ~~their~~ fair value inwhen ~~other~~they ~~assets~~are orrequired ~~other~~to ~~liabilities.~~use ~~Changes~~a in fair value ~~are~~measure ~~recorded~~for ~~each~~recognition ~~period~~or indisclosure ~~current~~purposes ~~earnings~~under ~~(other~~GAAP. ~~revenue~~SFAS orNo. 157 ~~other~~creates ~~operating~~a ~~expense)~~common ordefinition ~~other~~of ~~comprehensive~~fair ~~income~~value ~~depending~~to ~~upon~~be ~~the~~used ~~purpose~~throughout GAAP and prescribes methods for ~~using~~measuring ~~the~~fair ~~derivative~~value, ~~and~~which ~~its~~is ~~qualification~~intended to, ~~designation~~in ~~and~~combination, ~~effectiveness~~make asthe ameasurement ~~hedging~~of ~~instrument.~~fair ~~Under~~value ~~SFAS~~more ~~No.~~consistent ~~133,~~and ~~the~~comparable ~~Company~~across ~~may~~companies. ~~designate~~This astatement ~~derivative~~also asexpands athe ~~hedging~~related ~~instrument~~disclosure requirements in ~~either~~an aeffort ~~cash~~to ~~flow~~provide ~~hedge~~greater ortransparency aaround fair value ~~hedge.~~

Derivatives designated in a hedging relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. To the extent that a hedging instrument is proven effective in mitigating exposure to the risk being hedged, changes in fair value of the hedged item may be recorded within current earnings as an offset to amounts recorded with respect to fair value changes of the derivative.

Derivatives that are designated to hedge the variability in expected future cash flows or forecasted transactions are considered cash flow hedges. The effective portion of the change in fair value of the derivative is recorded in other comprehensive income and reclassified into earnings within the related revenue/expense line item during the period in which the hedged transaction occurs. Ineffectiveness is recorded in current period earnings in other revenue or other operating expense as appropriate.

The Company must perform a prospective assessment at the inception of each hedging relationship and at least quarterly thereafter to determine whether the derivative is expected to be highly effective in hedging the designated risk. If the derivative is no longer expected to be highly effective in the hedging relationship, hedge accounting must be discontinued prospectively. Retrospective testing must also be performed quarterly when financial statements are produced to determine whether the derivative has been highly effective in achieving risk management objectives. When a hedging relationship fails retrospective testing, hedge accounting is discontinued at the date when the hedge was last demonstrated as effective.

Hedge accounting is discontinued prospectively in existing hedging relationships when: (1) any qualification criteria can no longer be met; (2) the hedging instrument has expired, been sold, terminated or exercised; (3) the hedged item has been sold, matured or terminated; (4) it is no longer deemed probable that a hedged forecasted transaction will occur; or (5) management determines that a hedge is no longer deemed appropriate and de-designates the hedging instrument.

In the case of fair value hedges, when: (1) hedging criteria are no longer met; (2) management de-designates the hedging instrument; or (3) the hedging instrument has expired, been sold, terminated or exercised, the Company will discontinue recording changes in fair value of the hedged item and will amortize the existing basis adjustment to earnings over its remaining expected life. For fair value hedges where the hedged item been sold, matured or terminated, the difference between the carrying value of the hedged item and its fair value is recorded into current earnings.

For cash flow hedges, when: (1) hedging criteria are no longer met; (2) management de-designates the hedging relationship; or (3) the hedging instrument has expired, been sold, terminated or exercised, changes in the value of the derivative will be recorded to current earnings while the net gain or loss previously recorded in other comprehensive income will continue to be reported there until the hedged forecasted transaction impacts earnings. When it is no longer deemed probable that a hedged forecasted transaction will occur, the amounts recorded in other comprehensive income are immediately released into current earnings.

Derivative financial instruments and hedging activities—business perspective. The Company has developed risk management programs and processes designed to manage market risk associated with the Company’s business activities. Interest rate risk is a predominant risk that further influences a number of other business risks such as pricing risk, prepayment risk, valuation risk, balance sheet management and funding risk. As part of its risk management program, the Company utilizes derivative financial instruments, including interest rate swaps, interest rate basis swaps, forward contracts, interest rate caps and options on forward contracts to manage interest rate risks associated with its balance sheet activities. The Company’s derivative financial instrument positions currently include cash flow hedges and other freestanding derivative financial instruments.

Loan production activities include the origination of mortgage loans, the warehousing of those loans in inventory and the resale of those loans to investors in the secondary market. The Company utilizes derivative financial instruments to protect against and manage interest rate risk and pricing risk associated with its loans held for sale and its mortgage pipeline. SFAS No. 133 also defines interest rate lock commitments relating to future mortgage loans held for sale as a derivative financial instrument, which is marked-to-market through earnings. Similar to mortgage loans held for sale, the fair value of interest rate lock commitments is determined by examining outstanding commitments from investors or current investor yield requirements. The fair value of derivative financial instruments associated with loans held for sale and the mortgage pipeline are reported on a gross basis and included within other assets or other liabilities, as appropriate.

Variable Interest Entities

The Company owns contractual interests in segregated accounts of two captive private mortgage reinsurance companies controlled and managed by unaffiliated insurance companies. These arrangements provide the Company with income based upon the amount of

capital required to support these policies and the claims experience of the private mortgage insurance sold by these entities to customers of HBMC, and in which the Company bears the second 5% of losses in an amount up to its capital contributions. The Company began its participation in these ventures in 2003. The Company consolidates its interests in the two captive private mortgage reinsurance companies consistent with FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.

Note 3. Mortgage Servicing Rights

The following tables present a reconciliation of the changes in MSRs and the associated valuation allowance for the three months ended March 31, 2005 (dollars in thousands):

Mortgage Servicing Rights, Net
Beginning balance	$	5,097
Mortgage servicing rights capitalized		1,186
Amortization of servicing rights		(566	)
Change in valuation allowance		(200	)
Ending balance	$	5,517
Valuation Allowance
Beginning balance	$	—
Servicing valuation provision		200
Ending balance	$	200

During the three months ended March 31, 2005, the Company recorded a valuation allowance related to its MSRs of $0.2 million, which reduced the carrying value of the MSRs. No servicing valuation provision was required during the three months ended March 31, 2004.

Note 4. Borrowings

Warehouse and Aggregation Facilities

The Bear Stearns master repurchase agreement, used to finance a portion of the mortgage loans that the Company originates, was amended on January 24, 2005, effective as of December 31, 2004, since the Company would not have met the GAAP net income covenant applicable at that date. The amendment requires the Company to have a consolidated GAAP net loss of no greater than $15 million for the quarter ending March 31, 2005, a consolidated GAAP net loss of no greater than $10 million for the quarter ending June 30, 2005, a consolidated GAAP net loss of no greater than $5 million for the quarter ending September 30, 2005, consolidated GAAP net income of no less than $1.00 for the quarter ending December 31, 2005 and consolidated GAAP net income of at least $2.00 for every two consecutive quarters thereafter.

Collateralized Debt Obligations

On February 23, 2005, the Company completed an offering to the public, through HomeBanc Mortgage Trust 2005-1 (the “2005-1 Trust”), of approximately $1.1 billion of notes (the “2005-1 Notes”) backed by adjustable-rate, residential first mortgage loans. The Company has accounted for the securitization as a secured borrowing for both financial reporting and tax purposes. The approximate amount of each class of the 2005-1 Notes sold to the public, together with the interest rate and the initial credit ratings for each class assigned by Moody’s and S&P, respectively, are set forth below:

Class	Approximate Principal Amount		Interest Rate Formula (all 1-Month LIBOR)	Ratings by Moody’s / S&P
A-1	$	848,625,000	LIBOR plus 0.25%	Aaa / AAA
A-2		109,783,000	LIBOR plus 0.31%	Aaa / AAA
M-1		21,957,000	LIBOR plus 0.46%	Aa1 / AA+
M-2		30,190,000	LIBOR plus 0.49%	Aa2 / AA+
M-3		11,527,000	LIBOR plus 0.52%	Aa3 / AA
M-4		10,978,000	LIBOR plus 0.70%	A1 / AA-
M-5		24,701,000	LIBOR plus 0.75%	A2 / A
M-6		12,076,000	LIBOR plus 0.80%	A3 /A-
B-1		12,076,000	LIBOR plus 1.25%	Baa1 /BBB+
B-2		12,076,000	LIBOR plus 1.30%	Baa2 / BBB

In measures. ~~connection~~SFAS ~~with~~No. 157 ~~the~~is ~~issuance~~effective as of the ~~2005-1~~beginning ~~Notes~~of fiscal years beginning after November 15, ~~the~~2007, with earlier application permitted. The Company ~~incurred~~will ~~costs~~adopt ofSFAS $3No.1 157 ~~million~~on January 1, ~~which~~2008 ~~were~~and ~~deducted~~is ~~from the~~still ~~proceeds~~evaluating of the ~~securitization~~impact ~~and~~that ~~are~~this ~~being~~statement ~~amortized~~will ~~monthly~~have inon ~~proportion~~its tofinancial ~~the~~condition, ~~outstanding~~results ~~balance~~ of ~~the~~operations ~~2005-1~~and ~~Notes~~cash flows.

OnIn ~~March~~February 312007, ~~2005,~~ the ~~Company~~FASB ~~completed~~issued ~~its~~SFAS ~~fourth loan securitization~~No. 159, ~~through~~The anFair ~~offering~~Value byOption ~~HomeBanc~~for ~~Mortgage~~Financial ~~Trust~~Assets ~~2005-2~~and ~~(the~~Financial ~~“2005-2 Trust”), of approximately $170~~Liabilities.9 ~~million~~This ofstatement ~~notes~~permits ~~(the~~companies ~~“2005-2~~to choose, ~~Notes”)~~at ~~backed~~specified byelection ~~adjustable-rate~~dates, ~~residential~~to ~~second-lien~~measure ~~mortgage~~eligible ~~loans.~~items, ~~The~~which ~~Company~~include ~~has~~most ~~accounted~~recognized ~~for~~financial ~~the~~assets ~~securitization~~and asliabilities aand ~~secured~~firm ~~borrowing~~commitments, ~~for~~at ~~both~~fair ~~financial~~value ~~reporting~~with ~~and~~unrealized ~~tax purposes.~~gains ~~The~~and ~~approximate~~losses ~~amount~~on ofitems ~~each~~for ~~class~~which of the ~~2005-2~~fair ~~Notes,~~value ~~together~~option ~~with~~has ~~the~~been elected ~~interest~~reported ~~rate~~in ~~and~~earnings ~~the~~at ~~initial~~each ~~credit~~subsequent ~~ratings~~reporting ~~for~~date. ~~each~~Generally, ~~class~~the ~~assigned~~decision byabout ~~Moody’s~~whether ~~and~~to ~~Fitch,~~elect ~~respectively,~~the ~~are~~fair ~~set~~value ~~forth~~option ~~below~~must be:

Class	Approximate Principal Amount		Interest Rate Formula (all 1-Month LIBOR)	Ratings by Moody’s / Fitch
A-1	$	142,133,000	LIBOR plus 0.21%	Aaa / AAA
M-1		10,737,000	LIBOR plus 0.45%	Aa2 / AA+
M-2		3,080,000	LIBOR plus 0.49%	Aa3 / AA
M-3		5,633,000	LIBOR plus 0.68%	A2 / A+
M-4		2,464,000	LIBOR plus 0.72%	A3 / A
B-1		2,112,000	LIBOR plus 1.25%	Baa1 / A-
B-2		1,760,000	LIBOR plus 1.40%	Baa2 / BBB+
B-3		1,761,000	LIBOR plus 1.90%	Baa3 /BBB-
B-4		1,232,000	LIBOR plus 2.05%	Ba2 / BBB-

•

applied instrument by instrument;

~~All~~• ~~classes~~irrevocable; ~~of the notes listed above were sold to the public except for the B-2, B-3~~ and ~~B-4 classes, which were retained by the Company.~~

In• ~~connection~~applied ~~with~~only ~~the~~to ~~issuance~~an ofentire ~~the~~instrument ~~2005-2~~and ~~Notes,~~not ~~the~~to ~~Company~~only ~~incurred~~specified ~~costs of $0.5 million~~risks, ~~which~~specific ~~were~~cash ~~deducted~~flows ~~from~~or ~~the~~portions ~~proceeds~~ of ~~the~~that ~~securitization and are being amortized monthly in proportion to the outstanding balance of the 2005-2 Notes~~instrument.

~~Note~~The Company will adopt SFAS No. 159 on January 1, 2008 and currently expects to make a fair value election for mortgage loans held for investment, mortgage loans held for sale, investment securities held to maturity and certain debt instruments. As of March 31, 2007 the estimated fair value of these financial instruments was $4.3 billion, $383.5 million, $182.3 ~~Earnings~~million ~~per~~and ~~Share~~$5.1 billion, respectively. If the Company had elected to early adopt SFAS No. 159, it would have recorded an increase in shareholders’ equity of approximately $40.0 million during the quarter ended March 31, 2007, which represents the difference between historical cost and the fair value of these financial instruments as of March 31, 2007, less certain deferred financing costs included in other assets required to be written off upon adoption.

~~Basic~~Note ~~earnings per share represents income available to holders of shares of common stock divided by the weighted-average number of shares of common stock outstanding during the period~~3. ~~Diluted~~Investment ~~shares~~Securities of common stock outstanding include the weighted-average number of shares of common stock outstanding during the period, together with additional shares of common stock that would have been outstanding if all dilutive potential shares of common stock had been issued, as well as any adjustment to income that would result from the assumed issuance.

~~Earnings~~Trading ~~per share of common stock have been computed based on the following (dollars in thousands, except per share amounts):~~

	Three Months Ended March 31, 2005			Three Months Ended March 31, 2004
Net loss	$	(7,558	)	$	(9,100	)
Net loss per common share outstanding:
Basic and diluted	$	(0.15	)	$	(1.40	)
Average number of shares of common stock outstanding:
Basic and diluted		51,691,950			6,482,573

As further discussed in Note 13, “Securitizations,” the Company retained securities in the 2007-1 securitization having a $36.7 million fair value at the time the securitization occurred and were classified as trading.

~~Excluded~~Among ~~from~~the securities retained in the ~~computation~~2007-1 ofsecuritization was the economic ~~diluted~~residual ~~shares~~interest ~~for~~in the ~~three~~2007-~~month~~1 ~~period~~Trust, ~~ended~~which ~~March~~had ~~31,~~a ~~2005~~fair ~~were~~value ~~1,236,025~~of ~~stock~~$4.4 ~~appreciation~~million. ~~rights~~Key ~~(“SARs”)~~economic ~~and~~assumptions ~~764,242~~used ~~restricted~~in ~~stock~~valuing ~~units~~this ~~(“RSUs”)~~retained ~~because~~interest at the ~~effect~~time ~~would~~of bethe ~~antidilutive~~securitization, ~~due~~which toremained ~~the~~unchanged ~~Company’s~~as ~~loss applicable~~of toMarch 31, ~~common~~2007, ~~stock.~~were as follows:

Note 6. Stock-Based Compensation


Weighted-average prepayment speed assumption		36.3% constant prepayment rate (“CPR”)
Weighted-average discount rate		18.0%
Weighted average life		2.2 years

~~Stock~~Key ~~Appreciation~~economic ~~Rights~~assumptions used in valuing the economic residual interest in the 2006-1 Trust, which had a fair value of $4.8 million as of March 31, 2007, were as follows:

A SAR entitles the grantee to a payment equal to the appreciation in value of the underlying common stock over a specified time. SARs granted under the Amended and Restated 2004 Long-Term Incentive Plan (the “LTIP”) will be settled in common stock, subject to the satisfaction of vesting requirements. The base price of a SAR is equal to the fair market value of one share of common stock on the grant date. The grantee is entitled to a payment upon exercise of the SAR equal to the excess, if any, of the fair market value of the common stock at the exercise date over the base price (the “spread”), multiplied by the number of SARs being exercised. That payment is made in the form of common stock having a value equal to the aggregate spread on the SARs.


Weighted-average prepayment speed assumption		31.5% CPR
Weighted-average discount rate		16.0%
Weighted average life		6.5 years

Trading gains recorded were $0.3 million during the three month period ended March 31, 2007. No trading gains/losses were recorded during the three months ended March 31, 2006. The Company sold $172.0 million in trading securities during the three months ended March 31, 2007 and did not complete any sale transactions with respect to trading securities during the three months ended March 31, 2006.

~~SARs~~Available ~~granted~~for inSale ~~2004~~and ~~included~~Held ~~tandem dividend equivalent rights in the form of restricted stock units that are converted~~ to ~~shares~~Maturity ~~when the SAR is exercised. SARs granted in 2005 do not include tandem dividend rights, except for those issued to members of the board of directors.~~

The ~~following~~amortized ~~assumptions~~cost ~~were~~and ~~used~~fair ~~for~~value ~~grants~~ of ~~SARs~~securities ~~during~~available ~~the~~for ~~first~~sale ~~quarter~~and ofheld ~~2005:~~to ~~expected~~maturity, ~~dividend~~with ~~yield~~gross ofunrealized ~~7.19%;~~gains ~~expected volatility of 20.0%; risk-free interest rate of 4.11%;~~ and anlosses, ~~expected~~are ~~life~~summarized ofas ~~6.5~~follows: ~~years.~~

During the three months ended March 31, 2005, the Company recognized $0.2 million in expense related to SARs.


	March 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities Available for Sale
Mortgage-backed securities	$	89,093	$	189	$	(1,324	)	$	87,958

Total securities available for sale	$	89,093	$	189	$	(1,324	)	$	87,958


Securities Held to Maturity
Mortgage-backed securities	$	183,362	$	213	$	(1,320	)	$	182,255

Total securities held to maturity	$	183,362	$	213	$	(1,320	)	$	182,255

Restricted Stock Units


	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities Available for Sale
Mortgage-backed securities	$	1,355,953	$	11,838	$	(1,365	)	$	1,366,426

Total securities available for sale	$	1,355,953	$	11,838	$	(1,365	)	$	1,366,426


Securities Held to Maturity
Mortgage-backed securities	$	188,193	$	71	$	(1,250	)	$	187,014

Total securities held to maturity	$	188,193	$	71	$	(1,250	)	$	187,014

~~RSUs~~The ~~represent the~~Company ~~right~~sold to$1.2 ~~receive~~billion ~~shares of common stock~~ in ~~the~~securities ~~future,~~available ~~subject~~for tosale ~~the~~during ~~satisfaction of vesting requirements. Until~~ the ~~RSUs~~three ~~are~~months ~~settled~~ended ~~on each applicable vesting date and stock is delivered~~March 31, ~~the grantee does not own actual shares of stock and,~~2007 ~~therefore,~~resulting ~~does not have voting rights or receive dividends. RSUs granted~~ in ~~2004~~a ~~included~~gain ~~tandem dividend equivalent rights, according to which the dollar amount~~ of ~~any~~$12.5 ~~dividends~~million. ~~paid~~The ~~on the~~ Company’s ~~common~~did ~~stock~~not iscomplete ~~converted~~any tosale ~~additional RSUs~~transactions based on the stock price at the dividend payment date and credited to the account of the grantee. Such additional RSUs are subject to the same forfeiture and transfer restrictions and payment terms as apply to the RSUs with respect to ~~which they~~investment ~~relate.~~securities ~~RSUs~~during ~~granted to HomeBanc associates in 2005 also include dividend equivalent rights paid in~~ the ~~form~~three ofmonths ~~cash~~ended asMarch 31, ~~opposed to additional RSUs~~2006. ~~Dividend equivalent rights associated with RSUs granted to non-employee members of the board of directors during 2005 will continue to be paid in the form of additional RSUs.~~

~~The~~Note ~~total~~4. ~~amount~~Mortgage ~~expensed~~Servicing ~~for~~Rights ~~RSUs during the first quarter of 2005 was $0.4 million.~~

~~Note~~At 7March 31, 2007, the Company was acting as servicer on behalf of others for approximately $4.4 ~~Income~~billion ~~Taxes~~in aggregate principal amount of mortgage loans, compared to $3.6 billion at December 31, 2006. The principal balances of loans serviced for others are not included in the condensed consolidated balance sheet. The following table presents a reconciliation of the changes in MSRs for the three month periods ended March 31, (dollars in thousands):

Applicable income taxes for the three months ended March 31, 2005 were a net benefit of $3.5 million, compared to a net benefit of $6.8 million for the three months ended March 31, 2004. At March 31, 2005, the Company had a net deferred tax asset of $15.5 million, compared to a net deferred tax asset of $12.0 million at December 31, 2004. The results for the three months ended March 31, 2005 include a gross benefit of $8.0 million and a valuation allowance of $4.5 million, which is further discussed below. The Company did not have a valuation allowance for any period prior to March 31, 2005.


	2007			2006
Beginning balance	$	43,908		$	10,088
MSRs capitalized		12,611			3,636
Change in fair value of MSRs		(1,688	)		(138	)

Ending balance	$	54,831		$	13,586

AsSignificant aassumptions ~~result~~utilized ofin ~~HomeBanc~~determining ~~Corp.’s election to be taxed as a REIT, it does not pay any taxes as long as it continues to meet~~ the ~~criteria~~fair tovalue ~~be a REIT. The Company’s primary operating subsidiary, HBMC, as a separate income tax filer and a taxable REIT subsidiary~~ of ~~HomeBanc~~MSRs ~~Corp.,~~at ~~must record tax expense or benefit based on its stand-alone earnings or losses. From time to time~~March 31, ~~HBMC~~2007 ~~sells~~were ~~and~~as ~~transfers mortgage loans to HomeBanc. For GAAP purposes, no gain on sale is recognized~~follows: on mortgage loans sold and transferred to HomeBanc’s investment portfolio. However, for tax purposes, mortgage loans sold and transferred to HomeBanc are transferred at their fair values resulting in a taxable gain on sale at HBMC.

In accordance with GAAP, management must make an assessment, at the end of each reporting period, of the likelihood that the recorded net deferred tax asset will be realized. The net deferred tax asset must be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the net deferred tax asset will not be realized within a relatively short period, generally no more than three years. The available evidence includes consideration of:


Weighted-average prepayment speed		22.1% CPR
Weighted-average discount rate		11.1%

•The ~~Future~~significant ~~reversals~~assumptions above directly relate to and move in concert with mortgage interest rates. In the view of management, in order to understand the hypothetical effect on the fair value of MSRs as a result of unfavorable variations in the significant assumptions, it is necessary to measure the effect that would result from a decline in mortgage interest rates. At March 31, 2007, the reduction in the current fair value of MSRs resulting from an immediate 50 and 100 basis point decline in mortgage interest rates would be approximately $9.5 million and $18.2 million, respectively. The actual decline in fair value related to decreased mortgage interest rates could differ significantly from this estimate due to the propensity of borrowers to refinance in light of the remaining life and unpaid principal balance of their existing ~~taxable~~mortgage loan ~~temporary~~and ~~differences;~~the costs related to refinancing.

• Future taxable income exclusive of reversing temporary differences and carryforwards;

• Taxable income in prior carryback year(s) if carryback is permitted under the tax law; and

• Tax planning strategies that would, if necessary, be implemented to utilize the NOLs.

~~The~~Note Company’s net deferred tax asset at March 31, 2005 includes an asset of $28.8 million arising from net operating losses of HBMC. These net operating losses will expire in 20 years for tax return purposes, currently ranging from 2024 – 2025. After consideration of management’s expectations about future taxable income and tax planning strategies that could be invoked to generate taxable income, management has concluded that $4.5 ~~million of the net deferred tax asset at March 31, 2005 is unlikely to be realized within a three-year period~~. ~~Accordingly,~~Borrowings ~~the net deferred tax asset at March 31, 2005 includes a valuation allowance of $4.5 million.~~

~~Note~~On 8January 22, 2007, HomeBanc and Bear Stearns entered into Amendment No. 1 ~~Commitments~~(the “Guaranty Amendment”) to the Amended and Restated Limited Guaranty dated as of May 31, 2006 (the “Guaranty”) made by ~~Contingencies~~HomeBanc in favor of Bear Stearns. The Guaranty Amendment amended and restated the negative covenant relating to guarantees permitted to be incurred by HomeBanc under the terms of the Guaranty.

~~The~~On ~~Company~~January 23, ~~maintains~~2007, HomeBanc and HBMC entered into a ~~reserve~~Master ~~for~~Repurchase ~~contingencies~~Agreement ~~arising in~~(the ~~connection~~“2007 JPMorgan Repurchase Agreement”) with ~~loan~~JPMorgan ~~sales~~Chase toBank (“JPMorgan”), ~~third~~as ~~parties~~buyer. The ~~reserve~~2007 ~~for~~JPMorgan ~~contingency~~Repurchase ~~losses~~Agreement ~~anticipated~~replaces inthe ~~association~~Master ~~with~~Repurchase ~~investor~~Agreement ~~repurchase~~(the ~~and~~“2004 ~~indemnification~~JPMorgan ~~requests~~Repurchase ~~was~~Agreement”) ~~$3.1~~dated ~~million~~as of March 8, 2004 between JPMorgan and $3HomeBanc Funding Corp.2 ~~million~~and the related Limited Guaranty dated as of ~~March~~June 7, 312004, ~~2005~~as amended, by HomeBanc in favor of JPMorgan. The 2007 JPMorgan Repurchase Agreement provides for a $500 million uncommitted facility under which HomeBanc and ~~December~~HBMC 31may, ~~2004~~from time to time, sell ~~respectively.~~to ~~Total~~JPMorgan ~~reserves,~~mortgage ~~including~~loans ~~valuation~~originated ~~allowances~~by HBMC, ifwith ~~any~~a corresponding agreement from HomeBanc and HBMC to repurchase such loans at a price equal to the original sales price plus a pricing spread, ~~related~~which is calculated much like interest on a loan. The pricing spread for all borrowings is based on LIBOR plus a spread ranging from 0.54% to ~~individual~~0.60% per annum depending on the type of collateral or mortgage loan that supports the particular repurchase. Outstanding mortgage loans ~~held~~must ~~for~~be ~~sale~~repurchased on the date agreed upon by JPMorgan and HomeBanc or HBMC, ~~were~~as $4applicable, and on the termination date of the 2007 JPMorgan Repurchase Agreement, which is any date at least two months following a notice of termination delivered by either party to the other.7 ~~million~~Each of HomeBanc and $4HBMC can enter into repurchase transactions under the 2007 JPMorgan Repurchase Agreement.5 ~~million~~In atthe ~~March~~event ~~31,~~of ~~2005~~a ~~and~~decrease ~~December~~in 31the market value of the mortgage loans sold to JPMorgan such that the purchase price paid to HomeBanc or HBMC, ~~2004~~as applicable, ~~respectively~~exceeds the then current market value of the mortgage loans, HomeBanc and HBMC are required to transfer an additional cash or eligible mortgage loans in an amount equal to the amount of the decrease in market value of such loans. The 2007 JPMorgan Repurchase Agreement contains the same financial covenants as required under the JPMorgan Warehouse Facility.

~~The~~On ~~nature~~March 27, 2007, ofHomeBanc ~~the Company’s business requires compliance with various state~~ and ~~federal lending~~HBMC ~~laws~~entered ~~and~~into ~~exposes~~Amendment ~~the~~No. 3 ~~Company~~ to athe ~~variety~~master ofrepurchase ~~legal~~agreement ~~proceedings~~by and ~~matters~~among inLiquid ~~the ordinary course of business~~Funding, ~~primarily related to its loan servicing activities~~Ltd., ~~foreclosures,~~HomeBanc ~~real estate settlements, bankruptcies, condemnation~~ and ~~quiet title~~HBMC ~~actions,~~(the ~~and~~“Liquid ~~alleged~~Funding ~~statutory~~Repurchase ~~and regulatory violations~~Agreement”). The ~~Company~~purpose ~~also~~of isAmendment ~~subject~~No. 3 towas ~~legal proceedings from time~~ to extend ~~time,~~the ~~which~~maturity ~~generally~~date ~~have related to employee and employment issues. The Company presently believes that all~~ of the ~~proceedings~~ toLiquid ~~which~~Funding itRepurchase isAgreement ~~presently~~to ~~subject~~March 27, ~~taken~~2008 asfrom ~~a whole~~March 27, ~~will not have a material adverse impact on its financial condition or results of operations~~2007.

~~Note~~On 9March 30, 2007, HomeBanc and HBMC entered into Amendment No. 1 ~~Derivative~~to ~~Financial~~the ~~Instruments~~warehouse repurchase agreement led by JPMorgan Chase Bank (the “JPMorgan Warehouse Facility”). Amendment No. 1 changed the following financial covenants contained in the JPMorgan Warehouse Facility:

~~During~~• decreased the ~~first~~Minimum ~~quarter~~Adjusted ofTangible ~~2005,~~Net ~~the~~Worth ~~Company~~covenant ~~de-designated~~applicable ~~certain~~to ~~interest~~HomeBanc ~~rate~~to ~~swaps representing~~ $~~675~~290.0 million infrom notional value previously designated in cash flow hedging relationships of forecasted interest payments on collateralized debt obligations. These swaps were subsequently re-designated in new cash flow hedging relationships of anticipated interest payments on collateralized debt obligations. In accordance with the requirements of SFAS No. 133, the associated market value recorded in accumulated other comprehensive income of $2310.50 million ~~will be reclassified into earnings when the forecasted interest payments impact earnings.~~ ;

A• ~~summary~~increased of the ~~Company’s~~minimum ~~position~~liquidity ~~with~~requirement ~~respect~~applicable to ~~its~~HomeBanc ~~derivative~~to ~~financial~~$37.5 ~~instruments by~~million ~~hedging~~from ~~category~~$35.0 ~~and designated hedged item, where appropriate, follows:~~ million;

	March 31, 2005							December 31, 2004
	Notional Value		Derivative Asset		Derivative Liability			Notional Value		Derivative Asset		Derivative Liability
	(Dollars in thousands)
Cash Flow Hedges
Interest rate swaps (debt)	$	1,525,000	$	16,432	$	(453	)	$	750,000	$	436	$	(1,536	)
Interest rate basis swaps (debt/loans)		400,000		285		(17	)		400,000		92		(15	)
Interest rate caps (debt)		1,070,616		11,375		—			368,562		3,964		—
Other Derivative Instruments
Interest rate lock commitments		125,600		—		(129	)		66,341		95		—
Forward contracts		277,533		1,115		(226	)		138,922		—		(296	)
Options on treasuries		7,000		30		—			—		—		—
Interest rate swaps		—		—		—			25,000		32		—

•

decreased the ratio of Total Recourse Liabilities to Adjusted Tangible Net Worth to be maintained by HomeBanc to 8:1 from 11:1; and

•

decreased the ratio of Total Adjusted Liabilities to Adjusted Tangible Net Worth to be maintained by HomeBanc to 20:1 from 25:1.

Note 6. Shareholders’ Equity

On February 27, 2007, the board of directors authorized a share repurchase program of up to $16.5 million of the Company’s common stock. As of March 31, 2007, approximately $9.7 million of the amount authorized had been used to purchase 3,593,900 shares at an average price of $2.71.

Note 7. Earnings per Share

Basic earnings per share (“EPS”) represents income attributable to holders of shares of common stock divided by the weighted-average number of shares of common stock outstanding during the period. Diluted shares of common stock outstanding include the weighted-average number of shares of common stock outstanding during the period, together with additional shares of common stock that would have been outstanding if dilutive potential shares of common stock had been issued, as well as any adjustment to income that would result from the assumed issuance. EPS of common stock has been computed based on the following (dollars in thousands, except per share amounts):

Part I. Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations


	For the Three Months Ended March 31,
	2007			2006
Basic
(Loss) income before cumulative effect of change in accounting principle	$	(22,571	)	$	986
Less: preferred dividends		1,250			736

(Loss) income attributable to holders of common stock before cumulative effect of change in accounting principle		(23,821	)		250
Cumulative effect of change in accounting principle, net of tax		—			270

Net (loss) income attributable to holders of common stock	$	(23,821	)	$	520

Average shares of common stock outstanding		56,533,066			56,629,672
Less: average shares of unvested (restricted) stock awarded under the Sales Equity Plan and legally outstanding		167,263			294,400

Average shares of common stock outstanding for basic EPS calculation		56,365,803			56,335,272

(Loss) income per share of common stock outstanding:
(Loss) income before cumulative effect of change in accounting principle	$	(0.42	)	$	0.00
Cumulative effect of change in accounting principle, net of tax		—			0.00

Net (loss) income (1)	$	(0.42	)	$	0.01


Diluted
(Loss) income before cumulative effect of change in accounting principle	$	(22,571	)	$	986
Less: preferred dividends		1,250			736

(Loss) income attributable to holders of common stock before cumulative effect of change in accounting principle		(23,821	)		250
Cumulative effect of change in accounting principle, net of tax		—			270

Net (loss) income attributable to holders of common stock	$	(23,821	)	$	520

Average shares of common stock outstanding		56,533,066			56,629,672
Long-Term Incentive Plan adjustment		—			891,201
Less: average shares of unvested (restricted) stock awarded under the Sales Equity Plan and legally outstanding (2)		167,263			—

Average common shares outstanding for diluted EPS calculation		56,365,803			57,520,873

(Loss) income per share of common stock outstanding:
(Loss) income before cumulative effect of change in accounting principle	$	(0.42	)	$	0.00
Cumulative effect of change in accounting principle, net of tax		—			0.00

Net (loss) income (1)	$	(0.42	)	$	0.01

~~General~~(1) Slight variation in totals are due to rounding

We(2) ~~are~~If a Georgia corporation formed in March 2004 to own, continue and expand the business of HBMC, a residential mortgage banking company. HBMC and its predecessors have been in the residential mortgage loan origination business for over 20 years. We focus our mortgage origination activities primarily on prime oneanti-to-four family residential purchase money mortgage loans rather than mortgage refinancings. While the definition of “prime” loans varies from company to company, we consider “prime” loans to be loans that satisfy our prescribed investment criteria, namely loan product type, credit scores and loan-to-value ratios. We presently focus on select markets within the states of Georgia, Florida and North Carolina. Our goal is to focus on markets where we believe the demographics, including population growth, new one-to-four family building permits, and sales of new and existing homes, provide opportunities to originate purchase money mortgage loans in sufficient volume to support our offices and growth objectives. dilutive

Historically, HBMC sold substantially all of the mortgage loans that it originates to third parties in whole loan and securitized form and financed its operations through warehouse and repurchase lines of credit. In addition, HBMC historically did not service any loans, other than construction-to-permanent loans during the construction phase.

In July 2004, we completed our initial public offering and related reorganization, which resulted in our ownership of 100% of the outstanding stock of HBMC. We elected to be taxed as a REIT for the year ended December 31, 2004, and HBMC is one of our taxable REIT subsidiaries. Our revenues and results of operations for periods after July 19, 2004, including the year ended December 31, 2004, reflect the changes in strategy implemented by us in anticipation of our initial public offering and the reorganization, which are further described below.

Adjustable-Rate Mortgage Loan Retention Strategy. In February 2004, we began to hold for investment a majority of the prime adjustable-rate mortgage loans we originate, while continuing to sell a majority of our fixed-rate mortgages loan originations. As a result, our revenues and losses for the quarter ended March 31, 2005 reflect changes in the business strategy during which we, through our affiliates, continued to retain and aggregate a significant amount of our total loan origination volume, rather than selling those loans to generate gains on sale.

We presently expect to continue selling the majority of the fixed-rate mortgage loans that we originate. We believe that, due to the complexity of some interest-only, adjustable-rate mortgage products, the secondary whole loan mortgage market does not always accurately reflect their true economic value. The majority of mortgage loans retained by us in the first quarter of 2005 were, and in our future operations will continue to be, adjustable-rate mortgage loans with rates based on the London Interbank Offered Rate or “LIBOR.”

As a result of the initiation of our loan retention strategy, we anticipate that our historical financial results, including those periods presented herein, will not be entirely indicative of our future financial performance for any corresponding periods. Following our change in business strategy, our income from gain on sales declined predominantly as a result of holding mortgage loans for investment. During the first six months of 2004, we used short-term warehouse and repurchase agreement facilities to fund our long-term holdings. We began in the third quarter to securitize adjustable-rate mortgage loans held for investment by offering long-term adjustable-rate debt, which we expect will be lower in cost than our warehouse and repurchase facilities. We expect to incur greater interest expense to carry loans in our portfolio and to generate higher interest and fee revenues from these retained loans.

Securitization Strategy. We finance the mortgage loans retained by us through debt and equity offerings, primarily securitization transactions treated as debt for financial reporting and tax purposes, which provide substantially matched-funded, long-term financing with lower interest rates than short-term debt facilities. During the first quarter of 2005, we continued to execute our securitization strategy by completing two additional securitization transactions. On February 23, 2005, we completed our third loan securitization, through an offering by HomeBanc Mortgage Trust 2005-1, of approximately $1.1 billion of notes backed by adjustable-rate, residential first mortgage loans. On March 31, 2005, we completed our fourth loan securitization, through an offering by HomeBanc Mortgage Trust 2005-2, of approximately $170.9 million of notes backed by adjustable-rate, residential second-lien mortgage loans. See “Liquidity and Capital Resources- Loan Securitizations,” for further discussion.

Servicing Strategy. We service the mortgage loans that we originate and hold for investment. While we are an experienced mortgage loan originator, we historically have only serviced, for brief periods of generally not more than three months, the mortgage loans we originated. Prior to December 2003, we routinely transferred the servicing responsibilities on mortgage loans that we originated, other than construction-to-permanent loans during the construction phase, to third-party servicers shortly after our origination of the loans. Beginning in December 2003, we retained the servicing responsibilities for those loans that we found economically attractive to service, namely a portion of the nonconforming mortgage loans and a limited number of Fannie Mae mortgage loans, and continued to service the construction-to-permanent loans during the construction phase of these mortgage loans. In addition, HBMC generally has serviced loans that are the subject of securitization transactions for up to 30 days after the loans are securitized. In 2004, we began to service, and in the future will continue to service, the loans we hold for investment. Although we do not presently intend to actively invest in loans or mortgage-backed securities collateralized by assets that we do not originate, we may do so from time to time in the future.

~~The~~Excluded ~~form~~from the computation of ~~our~~diluted ~~reorganization~~shares ~~results~~for inthe ~~accounting~~three-month ~~treatment~~period ~~similar~~ended toMarch 31, a2007 ~~pooling~~were 1.5 million ofrestricted ~~interests,~~stock units (“RSUs”) and 1.1 million stock appreciation rights (“SARs”) because the ~~condensed consolidated~~effect ~~financial~~would ~~statements~~be ofanti-dilutive. ~~HomeBanc~~Approximately ~~Corp~~0.1 million ~~include~~SARs were excluded from the ~~results~~computation of ~~HomeBanc~~diluted shares ~~Corp.’s~~for ~~predecessor~~the ~~companies~~three-month ~~prior~~period toended ~~HomeBanc~~March 31, ~~Corp.’s~~2006 ~~initial~~because ~~public~~they ~~offering~~were onexercisable ~~July~~at 19a price in excess of the average price of common stock during the period, ~~2004~~and their effect would have been anti-dilutive.

~~Industry~~Note ~~Outlook~~8. Stock-Based Compensation

~~According~~Stock toAppreciation ~~the Mortgage Bankers Association (“MBA”) projections as of April 14, 2005, total mortgage originations are expected~~Rights to decline by 6% during 2005 compared with 2004. The MBA projects that this decline will largely be driven by a decrease in refinance mortgage originations. This suggests that the competition for purchase money mortgage originations will continue to intensify, which is what we observed during the three months ended March 31, 2005. We will continue to operate in select markets within the states of Georgia, Florida and North Carolina. Our focus remains on utilizing traditional retail mortgage loan origination channels and developing and expanding our strategic marketing alliances with residential realtors and homebuilders.

~~Critical~~There ~~Accounting~~were ~~Policies~~no grants of SARs during the first three months of 2007 or 2006, and as a result, no calculation of fair value at grant date was required.

~~There~~During ~~have~~the ~~been~~three-month noperiods ~~material~~ended ~~changes~~March 31, in2007 ~~the~~and ~~critical~~2006, ~~accounting policies disclosed within~~ the Company’s ~~Annual~~recognized ~~Report~~$0.6 onmillion ~~Form~~and ~~10-K~~$0.2 ~~for~~million, ~~the~~respectively, ~~year~~in ~~ended~~compensation expense ~~December~~related ~~31, 2004~~to SARs.

Restricted Stock Units

During the three-month periods ended March 31, 2007 and 2006, the Company recognized $2.3 million and $0.5 million, respectively, in compensation expense related to RSUs.

Performance Share Plan

On March 28, 2007, the Compensation Committee of the Board of Directors approved awards of performance-based stock units (“PSUs”) granted under the HomeBanc Corp. Amended and Restated 2004 Long-Term Incentive Plan to the Company’s executive officers. The PSUs, which are designated in terms of a target number of shares (427,000), will be earned based on the Company’s level of achievement of performance goals relating to revenue and pre-tax income for the fiscal year ending December 31, 2007. The PSUs will be forfeited if performance falls below a designated threshold level and may be earned for up to 150% of the target number of shares for exceptional performance. PSUs that are earned will vest and convert to shares of the Company’s common stock on December 31, 2009 (or earlier upon a change in control of the Company), provided the executive is still employed by the Company, subject to earlier vesting in the event of the executive’s death or disability.

Sales Equity Plan

During each of the three-month periods ended March 31, 2007 and 2006, the Company recognized $0.1 million in compensation expense related to the Sales Equity Plan. At March 31, 2007 and December 31, 2006, additional paid-in capital reflects the cost, based on date of grant, of approximately 170,000 and 280,000 shares, respectively, of restricted stock awards under the Sales Equity Plan, net of the related amortization expense.

Note 9. Income Taxes

Applicable income taxes for the three months ended March 31, 2007 were an expense of $3.9 million (representing an effective tax rate of (21.2)%), compared to a net benefit of $0.5 million, including $0.2 million in income tax expense related to the cumulative effect of change in accounting principle adjustment, (representing an effective tax rate of (71.8)%) for the three months ended March 31, 2006. The effective tax rates are computed based on consolidated income or loss before income taxes, including the results of both HomeBanc Corp. and HBMC, which are generally treated differently for income tax purposes.

At March 31, 2007, the Company had a net deferred tax asset of $18.3 million, compared to $23.2 million at December 31, 2006. The results for the three months ended March 31, 2007 include a gross benefit of $10.5 million and an additional valuation allowance of approximately $14.4 million. This compares to a gross benefit of $0.4 million and a valuation allowance release of approximately $0.1 million for the three months ended March 31, 2006. The deferred tax asset also reflects a decrease of $1.0 million due to the implementation of FIN No. 48 during the quarter.

The Company’s net deferred tax asset at March 31, 2007 includes an asset arising from the net operating losses of HBMC. These net operating losses will expire 20 years from the year of origination for federal income tax purposes. In accordance with GAAP, management must make an assessment, at the end of each reporting period, of the likelihood that the recorded net deferred tax asset will be realized. The net deferred tax asset must be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of the net deferred tax asset will not be realized within a relatively short period, generally no more than three years. After consideration of management’s expectations about taxable income

that could be generated from tax planning strategies that could be invoked, management has concluded that $65.6 million of the net deferred tax asset at March 31, 2007 is currently unlikely to be realized within a three-year period. Accordingly, the net deferred tax asset at March 31, 2007 includes a valuation allowance of $65.6 million.

Note 10. Other Comprehensive Income

The following table presents a reconciliation of the net change in unrealized gains (losses) on securities available for sale and cash flow hedges for the quarters ended March 31,:


	Before-Tax Amount			Tax Benefit		Net of Tax Amount
	(Dollars in thousands)
2007
Unrealized holding gains on securities available for sale	$	865		$	—	$	865
Less: reclassification for gains included in net earnings		12,474			—		12,474

Net unrealized losses on securities available for sale		(11,609	)		—		(11,609	)
Net unrealized losses on cash flow hedges		(6,916	)		—		(6,916	)

Other comprehensive loss	$	(18,525	)	$	—	$	(18,525	)


	Before-Tax Amount			Tax Benefit		Net of Tax Amount
	(Dollars in thousands)
2006
Unrealized holding losses on securities available for sale	$	(2,003	)	$	—	$	(2,003	)
Less: reclassification for gains included in net earnings		—			—		—

Net unrealized losses on securities available for sale		(2,003	)		—		(2,003	)
Net unrealized gains on cash flow hedges		24,606			—		24,606

Other comprehensive income	$	22,603		$	—	$	22,603

During the first quarter of 2007, the Company sold approximately $1.2 billion of its securities available for sale and, as a result, $12.5 million of unrealized gains on securities available for sale previously recorded in accumulated other comprehensive income (“AOCI”) were released and recognized into earnings. The Company used interest rate swaps designated in cash flow hedging relationships to hedge the interest payments on the associated debt used to fund these securities. As a result of the sale of these securities, and the fact that previously forecasted interest payments associated with the funding for the instruments became probable to not occur, the Company de-designated and terminated the associated interest rate swaps and reclassified $7.0 million in previously recorded losses from AOCI into earnings.

Note 11. Commitments and Contingencies

Loans Sold With Recourse

The Company maintains a reserve for contingencies arising in connection with loan sales to third parties. Reserves for contingency losses anticipated in association with investor repurchase and indemnification requests were $5.7 million and $5.2 million at March 31, 2007 and December 31, 2006, respectively. During the three-month periods ended March 31, 2007 and 2006, the Company repurchased $15.5 million and $4.3 million, respectively, of loans sold to third parties and charged $0.4 million and $1.0 million, respectively, against previously established contingency reserves.

Legal Contingencies

The nature of the Company’s business requires compliance with various state and federal lending laws and exposes it to a variety of legal proceedings and matters in the ordinary course of business, primarily related to foreclosures, bankruptcies, condemnation and quiet title actions, and alleged statutory and regulatory violations. The Company is also subject to legal proceedings from time to time related to employee and employment issues. The Company has recorded litigation reserves where it has determined such reserves to be required pursuant to GAAP, including the addition of $1.6 million in reserves during the first quarter of 2007. The Company’s determinations regarding the need to establish litigation reserves requires the Company to make subjective judgments based upon the Company’s understanding of the then existing facts and status of the legal proceedings. These subjective judgments are inherently uncertain and are subject to change.

Over the past few years, there has been an increase in the number, and an expansion of the scope, of lawsuits directed at mortgage originators and other financial services companies alleging that loan originators, securities brokers and other employees with sales duties are required to be paid overtime under the Fair Labor Standards Act. Such claims include both lawsuits by single plaintiffs and collective actions involving multiple plaintiffs. The Company has received several such claims, and it currently is subject to several pending lawsuits in which the plaintiffs claim that they have been misclassified as being exempt from overtime payment and that they, accordingly, are owed backpay from the Company for unpaid overtime.

In particular, the following putative collective action is presently pending against the Company and Patrick S. Flood (“Flood”) (the Company’s former Chief Executive Officer): King, et al. v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 2:06-cv-96-MMH-SPC, United States District Court for the Middle District of Florida. There are also the following two multi-plaintiff actions presently pending against the Company and Flood: Tyler, et al. v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 0:06-60332-CIV-HURLEY/HOPKINS, United States District Court for the Southern District of Florida; and Clements, et al. v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 1:06-CV-2217-ODE, United States District Court for the Northern District of Georgia. A motion for conditional class certification is presently pending in the King case. The parties in Tyler have agreed to settle all claims against HomeBanc and Flood. On May 4, 2007, the Court approved the terms of the parties’ proposed settlement in a telephonic hearing and dismissed the Tyler case with prejudice on May 7, 2007. The plaintiffs in the Clements case have withdrawn their request for class certification, and several of the opt-in plaintiffs from the King case have withdrawn from that case and refiled as plaintiffs in the Clements case. The Company did not oppose these plaintiffs joining the Clements case. Based on a statement of claims filed by selected plaintiffs in the King and Tyler cases, and extrapolating therefrom, plaintiffs’ counsel in King (which are the same attorneys representing the Tyler plaintiffs) appear to be seeking multi-million dollar collective damages plus legal fees for King. The plaintiffs in Clements have yet to make any settlement demand or give any indication of the amount of damages and legal fees they seek.

In addition to the foregoing, the Company is also defending four single plaintiff actions in which non-exempt employees allege they were entitled to overtime pay in addition to those amounts which they were already paid by HomeBanc. The styles of these cases are Gilhuly v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:06-CV-1669-JA-KRS, United States District Court for the Middle District of Florida; Davis v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:06-CV-1668-JA-JGG, United States District Court for the Middle District of Florida; Gil v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:06-cv-1742-PCF-JGG, United States District Court for the Middle District of Florida; and White v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:07-cv-169-ACC-JGG, United States District Court for the Middle District of Florida. The dollar amount of the alleged damages presently is not estimable.

These cases involve complex issues of law and fact and have not yet progressed to the point where the Company can: (1) predict their outcome; (2) precisely estimate damages that might result from such cases due to the uncertainty of the class certification and the number of potential participants in any class that may be certified; or (3) predict the effect that final resolution of any litigation might have on it, its business, financial condition or results of operations, although such effect could be materially adverse. After consulting with counsel, the Company believes that it has defenses to the claims against it in these cases and is vigorously defending these proceedings.

The Company also cannot predict the outcome of any other litigation pending or threatened against it, nor can it predict the effect that any litigation might have on it, its business, financial condition or results of operations, although such effect could be materially adverse.

Note 12. Derivative Financial Instruments

During the first three months of 2007, the Company de-designated and terminated certain interest rate swaps, representing $350.0 million in notional value, previously designated in cash flow hedging relationships of forecasted interest payments on certain debt instruments. These interest rate swaps were proven to be effective hedging instruments through the date of de-designation. In accordance with the requirements of SFAS No. 133, Accounting for Derivative Financial Instruments and Hedging Activities, the associated market value recorded in AOCI of $(4.4) million as of the date of de-designation will be reclassified into earnings, as an increase to interest expense, when the forecasted interest payments impact earnings. As of March 31, 2007, $5.5 million remained unamortized in AOCI related to all de-designated and terminated interest rate swaps.

During the first quarter of 2007, the Company sold $1.3 billion of investment securities classified as trading and available for sale and subsequently paid down the associated debt used to fund these securities. As a result, forecasted interest payments that the Company previously assessed as being probable of occurrence became probable to not occur. In accordance with SFAS No. 133, the Company recognized into earnings, as an increase to interest expense, the full fair value of the terminated instruments initially designated in cash flow hedging relationships of the variability in interest payments that would have occurred had the securities not been sold. The total impact of these derivative financial instruments, representing amounts released from AOCI, upon net interest income was a reduction of $7.0 million during the first quarter of 2007.

The total change in fair value of hedging instruments attributable to the ineffective portion of effective hedging relationships recorded as an offset to interest expense, excluding the impact of the aforementioned de-designations, was immaterial during the three months ended March 31, 2007, compared to a $0.6 million gain during the year-earlier period.

A summary of the Company’s positions with respect to its derivative financial instruments by hedging category and designated hedged item, where appropriate, follows. The fair value of derivative financial instruments in an asset position is recorded in other assets, while the fair value of those in a liability position is recorded in other liabilities.


	March 31, 2007							December 31, 2006
	Notional Value		Derivative Asset		Derivative Liability			Notional Value		Derivative Asset		Derivative Liability
	(Dollars in thousands)
Cash Flow Hedges (hedged item)
Interest rate swaps (debt)	$	2,765,000	$	3,942	$	(17,662	)	$	4,060,000	$	6,439	$	(26,849	)
Interest rate caps (debt)		1,324,690		6,033		—			1,399,551		8,413		—

Fair Value Hedges (hedged item)
Forward contracts (mortgage loans held for sale)		127,028		260		(34	)		29,793		115		(2	)

Other Derivative Financial Instruments
Interest rate lock commitments		422,730		334		(442	)		350,451		282		(738	)
Forward contracts		156,456		295		(28	)		189,739		802		(126	)
Options on forward contracts		20,000		36		—			35,000		78		—
Interest rate basis swaps		200,000		36		—			200,000		38		—
Interest rate swaps—pay fixed		1,654,820		4,880		(2,156	)		1,771,637		7,498		(1,993	)
Interest rate swaps—pay floating		1,871,637		1,987		(5,507	)		1,671,637		465		(7,887	)
Interest rate caps		837,826		1,931		(1,931	)		881,277		2,715		(2,715	)

Note 13. Securitizations

On March 30, 2007, the Company completed a loan securitization treated as a sale, through the issuance by the 2007-1 Trust of approximately $296.8 million of certificates (the “2007-1 Certificates”) representing an interest in one pool of conventional, first-lien, adjustable-rate, residential mortgage loans and one pool of conventional, second-lien, fixed- and adjustable-rate residential mortgage loans originated by HBMC. The approximate amount of all classes of the 2007-1 Certificates, together with the interest rate and initial credit ratings for each class assigned by Moody’s and S&P, respectively, are set forth below:


Class	Approximate Principal Amount			Interest Rate Formula	Ratings by Moody’s/S&P
I-1A-1	$	116,992,000		Weighted-Average Net Mortgage Rate for Loan Group I-1 minus 0.543%	Aaa/AAA
I-1A-2	$	27,454,000		Weighted-Average Net Mortgage Rate for Loan Group I-1 minus 0.543%	Aaa/AAA
I-1X		Notional	⁽¹⁾	Fixed Rate of Approximately 0.543% until February 2012⁽¹⁾	Aaa/AAA
I-2A-1	$	54,034,000		Weighted-Average Net Mortgage Rate for Loan Group I-2 minus 0.644%	Aaa/AAA
I-2A-2	$	4,693,000		Weighted-Average Net Mortgage Rate for Loan Group I-2 minus 0.644%	Aa1/AAA
I-2X		Notional	⁽²⁾	Fixed Rate of Approximately 0.644% until February 2012⁽²⁾	Aaa/AAA
I-3A-1	$	21,990,000		Weighted-Average Net Mortgage Rate for Loan Group I-3 minus 0.072%	Aaa/AAA
I-3A-2	$	1,910,000		Weighted-Average Net Mortgage Rate for Loan Group I-3 minus 0.072%	Aa1/AAA
I-3X		Notional	⁽³⁾	Fixed Rate of Approximately 0.072% until February 2012⁽³⁾	Aaa/AAA
II-A	$	43,968,000		30-Day LIBOR + 0.300%	Aaa/AAA
I-B-1	$	5,517,000		Variable⁽⁴⁾	Aa2/AA
I-B-2	$	4,045,000		Variable⁽⁴⁾	A2/A
I-B-3	$	3,066,000		Variable⁽⁴⁾	Baa2/BBB
I-B-4	$	3,310,000		Variable⁽⁴⁾	NR⁽⁵⁾/BB
I-B-5	$	1,227,000		Variable⁽⁴⁾	NR⁽⁵⁾/B
I-B-6	$	982,032		Variable⁽⁴⁾	NR⁽⁵⁾
II-M-1	$	3,314,000		30-Day LIBOR + 0.900%	Aa2/AA
II-M-2	$	2,246,000		30-Day LIBOR + 2.000%	A2/A
II-B	$	2,082,000		30-Day LIBOR + 2.000%	Baa2/BBB

(1)

On or prior to the distribution date in February 2012, the Class I-1X Certificates will accrue interest at a fixed annual rate equal to approximately 0.543% on a notional amount of approximately $144,446,000, which is equal to the total class principal amount of the Class I-1A-1 Certificates and Class I-1A-2 Certificates. After the distribution date in February 2012, the interest rate of the Class I-1X Certificates will be zero.

(2)

On or prior to the distribution date in January 2014, the Class I-2X Certificates will accrue interest at a fixed annual rate equal to approximately 0.644% on a notional amount of approximately $58,727,000, which is equal to the total class principal amount of the Class I-2A-1 Certificates and Class I-2A-2 Certificates. After the distribution date in January 2014, the interest rate of the Class I-2X Certificates will be zero.

(3)

On or prior to the distribution date in February 2017, the Class I-3X Certificates will accrue interest at a fixed annual rate equal to approximately 0.072% on a notional amount of approximately $23,900,000, which is equal to the total class principal amount of the Class I-3A-1 Certificates and Class I-3A-2 Certificates. After the distribution date in February 2017, the interest rate of the Class I-3X Certificates will be zero.

(4)

The interest rate for the Class I-B-1, Class I-B-2, Class I-B-3, Class I-B-4, Class I-B-5 and Class I-B-6 Certificates will be a variable annual rate equal to the weighted average of the weighted average (by loan group) of the net rates of the mortgage loans in loan group I-1, loan group I-2 and loan group I-3, weighted in proportion to the results of subtracting from the total principal balance of the mortgage loans in each such loan group the total class principal amount of the related classes of group I senior certificates. The interest rate with respect to the first interest accrual period is expected to be approximately 6.151% per annum.

(5)	The designation “NR” means that the specified rating agency did not rate the certificates of that class.

The class I-1A-1, I-1A-2, I-2A-1, I-3A-1 and II-A certificates were sold to the public. All other classes were retained by the Company in the form of trading securities. In addition, the Company retained $3.2 million in principal related to the Class II-X certificates, which represent the right to receive any economic residual distributions from the 2007-1 Trust, and classified them as trading securities.

The Company also capitalized $2.9 million in MSRs in association with the transaction. As a result of the $264.4 million of certificates sold to the public, total cash proceeds of $262.5 million were received, and a gain on sale of $1.1 million was recognized.

Note 14. Segment Reporting

The Company has two reportable segments: (1) the mortgage investment operations conducted at HomeBanc Corp. and (2) the mortgage banking operations conducted at HBMC. The strategy of the mortgage investment segment has historically been to generate interest income on the mortgage loans originated by HBMC, and held for investment and the MBS portfolio. The strategy of the mortgage banking segment has historically been to originate mortgage loans, service mortgage loans and generate gain on sale revenue when mortgage loans are sold to third parties.

Information about reportable segments and a reconciliation of such information to the condensed consolidated financial statements for the quarters ended March 31, is as follows:


	2007
	Mortgage Investment Operations			Mortgage Banking Operations			Intersegment Eliminations			Consolidated Totals
	(Dollars in thousands)
Net interest income	$	2,880		$	3,048		$	—		$	5,928
Provision for loan losses		341			—			—			341
Noninterest revenue		11,358			7,182			—			18,540
Noninterest expense		5,815			36,935			—			42,750

Income (loss) before income taxes	$	8,082		$	(26,705	)	$	—		$	(18,623	)

Average segment assets	$	6,010,300		$	794,400		$	(562,105	)	$	6,242,595

	2006
	Mortgage Investment Operations			Mortgage Banking Operations			Intersegment Eliminations			Consolidated Totals
	(Dollars in thousands)
Net interest income	$	29,593		$	2,505		$	(3,220	)	$	28,878
Provision for loan losses		39			—			—			39
Noninterest revenue		(1,173	)		10,806			—			9,633
Noninterest expense		2,473			38,929			(3,220	)		38,182

Income (loss) before income taxes	$	25,908		$	(25,618	)	$	—		$	290

Average segment assets	$	6,440,990		$	539,399		$	(448,004	)	$	6,532,385

Note 15. Subsequent Events

During the second quarter of 2007, the Company completed its previously announced $16.5 million share repurchase program. Repurchases made by the Company subsequent to March 31, 2007 totaled $6.8 million, representing 1,978,000 shares at an average purchase price of $3.42.

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

The following narrative summarizes the significant trends affecting our results of operations and financial condition for the periods presented. This overview supplements, and should be read in conjunction with, the condensed consolidated financial statements of HomeBanc Corp. and its subsidiaries and the notes thereto contained elsewhere in this Report. Throughout this discussion, certain prior period balances have been reclassified to conform to the current presentation.

Since 2003, we have changed our strategy in a number of important ways. In addition, we have identified a number of strategic measures that we intend to implement during 2007. See “Important Information Regarding our Strategic Plans” contained elsewhere in this Report.

During the first three months of 2007, we had a net loss of $22.6 million, compared to net income of $1.3 million during the year-earlier period.

The change in net income was driven by a number of factors, which include:

•

a $23.0 million decrease in net interest income due to a decline in the average balance of our loans held for investment portfolio, net interest margin compression and the impact of certain derivative financial instruments associated with the sale of our MBS and mortgage loans;

•

a decrease in loan originations from $1.2 billion during the first three months of 2006 to $1.1 billion during the first three months of 2007, driven mainly by a decline in home sales in Florida, our largest market during 2006, in addition to the current interest rate environment;

•

a $4.6 million change in income taxes from a $0.7 million income tax benefit during the quarter ended March 31, 2006 to $3.9 million of income tax expense during the quarter ended March 31, 2007 due to an increase in the valuation allowance for the portion of our net deferred tax asset not probable of being realized over the next three years;

•

a $3.3 million decrease in gain on sale of mortgage loans from $7.1 million, or 75 basis points (“bps”), for the three months ended March 31, 2006, to $3.8 million, or 35 bps, during the three months ended March 31, 2007, primarily as a result of market pressures upon pricing, especially for certain types of loans with minor documentation deficiencies and minor borrower delinquencies;

•

a $4.6 million increase in expenses, primarily attributable to one-time charges recorded during the first quarter of 2007 as result of reducing the number of our associates, reducing the number of and expenses associated with our SMAs, streamlining our originations process, “right sizing” our corporate infrastructure and improving efficiencies throughout our organization, in addition to an increase in litigation costs;

•

an increase in our provision for loan losses, which was less than $0.1 million during the first quarter of 2006, compared to $0.3 million during the first quarter of 2007; and

•

a cumulative effect of change in accounting principle adjustment, which increased earnings by $0.3 million during the first quarter of 2006, due to the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 123(R), Share-Based Payment.

The factors above that contributed to our net loss during the first three months of 2007 were offset, in part, by our decision to sell substantially all of our securities available for sale during the first quarter of 2007 in order to generate liquidity, which resulted in a net gain on sale of $12.5 million.

Our loan volume decreased during the three months ended March 31, 2007 compared to the year-earlier period. Industry data obtained from the Mortgage Bankers Association (“MBA”) as of April 23, 2007 estimated an increase of 4.3% in total mortgage originations and an 11.9% decrease in purchase money originations in the first quarter of 2007, when compared to the same period in 2006. Our total loan origination volume in the first quarter of 2007, when compared to the same period in 2006, decreased 13.4%, while our overall purchase money mortgage origination volume also declined 13.4% in this period. Both of these measures of volume lag the MBA data cited above due to extremely adverse market conditions currently prevailing in Florida.

General

We are a Georgia corporation formed in March 2004 to own, continue and expand the business of HBMC, a residential mortgage banking company. HBMC and its predecessors have been in the residential mortgage loan origination business for over 20 years.

We focus our mortgage origination activities primarily on prime one-to-four family residential purchase money mortgage loans (those originated in connection with the purchase and sale of real property) rather than mortgage refinancings. While the definition of “prime” loans varies from company to company, we consider “prime” loans to be loans that satisfy our prescribed investment criteria, namely loan product type, credit scores and loan-to-value ratios. We have historically focused on select markets within the states of Georgia, Florida and North Carolina. Effective April 2, 2007, we opened our first full-service store in Nashville, Tennessee, and we intend to open two new stores in other new markets during 2007. Our goal is to focus on markets where we believe the demographics, including population growth, new one-to-four family building permits, and sales of new and existing homes, provide opportunities to originate purchase money mortgage loans in sufficient volume to support our offices and growth objectives.

Industry and Management Outlook

According to the MBA projections as of April 23, 2007, total mortgage originations are expected to decline by 9.1% during 2007 compared with 2006. The MBA projects that the refinance mortgage originations portion of the market will experience a 10.4% decrease, while the purchase money mortgage portion of the market will experience a 7.9% decrease.

We presently expect to originate between $4.6 billion and $5.0 billion of mortgage loans during 2007, compared with $5.1 billion in 2006. Our focus remains on utilizing traditional retail mortgage loan origination channels and developing and executing under our SMAs with residential realtors and homebuilders. However, we continue to opportunistically consider any number of alternative and/or additional strategic plans that may be or become available to us, including changes in our operating model, and we may change our strategy at any time to pursue any such alternative or additional strategies.

In addition, we have identified and initiated a number of other strategic measures for 2007 that are designed to improve our operating efficiencies and opportunities for growth. See “Important Information Regarding our Strategic Plans” contained elsewhere in this Report.

Expense Reductions

During the first quarter of 2007, we recorded approximately $9.0 million in one-time charges which included the following:

•

$6.1 million in severance costs related to the departures of Patrick S. Flood, our former Chairman of the board of directors and our Chief Executive Officer, and Dr. Paul Lopez, our former Executive Vice President of Business Development;

•

$1.9 million of additional severance costs, mainly due to the elimination of jobs in association with the restructuring of management in our sales organization and the consolidation of certain activities in our production operations;

•

$0.4 million of legal and accounting expenses associated with our consideration of various strategic alternatives, including, without limitation, a change in our operating model; and

•

$0.3 million of charges associated with the consolidation of certain of our rented facilities and associated fixed asset disposals.

In connection with our expense reduction efforts, we expect to incur an additional $3.0 million of one-time charges during the second quarter of 2007. Our expense reduction efforts are expected to reduce annualized expenses by approximately $15.0 million during 2007 compared to 2006 results, while we expect that reinvestment in new markets and new technology will result in additional expense of $11.0 million during 2007.

Critical Accounting Policies and Estimates

There have been no significant changes made to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2006.

Financial Condition Discussion

Balance Sheet Component	Balance at December 31, 2004		Balance at March 31, 2005		$ Change			% Change
	Balance at
Balance Sheet Component	March 31, 2007		December 31, 2006		$ Change			% Change
	(Dollars in thousands)
Cash	$	1211,~~232~~241	$	2820,~~345~~987	$	16(9,~~113~~746	)	~~131~~(46.74	)%
Mortgage loans held for sale		252,378		273,434		21,056		8.3
Restricted cash		79,794		128,033		(48,239	)	(37.7	)
Mortgage loans held for investment		2,937,156		3,655,922		718,766		24.5
Mortgage loans held for sale, net		383,532		379,299		4,233		1.1
Mortgage servicing rights, net		5,097		5,517		420		8.2
Mortgage loans held for investment, net		4,183,798		4,372,998		(189,200	)	(4.3	)
Accounts receivable		34,972		66,576		31,604		90.4
Mortgage servicing rights		54,831		43,908		10,923		24.9
Other assets		22,697		47,232		24,535		108.1
Receivable from custodian		58,779		77,612		(18,833	)	(24.3	)
Other liabilities		49,981		37,531		(12,450	)	(24.9	)
Trading securities		41,325		4,824		36,501		756.7
Warehouse lines of credit		333,783		242,087		(91,696	)	(27.5	)
Securities available for sale		87,958		1,366,426		(1,278,468	)	(93.6	)
Aggregation credit facilities		869,429		479,839		(389,590	)	(44.8	)
Securities held to maturity		183,362		188,193		(4,831	)	(2.6	)
Collateralized debt obligations		1,785,900		2,959,594		1,173,694		65.7
Premises and equipment, net		45,325		45,406		(81	)	(0.2	)
Shareholder’s equity		251,013		356,672		105,659		42.1
Deferred tax asset, net		18,269		23,225		(4,956	)	(21.3	)
Other assets		264,588		109,371		155,217		141.9
Warehouse lines of credit		437,371		404,765		32,606		8.1
Repurchase agreements		400,522		1,527,470		(1,126,948	)	(73.8	)
Loan funding payable		88,684		63,855		24,829		38.9
Other liabilities		65,788		94,832		(29,044	)	(30.6	)
Collateralized debt obligations		4,075,193		4,277,026		(201,833	)	(4.7	)
Junior subordinated debentures representing obligations for trust preferred securities		175,260		175,260		—		—
Shareholders’ equity		219,172		270,270		(51,098	)	(18.9	)

The following discussion should be read in conjunction with the table above:

Cash

Cash ~~increased~~decreased from December 31, ~~2004~~2006 to March 31, 2007 ~~2005~~ because ~~the~~cash ~~increase~~used into fund our ~~borrowings~~ ~~and~~share ~~the~~repurchase ~~net~~program, ~~proceeds~~payment ~~received~~of ~~from~~previously declared dividends on our ~~second~~common ~~equity~~stock ~~offering~~and our operating activities exceeded the ~~cash~~proceeds ~~requirements~~from ~~for~~the ~~growth~~sale inof ~~mortgage~~MBS ~~loans~~and ~~held~~the ~~for~~net ~~investment~~change ~~and~~in our ~~operating activities~~borrowings. Details regarding changes in cash balances are provided ~~in HomeBanc~~within ~~Corp.’s~~our condensed consolidated statement of cash flows.

Restricted Cash

Restricted cash decreased from December 31, 2006 to March 31, 2007 due to the decrease of $22.4 million held in association with sales of loans settling at period ends. The cash was received after typical bank transaction cut-off times and could not be applied against amounts outstanding under the Company’s warehouse lines of credit for which the sold loans served as collateral. After the sale of the loans, the cash from the proceeds served as collateral for the borrowings until it was applied to reduce the outstanding borrowings on the next business day. The remainder of the decrease in restricted cash relates to a $16.0 million decline in collateral held in association with outstanding derivative financial instruments in a liability position and a $9.9 million decrease in collateral associated with outstanding borrowings.

Mortgage Loans Held for Sale, Net

Mortgage loans ~~that~~held wefor ~~have originated,~~sale ~~but~~represent domortgage ~~not~~loans ~~intend~~originated toand ~~hold~~held ~~for~~pending sale ~~the~~to ~~foreseeable~~permanent ~~future,~~investors and are ~~classified~~carried asat ~~“mortgage~~fair ~~loans~~value ~~held~~to ~~for~~the ~~sale.”~~extent ~~Mortgage~~they ~~loans~~are ~~held~~in ~~for~~qualifying, ~~sale~~effective ~~represent~~fair ~~mortgage~~value ~~loans~~hedging ~~originated~~relationships, ~~and~~while ~~held~~all ~~pending~~other ~~sale~~mortgage toloans ~~permanent~~held ~~investors~~for ~~and~~sale are carried at the lower of cost or fair value on an aggregate basis. Fluctuations in mortgage loans held for sale are dependent upon loan production, ~~seasonality~~which is affected by prevailing economic conditions, ~~cyclical~~the ~~trends~~size of and turnover in our sales force, seasonal and cyclical trends, our investors’ ability to purchase mortgage loans on a timely basis and our ability to securitize mortgage loans in sale transactions.

Mortgage Loans Held for Investment, Net

~~Mortgage~~Fluctuations ~~loans~~in ~~originated by HBMC and transferred to HomeBanc Corp. are classified as “~~mortgage loans held for investment.” ~~Mortgage~~are ~~loans~~dependent ~~held~~upon ~~for~~loan ~~investment~~production, ~~represent~~which ~~mortgage~~is ~~loans~~affected ~~that~~by weprevailing ~~intend~~economic toconditions, ~~hold~~including interest ~~for~~rates, the ~~foreseeable~~size ~~future~~of and ~~are~~turnover ~~carried~~in atour ~~cost~~sales force, ~~less~~seasonality, anscheduled ~~allowance for~~ loan ~~losses~~principal ~~reflecting~~repayments, ~~losses~~prepayments ~~inherent~~and ~~in the~~curtailments, ~~portfolio.~~loan ~~The~~charge-offs ~~substantial~~and ~~majority~~our ofintent ~~the~~and ~~mortgage~~ability ~~loans~~to ~~held~~securitize ~~for~~mortgage ~~investment balance represents either~~ loans ~~serving~~at asHomeBanc ~~collateral~~Corp. ~~for~~and ~~collateralized~~HBMC ~~debt obligations resulting from securitization transactions accounted for as securitized~~in ~~borrowings,~~collateralized orborrowing ~~loans being aggregated for future securitization transactions~~structures. ~~Fluctuations~~The decrease in the mortgage loans held for investment ~~are~~balance ~~dependent~~from ~~upon~~December 31, ~~loan~~2006 ~~production~~to ~~seasonality~~March 31, ~~and~~2007 ~~our~~is ~~ability~~due to ~~transfer~~prepayments ~~loans~~ and ~~securitize~~curtailments ~~mortgage~~during ~~loans~~the ~~at HomeBanc Corp. Mortgage loans held for investment exhibited continued growth from December 31~~period, ~~2004~~as tothere ~~March~~were ~~31,~~no ~~2005~~additions ~~as we continued~~ to ~~execute~~the mortgage ~~our~~loans ~~business~~held ~~strategy of retaining~~ for investment aportfolio ~~majority~~during of the ~~adjustable-rate loans that we originate~~period.

1927

~~Mortgage~~The ~~Servicing~~Allowance ~~Rights~~remained fairly consistent, ~~Net~~amounting to 0.09% of mortgage loans held for investment, or $3.6 million, at March 31, 2007, compared to 0.09%, or $4.0 million, at December 31, 2006. Charge-offs were $0.8 million during the three months ended March 31, 2007, as compared to $0.1 million during the year-earlier period. Loans past due 90 days or more totaled $42.5 million, or 1.02% of the $4.2 billion loan balance at March 31, 2007 and $38.4 million, or 0.88% of the $4.4 billion loan balance at December 31, 2006. Other real estate owned resulting from the foreclosure of mortgage loans held for investment increased from $4.5 million at December 31, 2006 to $6.1 million at March 31, 2007. Management periodically evaluates the factors affecting the risk of loss in the portfolio and records additional provision for loan losses as necessary to maintain the adequacy of the Allowance. We view the increases in charge-offs, loans past due 90 days or more and other real estate owned as primarily being attributable to the seasoning of the mortgage loans held for investment portfolio.

~~The~~Mortgage ~~increase~~Servicing inRights the balance of mortgage servicing rights was due to the fact that the capitalization of mortgage servicing rights related to loans sold on a servicing-retained basis during the first quarter of 2005 of $1.2 million exceeded the related amortization expense of $0.6 million and a valuation allowance for impairment of $0.2 million, which resulted primarily from the rising interest rate environment that caused an increase in both current and anticipated prepayment speeds.

~~Accounts~~The ~~Receivable~~increase in the balance of MSRs was due to the capitalization of $12.6 million of MSRs during the first three months of 2007, which exceeded the decrease in fair value of MSRs of $1.7 million during the same period. The amount of MSRs capitalized in 2007 is reflective of our continued strategy of selling, on a servicing-retained basis, substantially all of the adjustable-rate prime mortgage loans that we originate.

~~Accounts receivable~~Receivable ~~represents amounts due~~ from ~~the~~Custodian custodians of the trust entities organized to facilitate securitization activity. The increased balance was the result of the two securitizations completed during the first quarter of 2005 as well as an increase in the level of borrower payoff activity leading up to March 31, 2005.

Receivable from custodian represents amounts held by the custodians of the trust entities organized to facilitate securitization activity relating to the interests of holders of our CDOs, including our interests in subordinated tranches retained, in payments received from borrowers of the underlying loans. As the balance of our securitized assets grows or decreases, we generally expect the receivable from custodian balance to somewhat mirror that change. The decreased balance was, therefore, the result of an overall decline in the collective size of the securitization trusts.

Securities Available for Sale, Held to Maturity and Trading

During the first quarter of 2007, we sold $1.2 billion of our securities available for sale and $77.8 million of trading securities as a means of generating liquidity. We did not make any purchases of MBS during the first quarter of 2007, but we received securities representing interests in loans transferred to Freddie Mac that were sold to third parties prior to the end of the period. We also completed a securitization accounted for as a sale transaction during the first quarter of 2007, with respect to which we retained $36.7 million in subordinated tranches classified as trading.

Other Assets

The increase in other assets from December 31, 2006 to March 31, 2007 was due primarily to a $187.3 million receivable at March 31, 2007 pertaining to settlement amounts receivable on the ~~result~~sale of MBS. Another component was a $241.7 2 million increase in other real estate owned. Offsets to the ~~value~~overall increase included settlement, during the first quarter, of ~~derivative~~a ~~financial~~$15.5 ~~instruments~~million ~~designated~~receivable existing inat ~~cash~~December 31, ~~flow~~2006 ~~hedging~~related ~~relationships~~to delayed settlement of a loan sale, ~~including~~a $54.17 million decrease in ~~premiums~~the ~~paid~~amount ~~during~~of ~~the~~derivative ~~first~~financial ~~quarter~~instruments ofin ~~2005,~~an asset position that were designated in ~~addition~~hedging torelationships, a $32.64 million decrease in the ~~deferred~~amount ~~financing~~of ~~fees incurred~~derivative financial instruments in ~~connection~~an ~~with~~asset ~~the~~position ~~two~~that ~~securitization~~were ~~transactions~~not ~~completed~~designated ~~during~~in ~~the~~hedging ~~first~~relationships ~~quarter~~but ofentered ~~2005,~~into ~~offset~~for risk mitigation purposes and a $4.9 million decrease in escrow advances receivable for payments made by ~~other~~us ~~less~~on behalf ~~significant~~of ~~changes~~borrowers.

Other Liabilities

The decrease from year-end was due primarily to the payment to shareholders during the first quarter of 2005 of $7.7 million in accrued dividends declared and recorded prior to year-end and $3.7 million in cash payments made to associates for bonus accruals also recorded prior to December 31, 2004.

Borrowings

Warehouse lines of ~~credit~~ credit are used to finance mortgage loans held for sale and, therefore, increase or decrease based upon loan production ~~seasonality~~, ~~cyclical~~which ~~trends~~is ~~and~~affected ~~our~~by ~~investors’~~prevailing ~~ability~~economic toconditions, ~~purchase~~including ~~mortgage~~interest ~~loans~~rates, onthe asize ~~timely basis. The total borrowings balance has continued to grow as a result~~ of ~~financing~~and ~~requirements~~turnover ~~associated~~in ~~with~~our ~~the~~sales ~~adjustable-rate~~force, seasonal ~~mortgage~~and ~~loan~~cyclical ~~retention~~trends, ~~strategy.~~our Weinvestors’ ~~use~~ability ~~aggregation credit facilities~~ to ~~finance~~purchase ~~our~~ mortgage loans ~~held~~on ~~for~~a ~~investment~~timely ~~until~~basis ~~such~~and ~~time~~our asability ~~we are able~~ to securitize ~~these~~mortgage loans. The aggregation credit facilities decreased and collateralized debt obligations increased from December 31, 2004 to March 31, 2005 as a result of the two securitizations, representing $1.3 billion in new borrowings, during the first quarter of 2005. The securitization transactions were accounted for as secured borrowings with debt instruments issued to third party investors.

CDOs decreased from December 31, 2006 to March 31, 2007 due to repayments, prepayments and curtailments of the mortgage loans that secure them. In addition, we did not enter into new securitization transactions treated as collateralized borrowings during the first three months of 2007.

Some of our repurchase agreements are used to finance the purchase of MBS. The decrease in the balance from December 31, 2006 to March 31, 2007 is a result of reduced funding requirements as we sold $1.3 billion in MBS.

Loan Funding Payable

Loan funding payable represents amounts outstanding as a result of loan closings. As loans are closed, a liability is established pending the wire transfer to the closing agent or clearing of the closing check disbursement. The balance will, therefore, fluctuate based upon the timing of loan closings and relates primarily to loans funded during the week leading up to each period-end.

Other Liabilities

The decrease in other liabilities from December 31, 2006 to March 31, 2007 was primarily due to a $9.2 million decrease in the amount of derivative financial instruments in a liability position designated in hedging relationships, a $3.4 million decrease in derivative financial instruments in a liability position not designated in hedging relationships and an $11.4 million decrease in dividends payable. The dividends payable balance at December 31, 2006 included the common stock dividend that was declared during the fourth quarter of 2006 and paid during the first quarter of 2007. No common stock dividend was declared during the first quarter, and, therefore, no accrual existed at March 31, 2007. Other liabilities at December 31, 2006 included a one-time accrual for $2.6 million related to excess cash distributions received from equity investees.

Shareholders’ Equity

WeSignificant ~~completed~~drivers ~~our~~of ~~second~~the ~~public~~decrease ~~equity~~in ~~offering~~shareholders’ equity during the ~~first~~ quarter ofended ~~2005~~March 31, 2007 were the net loss of 10$22.6 million,~~925~~ the $1.3 million in preferred dividends declared,~~000~~ ~~shares~~a $1.0 million cumulative effect adjustment pertaining to the adoption of ~~HomeBanc~~Financial ~~common~~Accounting ~~stock.~~Standards ~~The~~Board ~~net~~Interpretation ~~proceeds~~(“FIN”) ~~received~~No. 48, byAccounting usfor ~~increased~~Uncertainty in Income ~~equity~~Taxes, byan interpretation of SFAS No. 109, Accounting for Income Taxes, and the $9318.05 million decrease in AOCI, which included an $11.6 ~~The~~million ~~net~~decrease ~~loss~~related ~~recognized~~to ~~during~~changes in the ~~three-month~~unrealized ~~period~~gains ~~ended~~and ~~March~~losses ~~31,~~on ~~2005~~securities ofavailable for sale and a $7.6.9 million ~~served~~decrease related to cash flow hedges. The overall decrease ~~equity,~~was partially offset by a $192.60 million ~~increase~~ in ~~accumulated~~stock-based ~~other~~compensation ~~comprehensive~~extended ~~income~~to ~~resulting~~associates. ~~from~~Shareholders’ anequity ~~increase~~was inalso impacted by our repurchase of $9.7 million of our common stock, or 3,593,900 shares, under the ~~fair~~previously ~~value~~authorized ofshare ~~derivative~~repurchase ~~financial~~program. ~~instruments~~During ~~designated~~the insecond ~~cash~~quarter ~~flow~~of ~~hedging~~2007, ~~relationships~~we ~~and~~repurchased athe remaining $0.6.8 million, ~~increase~~or ~~resulting~~1,978,000 ~~from~~shares, of HomeBanc common stock~~-based~~ ~~compensation~~authorized for purchase under the share repurchase program. In total, we utilized the full $16.5 million authorized under the share repurchase program to repurchase a total of 5,571,900 shares at an average price of $2.96 per share.

Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto. Results for the periods presented may not be completely comparable or indicative of future results due to factors including our reorganization on July 12, 2004 and the recapitalization of our business effective upon the completion of our initial public offering on July 19, 2004.

Three Months Ended March 31, ~~2005~~2007 Compared to Three Months Ended ~~March~~ March 31, ~~2004~~2006

Overview

When compared with the ~~first~~three ~~quarter~~months ofended ~~2004~~March 31, 2006, our results of operations for the three months ended March 31, ~~2005~~2007 were significantly affected by: (1) decreased ~~our~~net ~~decision~~interest toincome ~~change~~as ~~our~~a ~~business~~result ~~model~~of ~~from~~the one-time impact of ~~selling~~certain ~~substantially~~derivative ~~all~~financial ofinstruments; ~~the~~(2) downward ~~mortgage~~pressure ~~loans~~on ~~that~~our wenet ~~originate~~interest tomargin; ~~one~~(3) decreased ofloan ~~retaining~~origination ~~for~~volume ~~investment~~as a ~~majority~~result of a decline in home sales, especially in the ~~adjustable-~~Florida market, and the interest rate ~~mortgage~~environment; ~~loans~~(4) increased ~~that~~pricing wepressures ~~originate~~impacting execution on the sale of mortgage loans; (25) increased ~~our~~expenses ~~reorganization~~as ~~and~~a ~~conversion~~result toof acertain ~~REIT~~one-time charges in connection with our expense reduction measures; and (36) the ~~two~~sale ~~public~~of substantially ~~offerings~~all of our ~~common~~securities ~~stock~~available for sale.

2029

~~Industry~~Mortgage ~~data~~Loan ~~obtained~~Originations from the MBA as of April 14, 2005 estimates a drop of 5% in total mortgage originations in the first quarter 2005 when compared to the same period in 2004. Our total loan volume in the first quarter of 2005, when compared to the same period in 2004, increased 10%, which compares favorably to the MBA data cited above. We originated $1.39 billion of total mortgage loans in the first quarter of 2005, including approximately $1.04 billion in purchase money mortgage loan originations and $0.35 billion in refinancing originations, compared to $1.25 billion of total mortgage loans, including $0.93 billion and $0.32 billion, respectively, of purchase money and refinancing originations in the first quarter of 2004. Purchase money mortgage loan originations, which represented 75% of our total originations for the first quarter of 2005, increased 11% compared to the same period in 2004. Refinancing originations, which represented 25% of our total originations during the first quarter of 2005, have increased 8% when compared to the same period in 2004. We originated approximately $1.09 billion of adjustable-rate mortgage loans and $0.30 billion of fixed-rate mortgage loans during the first quarter of 2005, compared to $0.96 billion and $0.29 billion, respectively, of such loans in the first quarter of 2004. In the first quarter of 2005, 78% of our total mortgage loan originations were adjustable-rate loans, compared to 76% during the first quarter of 2004. The increase in our loan originations in the face of an overall decrease in the market was largely the result of continued success in developing our strategic marketing alliances and maintaining our focus on the purchase money mortgage market which historically exhibits more stability than the refinance market. Similarly, loan application volume of $1.95 billion during the first quarter of 2005 exceeded the first quarter of 2004 by approximately $0.20 billion.

~~Net~~Industry ~~Loss~~data obtained from the MBA as of April 23, 2007 estimated an increase of 4.3% in total mortgage originations in the first quarter of 2007 when compared to the same period in 2006. The following table details our loan origination data and SMA relationships as of and for the quarters ended:

For the Three Months Ended March 31, 2004			For the Three Months Ended March 31, 2005				$ Change			% Change
		March 31,						$ Change Favorable/ (Unfavorable)				% Change Favorable/ (Unfavorable)
			(Dollars in thousands)
		2007			2006
$	(9,100)		$	(7,558	)		$	1,542		16.9	%
		(Dollars in thousands)
Loan Originations:
Purchase money originations		$	820,693		$	948,058		$	(127,365	)		(13.4	)%
Refinancing originations			248,708			287,215			(38,507	)		(13.4	)
Total loan originations		$	1,069,401		$	1,235,273		$	(165,872	)		(13.4	)
Adjustable-rate originations		$	515,381		$	823,391		$	(308,010	)		(37.4	)
Fixed-rate originations			554,020			411,882			142,138			34.5
Total loan originations		$	1,069,401		$	1,235,273		$	(165,872	)		(13.4	)
Originations directly resulting from SMAs		$	421,797		$	462,488		$	(40,691	)		(8.8	)
Loan application volume		$	1,311,081		$	1,605,844		$	(294,763	)		(18.4	)
SMAs at period-end:
Realtors			96			112			(16	)		(14.3	)
Builders			43			106			(63	)		(59.4	)

~~The~~Our ~~decreasing~~total ~~net~~loan ~~loss~~volume ~~was generated by an increase~~ in ~~net~~the ~~interest~~first ~~income~~quarter ~~resulting~~of ~~from~~2007, ~~growth~~when incompared to the ~~held~~same ~~for~~period ~~investment loan portfolio~~ in ~~addition~~2006, todecreased a13.4%. ~~decrease~~The MBA inestimated ~~facility~~an ~~costs~~11.9% asdecline ain ~~result~~the ofpurchase amoney ~~one-time~~market, ~~non-cash~~the ~~charge~~largest ~~incurred~~component inof ~~relocating~~total ~~the~~loan ~~corporate~~volume, ~~headquarters~~ during ~~2004.~~ ~~The~~the ~~impact~~three ofmonths ~~these~~ended ~~factors~~March 31, ~~was~~2007 ~~somewhat~~when ~~diminished~~compared bywith ~~increasing~~the ~~compensation~~year-earlier ~~costs~~period. ~~and~~The ~~strategic~~following ~~marketing~~table ~~alliance~~details ~~expenditures~~our ~~along~~purchase ~~with~~money production aby ~~decreasing~~state ~~gain~~for onthe ~~sale~~quarters ofended: ~~mortgage loans.~~

For GAAP purposes, no gain on sale is recognized on loans transferred to the REIT investment portfolio. However, for tax purposes, loans sold to the REIT investment portfolio are transferred at fair value resulting in a taxable gain on sale at HBMC, a taxable REIT subsidiary or “TRS”. As a REIT, HomeBanc Corp. is not consolidated with its taxable REIT subsidiaries for federal income tax purposes, and, generally, HomeBanc Corp. separately pays no federal income tax.


	March 31,				$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
	2007		2006		$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
	(Dollars in thousands)
Purchase Money Loan Originations:
Florida	$	355,133	$	475,623	$	(120,490	)	(25.3	)%
Georgia		368,314		393,805		(25,491	)	(6.5	)
North Carolina		84,395		64,559		19,836		30.7
Other		12,851		14,071		(1,220	)	(8.7	)

Total purchase money loan originations	$	820,693	$	948,058	$	(127,365	)	(13.4	)

~~The~~Our ~~following~~overall ispurchase money mortgage origination volume declined 13.4% from period to period, which was driven in large part by a 25.3% decline in mortgage originations in Florida. Florida marketplace conditions published on the ~~reconciliation~~website of ~~REIT~~the ~~taxable~~Florida ~~income~~Association toof ~~consolidated~~Realtors ~~GAAP~~indicated ~~net~~a ~~loss~~26.5% ~~for~~decrease in sales of existing homes, the ~~three~~largest ~~months~~component ~~ended~~of ~~March~~the purchase 31money market, ~~2005~~during ~~(dollars~~the first quarter of 2007 compared to the same period in ~~thousands):~~the prior year.

REIT taxable income (1)	$	10,687
Taxable loss of taxable REIT subsidiaries		(17,372	)
GAAP eliminations (2)		(4,381	)
Income tax benefit		3,508
Consolidated GAAP net loss (after-tax)	$	(7,558	)

Adjustable-rate originations experienced a decrease during the first quarter of 2007 when compared to the same period in 2006, while fixed-rate originations experienced an increase as the flattening of the yield curve has led customers to fix their interest rates over longer periods given the narrowing difference between short- and long-term interest rates.

~~(1)~~The Weincreasing ~~define~~productivity ~~REIT~~and ~~taxable~~proportion ~~income~~of topurchase bemoney ~~REIT~~and ~~taxable~~total ~~income~~originations represented ~~calculated~~by ~~under~~our ~~the~~SMAs ~~Internal~~are ~~Revenue Code of 1986, as amended (~~the ~~“Code”)~~result ~~for purposes~~ of ~~the~~active ~~REIT~~account ~~distribution~~portfolio ~~requirement~~management. As Aaging ~~REIT~~accounts ~~is required to distribute 90% of REIT taxable income~~expire, ~~which,~~alliance inpartnerships ~~general,~~are ~~includes~~reevaluated ~~all~~based ~~dividends~~upon ~~received~~productivity ~~from TRSs (generally calculated without regard to the dividends paid deduction for distributions paid to REIT shareholders,~~ and ~~earnings~~growth ~~retained~~potential. byIn ~~TRSs)~~addition, ~~plus~~we ~~90%~~have ofrenegotiated ~~net~~certain ~~after-tax~~existing accounts ~~income~~at ~~from~~more ~~foreclosure~~favorable ~~property~~rates. ~~REIT~~Our ~~taxable~~intent ~~income~~in ismanaging ~~a non-GAAP financial measure. Because of the REIT tax requirements on distributions, management believes that REIT taxable income is an additional meaningful measure to evaluate~~ our ~~operating~~SMA ~~performance.~~alliance ~~The~~partnerships ~~most comparable GAAP measure~~ is ~~net income (loss). REIT taxable income should not be considered as a substitute for any measures derived in accordance with GAAP and may not be comparable~~ to ~~other~~reduce ~~similarly~~the ~~titled~~overall ~~measures~~cost of ~~other~~SMAs ~~companies.~~without ~~HomeBanc~~diminishing ~~Corp. uses REIT taxable income as~~ the ~~basis~~origination ~~for~~opportunities ~~establishing~~these ~~the~~relationships ~~amount of dividends payable to holders of its common stock~~present.

~~(2)~~30 Consists primarily of intercompany gains on sale of loans from taxable REIT subsidiaries to HomeBanc Corp. excluded from income under Statement of Financial Accounting Standards (“SFAS”) No. 65, as amended.

Net (Loss) Income


	For the Three Months Ended March 31,					$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
	2007			2006		$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
	(Dollars in thousands)
Net (loss) income	$	(22,571	)	$	1,256	$	(23,827	)	(1897.1	)%

The net loss realized in the current period compared to net income realized in the year-earlier period was attributable to a $23.0 million decrease in net interest income as we continued to experience downward pressure on our net interest margin along with the impact of certain derivative financial instruments, a $6.0 million increase in salaries and associate benefits expense primarily due to one-time severance charges, which are primarily associated with the departures of Patrick S. Flood and Dr. Paul Lopez, a $4.6 million decrease in the income tax benefit and a $3.3 million decrease in net gain on sale of mortgage loans. The impact of these decreases was offset by a $12.5 million gain on sale of MBS and a $2.6 million reduction in marketing and promotions expense.

Revenues

Revenue Components	For the Three Months Ended March 31, 2004				For the Three Months Ended March 31, 2005				$ Change				% Change
	For the Three Months Ended March 31,						$ Change Favorable/ (Unfavorable)				% Change Favorable/ (Unfavorable)
	(Dollars in thousands)
Revenue Component	2007			2006
Net gain on sale of mortgage loans	$	11,460			$	8,583			$	(2,877	)		(25.1	)%
	(Dollars in thousands)
Net interest income	$	~~859~~5,928		$	28,878	~~11,635~~	$	(22,950	)	~~10,776~~	(79.5	)%	~~1254.5~~
Provision for loan losses		(208	)			(528	)			(320	)		(153.8	)
Less: provision for loan losses		341			39			(302	)		(774.4	)
Other revenue		475				1,064				589			124.0
Net gain on sale of mortgage loans		3,793			7,051			(3,258	)		(46.2	)
Total revenues	$	12,586			$	20,754			$	8,168			64.9
Net gain on sale of securities available for sale		12,474			—			12,474			N/A
Mortgage servicing income, net		663			960			(297	)		(30.9	)
Other revenue		1,610			1,622			(12	)		(0.7	)
Total revenues	$	24,127		$	38,472		$	(14,345	)		(37.3	)%

The overall ~~increase~~decrease in revenues during the first quarter of ~~2005~~2007, compared with the first quarter of ~~2004~~2006, was ~~directly~~ attributable to a substantial ~~growth~~reduction in net interest income, resulting from the ~~accumulation~~decrease in the average balance of ~~mortgage~~our loans held for investment inportfolio ~~accordance~~along with the ~~adjustable-rate~~ ~~mortgage~~adverse ~~loan~~impact ~~retention strategy implemented during the first quarter~~ of ~~2004.~~certain ~~Net~~derivative ~~interest~~instruments, ~~income~~and ~~will~~a ~~continue~~reduction ~~to increase~~ in ~~the~~net gain ~~future~~on assale ~~the~~of ~~Company experiences growth in~~ mortgage loans. ~~held~~The ~~for~~revenue ~~investment.~~decreases Awere ~~significant increase~~offset in ~~net~~part ~~interest~~by ~~income~~gains ~~was~~recognized ~~slightly~~on ~~offset~~the bysale aof ~~decrease~~substantially inall ~~net~~of ~~gain~~our onsecurities ~~sale~~available offor ~~mortgage loans~~sale.

Net Gain on Sale of Mortgage Loans

The decrease in gain on sale of mortgage loans was the direct result of a decrease in sales volume from $727.0 million during the first quarter of 2004 to $481.7 million during the first quarter of 2005. We implemented our adjustable-rate mortgage loan retention strategy during February 2004. As a result, gains were recognized during the first quarter of 2004 on the sale of certain loans taking place during the month of January that would have been retained as held for investment had the strategy been implemented at the inception of 2004. Gain on sale is presented net of the provision for contingent loss reserves of $0.7 million and $0.4 million for the first quarter of 2005 and 2004, respectively.

Net Interest Income

Net interest income for the three months ended March 31, ~~2005~~2007 ~~increased~~decreased ~~substantially~~ from the ~~first~~three months ~~quarter~~ended ofMarch 31, ~~2004~~2006 due to ~~growth~~the impact of certain derivative financial instruments and an overall decrease in the ~~loan~~ average balance of our loans held for investment portfolio asresulting afrom: ~~direct~~(1) our ~~result~~decision, at the beginning of 2006, to sell substantially all of the ~~adjustable-rate~~loans ~~mortgage~~we ~~loan~~originated ~~retention~~rather ~~strategy~~than ~~initiated~~transfer ~~during~~them ~~2004.~~to ~~The~~the ~~following~~investment ~~tables~~portfolio ~~summarize~~and (2) normal repayments, prepayments and curtailments on the ~~changes~~loans inheld ~~our~~for investment portfolio. We also experienced net interest margin ~~income~~compression as a result of the growth in the relative share of MBS as a component of the portfolio, ~~prior~~which togenerally ~~provision~~provide ~~for~~lower ~~loan~~net ~~losses~~interest margin than mortgage loans, ~~for~~the impact of the ~~three~~current ~~months~~interest ~~ended~~rate environment and various ~~March~~one-time ~~31,~~impacts ~~2005~~with ~~and~~respect ~~2004~~to ~~(dollars~~certain derivative financial instruments in ~~thousands):~~both periods.

~~Yields~~During the first quarter of 2007, we recorded significant ~~Earned~~derivative onlosses, ~~Mortgages~~which ~~Loans~~increased interest expense, compared to significant derivative gains that were recorded during the first quarter of 2006, which reduced interest expense. During the first quarter of 2007, we sold $1.3 billion of MBS and subsequently ~~Rates~~repaid onthe ~~Borrowings~~debt used to ~~Finance~~fund ~~Mortgage~~the ~~Loans~~purchase of the MBS. As a result, $7.0 million was recorded, consistent with our classification of the impact of derivative financial instruments in effective hedging relationships with debt instruments, as an increase to interest expense because the forecasted interest payments associated with the MBS funding that the Company previously assessed as being probable of occurring were deemed probable to not occur. During the first quarter of 2006, as a result of management’s change of intent with respect to the 2006-1 securitization and other anticipated securitizations, interest expense was reduced by $7.5 million representing the full terminated value of instruments initially designated in cash flow hedging relationships of the interest payments that would have occurred had this change of intent not taken place.

	Three Months Ended March 31, 2005
	Average Balance		Revenue/ Expense			Rate/ Yield		Estimated Annualized Rate/Yield
Mortgage loans	$	3,557,342	$	42,051		1.18	%	4.73	%
Borrowings to finance mortgage loans		3,408,495		(28,518	)	(0.84	)%	(3.35	)%
Impact of derivative financial instruments				(1,898	)	(0.06	)%	(0.22	)%
Net interest margin			$	11,635		0.33	%	1.31	%
Net interest income as a % of interest income						27.7	%
	Three Months Ended March 31, 2004
	Average Balance		Revenue/ Expense			Rate/ Yield		Estimated Annualized Rate/Yield
Mortgage loans	$	498,331	$	4,925		0.99	%	3.95	%
Borrowings to finance mortgage loans		487,386		(4,066	)	(0.83	)%	(3.34	)%
Net interest margin			$	859		0.17	%	0.69	%
Net interest income as a % of interest income						17.4	%

As discussed above, as a result of the change in the Company’s business strategy, the GAAP results of operations, including net interest income on loans held for investment, reflect the difference in treatment under GAAP accounting and tax accounting. For the three months ended March 31, 2005, REIT taxable net interest income was $13.6 million. The following table provides a reconciliation of REIT taxable net interest income to consolidated GAAP net interest income (dollars in thousands):

Loans held for investment net interest income	$	11,654
Intercompany interest between REIT and TRS		1,954
REIT taxable net interest income (1)		13,608
Intercompany interest between REIT and TRS		(1,954	)
Loans held for sale net interest income		(19	)
Consolidated GAAP net interest income	$	11,635

(1) REIT taxable net interest income is a non-GAAP financial measure. Management believes that REIT taxable net interest income is an additional meaningful measure to evaluate the Company’s operating performance. The most comparable GAAP measure is net interest income. REIT taxable net interest income should not be considered as a substitute for any measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. REIT taxable net interest income represents the largest revenue component to REIT taxable income, which HomeBanc Corp. uses as the basis for establishing the amount of dividends payable to holders of its common stock.

The table below summarizes the changes in our net interest income, prior to provision for loan losses:


	For the Three Months Ended March 31,
	2007							2006
	Average Balance		Revenue/ Expense			Rate/ Yield		Average Balance		Revenue/ Expense			Rate/ Yield
	(Dollars in thousands)
Mortgage loans	$	4,844,640	$	73,305		6.05	%	$	5,748,747	$	85,027		6.00	%
MBS		1,115,893		16,597		5.95			397,202		5,359		5.47

Total interest income		5,960,533		89,902		6.03			6,145,949		90,386		5.96
Borrowings to finance mortgage loans		4,715,976		(66,554	)	(5.64	)		5,556,639		(69,403	)	(5.00	)
MBS repurchase agreements		1,088,496		(14,441	)	(5.31	)		331,833		(3,862	)	(4.72	)
Impact of derivative financial instruments				925		0.06					12,832		0.88

Loan/MBS funding		5,804,472		(80,070	)	(5.52	)		5,888,472		(60,433	)	(4.11	)
Obligations for trust preferred securities		175,260		(3,904	)	(8.91	)		51,547		(1,075	)	(8.46	)

Total interest expense	$	5,979,732		(83,974	)	(5.62	)	$	5,940,019		(61,508	)	(4.16	)

Net interest margin			$	5,928		0.40	%			$	28,878		1.91	%

Net Gain on Sale of Mortgage Loans

The following table presents sales volume and related gain on sale information with respect to loans sold:


	For the Three Months Ended March 31,
	2007		2006		$ Change			% Change
	(Dollars in thousands)
Gain on sale	$	3,793	$	7,051	$	(3,258	)	(46.2	)%

Sales volume		1,096,611		942,146		154,465		16.4

Gain on sale of mortgage loans held for sale was 35 bps on sales volume during the first three months of 2007, compared to 75 bps on sales volume during the first three months of 2006. The decrease in gain on sale relative to the amount of loans sold was primarily the result of market pressure upon pricing. It was also impacted by an increase in the amount of “scratch and dent” loans that were sold at a loss. During the first quarter of 2007, we sold $7.9 million of scratch and dent loans at a $1.8 million loss, compared to $8.1 million of scratch and dent loans sold during the first three months of 2006 at a $0.6 million loss. During the first quarter of 2007, we also sold $21.6 million in other mortgage loans on which we realized a loss of $2.3 million. These loans included second-lien and stated-income loans, loans with minor documentation defects and loans with minor borrower delinquencies. The discount on loans was exacerbated by market conditions prevailing during the period, and, in management’s view, discounts on similar loans in prior periods have been minimal. Also contributing to the decrease in gain on sale of mortgage loans is the decrease in the amount of gains on derivative financial instruments realized, from $2.2 million during the first three months of 2006, most of which related to the 2006-1 securitization, to $0.4 million during the first three months of 2007. The decrease in gain on sale of mortgage loans was somewhat diminished by a lower standard cost estimate under SFAS No. 91, Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, assigned to loans when compared to the year-earlier period, as well as a $0.5 million decrease in the provision for estimated losses on repurchased and indemnified loans. Gain on sale during the first quarter of 2007 included $1.1 million associated with the securitization facilitated by HomeBanc Mortgage Trust 2007-1 while gain on sale during the first quarter of 2006 included $1.3 million associated with the securitization facilitated by HomeBanc Mortgage Trust 2006-1.

Provision for Loan Losses

~~The~~Loans ~~provision~~90 ~~for~~days ~~loan~~or ~~losses~~more ~~has~~past ~~grown~~due asincreased during the ~~underlying~~first ~~portfolio~~three months of ~~loans~~2007 ~~held~~from ~~for~~$38.4 ~~investment~~million, ~~has~~or ~~grown~~0.88% ~~The~~of ~~Company only began retaining loans for investment during~~ the ~~first~~$4.4 ~~quarter~~billion ofloan ~~2004 and~~balance, ~~therefore~~at December 31, ~~has~~2006 ~~not~~to $42.5 ~~yet~~million, ~~seen~~or ~~any~~1.02% ~~significant~~of ~~charge-off~~the ~~activity~~$4.2 orbillion ~~noticeable~~loan ~~deterioration~~balance, inat ~~credit~~March 31, ~~quality~~2007. ~~Loans~~Charge-offs 90were ~~days~~$0.8 ~~past~~million ~~due increased only slightly~~ during the ~~first~~three ~~quarter~~months ofended ~~2005 from $3.9 million at December~~ March 31, ~~2004~~2007, compared to $4.0.1 million atduring ~~March~~the ~~31,~~year-earlier ~~2005~~period. Management periodically evaluates the factors affecting the risk of loss in the portfolio and records additional provision for loan losses, as necessary, to maintain the adequacy of the ~~allowance~~Allowance. We view the increases in loans past due 90 days or more and charge-offs as primarily being attributable to the seasoning of the mortgage loans held for ~~loan~~investment ~~losses~~portfolio.

Net Gain on Sale of Securities Available for Sale

During the first quarter of 2007, we sold $1.2 billion of securities available for sale at a gain of $12.5 million. No sales of investment securities occurred in the year-earlier period. As previously discussed, we recorded a $7.0 million loss in net interest income related to losses on derivative financial instruments previously designated in cash flow hedges of the interest expense payments that would have occurred had the MBS not been sold in the current quarter.

Mortgage Servicing Income

The decrease in mortgage servicing income resulted from a $1.5 million increase in write-downs to fair value of MSRs during the first quarter of 2007, compared to the first quarter of 2006, due largely to a substantial increase in the balance of this asset, which decays in value over time. The negative impact of MSR activity during the three months ended March 31, 2007 was offset by an increase of $1.2 million of servicing income due to growth in the principal balance of loans serviced. The average principal balance of loans serviced for others increased significantly from $1.2 billion during the three months ended March 31, 2006 to $4.0 billion during the three months ended March 31, 2007. Our servicing portfolio has grown as a result of selling a larger portion of the adjustable-rate prime mortgage loans that we originate to third parties on a servicing retained basis.

Other Revenue


	For the Three Months Ended March 31,				$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
Other Revenue Component	2007		2006		$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
	(Dollars in thousands)
HomeBanc Title Partners	$	597	$	879	$	(282	)	(32.1	)%
Mortgage insurance captives		502		432		70		16.2
Change in fair value of trading securities		315		—		315		N/A
Other		196		311		(115	)	(37.0	)

Total other revenue	$	1,610	$	1,622	$	(12	)	(0.7	)%

Overall, other revenue decreased slightly during the three months ended March 31, 2007, compared to the year earlier period. The single largest decrease relates to revenue recognized by HomeBanc Title Partners, which is directly associated with mortgage loan origination volume generated in Florida as this is the only state in which the company is licensed to do business. Originations in the state of Florida decreased from $626.9 million during the first quarter of 2006 to $473.3 million during the first quarter of 2007. The decrease in other revenue was offset by $0.3 million of mark-to-market gains on trading securities, which resulted from the significant increase in trading security activity since the first quarter of 2006.

Expenses

Expense Components	For the Three Months Ended March 31, 2004		For the Three Months Ended March 31, 2005		$ Change			% Change
	For the Three Months Ended March 31,				$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
Expense Component	2007		2006
	(Dollars in thousands)
Salaries and associate benefits, net	$	1024,~~116~~810	$	1518,~~055~~823	$	4(5,~~939~~987	)	48(31.8	)%
Marketing and promotions		4,~~944~~022		6,~~354~~602		12,~~410~~580		2839.51
Occupancy and equipment expense		8,910		3,805		(5,105	)	(57.3	)
Occupancy and equipment		4,085		4,147		62		1.5
Depreciation and amortization		12,~~266~~044		12,~~873~~233		~~607~~189		478.95
Interest expense, other		378		—		(378	)	NA
Minority interest		61		52		(9	)	(17.3	)
Minority interest		24		25		1		4.2
Other operating expense		7,728		6,325		(1,403	)	(22.2	)
Other operating expense		2,879		4,708		1,829		63.5
Total expenses	$	42,750	$	38,182	$	(4,568	)	(12.0	)%
Total expenses	$	28,517	$	31,820	$	3,303		11.6

The ~~growth~~increase in expenses ~~was~~is ~~due~~attributable to ~~increases~~ an increase in salaries and associate benefits expense, ~~marketing~~resulting ~~and~~from one-time ~~promotions~~charges ~~and~~associated ~~other~~with ~~operating~~ expense. ~~The~~reduction ~~impact~~efforts. ofThis ~~these~~increase ~~increases~~ was ~~somewhat~~partially ~~mitigated~~offset by a decrease in ~~occupancy~~marketing and ~~equipment~~promotions expense., ~~See~~as ~~descriptions~~described below ~~for further explanations regarding these fluctuations~~.

Salaries and Associate Benefits, Net

~~Total~~Overall, ~~associates~~salaries ~~increased~~and ~~from~~associate ~~1,221,~~benefits ~~including~~expense ~~471~~increased ~~commissioned sales~~during ~~associates,~~the atfirst ~~March~~three ~~31,~~months ~~2004~~of ~~to 1~~2007,~~296,~~ ~~including~~compared ~~468~~to ~~commissioned~~the ~~sales~~year-earlier ~~associates~~period, atprimarily ~~March~~due ~~31,~~to ~~2005~~one-time ~~resulting~~charges inof a $1.8.1 million ~~increase~~that inwere ~~salaries~~incurred during 2007 as ~~additional~~a ~~associates~~result ~~were~~of ~~needed~~our efforts to ~~support~~reduce ~~our~~expenses ~~continued growth~~ and ~~meet~~better position the ~~requirements~~ ofCompany ~~becoming~~to acompete ~~public~~in ~~company.~~the ~~Expenses~~current ofmortgage $0environment.6 ~~million~~These ~~relating~~one-time tocharges ~~stock-based~~resulted ~~compensation,~~from ~~including~~the ~~stock~~departures ~~appreciation~~of ~~rights~~Mr. Flood and ~~restricted~~Dr. Lopez ~~stock~~from ~~units,~~HomeBanc ~~were~~and ~~recorded in~~ the ~~three-month~~elimination of ~~period~~certain ~~ended~~jobs ~~March~~in ~~31,~~association ~~2005.~~with ~~Commissions~~the ~~and bonus~~restructuring ~~expense~~of ~~also~~our ~~increased~~sales ~~by $0.8 million~~ and ~~$1.2~~production ~~million,~~operations ~~respectively~~organizations, aswhich aare ~~result~~further ofdiscussed ~~the 10% increase~~ in ~~loan~~“Industry ~~origination~~and ~~volume~~Management ~~and~~Outlook ~~enhancements~~– ~~made~~Expense toReductions” ~~the~~of ~~commission~~Management’s ~~structure~~Discussion and asAnalysis ~~well~~of asFinancial ~~rewards~~Condition ~~extended~~and toResults ~~associates~~of ~~for~~Operations, ~~meeting~~contained ~~certain corporate~~within ~~objectives~~this Report.

As a result of these expense reduction efforts as well as expense reduction efforts that took place during 2006, the overall increase in salaries and associate benefits expense was offset by a decrease of $2.0 million of general and administrative (“G&A”)-related expense as the G&A headcount decreased from 708 associates at December 31, 2006 to 639 associates at March 31, 2007. We also experienced a $0.3 million decrease in compensation, excluding commissions, within our sales organization due to reduced headcount, a $0.4 million decrease in other associate benefits, a $0.3 million decrease in contractual labor and a $0.2 million decrease in deferred compensation expense. The decrease in salaries and associate benefits expense was offset by a $1.7 million decrease in loan costs deferred under SFAS No. 91, which reduces salaries and associate benefits expense. The decrease in the net loan costs deferred resulted from decreased loan origination volume during the first quarter of 2007.

Marketing and Promotions

~~The~~Marketing ~~increase in marketing~~ and promotions expense ~~was the result of the continued expansion~~ ofdecreased ~~our~~from ~~strategic marketing alliances with realtors and homebuilders. Our contractual marketing payments to~~ the ~~realtors and builders with whom we have strategic marketing alliances increased to $4.4 million for the three~~year-~~month~~earlier period ~~ended~~as ~~March 31, 2005 from $3.3 million during~~ the ~~same~~single ~~period~~largest incomponent, ~~2004.~~expenses ~~Although~~related ~~these alliances require equal payment amounts over a period of time up~~ to ~~three years~~SMAs, wedecreased ~~expect~~by ~~that a significant portion of the benefits, in the form of higher mortgage loan origination volume, will occur during the latter part of the alliance arrangements~~$1.4 ~~These strategic marketing alliances accounted for 38~~million.6% ~~and 28.9% of purchase and total mortgage loan production volume~~Additionally, ~~respectively,~~advertising ~~for~~expense ~~the~~decreased ~~three~~by ~~months ended March 31, 2005, compared with 31~~$0.~~7% and 23.~~5%, ~~respectively,~~million ~~during~~as ~~the~~a ~~three~~result ~~months~~of ~~ended~~our ~~March~~expense ~~31,~~reduction ~~2004~~efforts. ~~Loan application volume also increased from $1.75 billion during the three months ended March 31, 2004 to $1.95 billion during the three months ended March 31, 2005.~~

23Details regarding the number of SMA relationships and the proportion of purchase money and total origination volume that they represent are presented below:


	2007		2006
Strategic marketing alliances at March 31,:
Realtor marketing alliances	96		112
Builder services alliances	43		106
Strategic marketing alliance originations for the three months ended March 31,:
Percentage of purchase money originations	51.4	%	48.8	%
Percentage of total originations	39.4		37.4

The increase in the productivity and proportion of purchase money and total originations represented by our SMAs are the result of active account portfolio management. As aging accounts expire, alliance partnerships are reevaluated and renewed based upon productivity and growth potential. In addition, we have renegotiated certain existing accounts at more favorable rates. Our intent in managing our SMA alliance partnerships is to reduce the overall cost of SMAs without diminishing the origination opportunities these relationships present.

Occupancy and Equipment Expense

The decrease in occupancy expenses was due to recognition during the first quarter of 2004 of a one-time, non-cash charge of approximately $5.5 million related to termination costs associated with a formerly leased facility abandoned upon relocation of our corporate headquarters to a new leased facility.

Other Operating Expense

The increase in other operating expenses was the result of a $0.5 million increase in software licensing and maintenance fees associated with certain initiatives along with an increase in audit, tax and consulting fees of $0.9 million as a result of becoming a public company and other less significant changes in other operating expense items.


	For the Three Months Ended March 31,				$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
Other Operating Expense Component	2007		2006		$ Change Favorable/ (Unfavorable)			% Change Favorable/ (Unfavorable)
	(Dollars in thousands)
Audit/Tax/Legal	$	2,565	$	1,408	$	(1,157	)	(82.2	)%
Consulting		262		355		93		26.2
Recruiting		84		273		189		69.2
Information systems maintenance		418		322		(96	)	(29.8	)
Business insurance		399		313		(86	)	(27.5	)
Business travel		323		652		329		50.5
Lender paid mortgage insurance		1,349		794		(555	)	(69.9	)
Outsourcing		1,405		907		(498	)	(54.9	)
Other		923		1,301		378		29.1

Total other operating expense	$	7,728	$	6,325	$	(1,403	)	(22.2	)%

The overall increase in other operating expense during the quarter ended March 31, 2007, compared to the year-earlier period, was primarily the result of a $0.6 million increase in premiums incurred in connection with a loan product introduced during the third quarter of 2005 that includes lender paid private mortgage insurance (“PMI”) on the amount of the loan in excess of 80% of the appraised value of the property. We expect over time that loans with lender paid PMI to substantially replace second-lien mortgage loan originations and that they will change with fluctuations in loan origination volume. We also recognized one-time charges of $0.4 million related to legal and accounting expenses associated with our consideration of strategic alternatives, including, without limitation, a change in our operating model. In addition, we recorded $1.6 million in litigation costs. The increase in other operating expenses was offset by a decrease in business travel expenses and other operating expenses as a result of our efforts to reduce expenses throughout the Company.

Income Taxes

Income tax ~~benefit~~expense for the three months ended March 31, ~~2005~~2007 was $3.59 million, compared to ana ~~income~~net ~~tax~~ benefit of $60.85 million, which includes $0.2 million in income tax expense related to the cumulative effect of change in accounting principle adjustment, for the same period in the prior year, reflecting effective tax rates of (3121.72)% and (4271.98)%, respectively. The effective tax rates are computed based on consolidated income or loss before income taxes, including the results of both HomeBanc Corp. and HBMC, which, as is more fully discussed below, are generally treated differently for income tax purposes. The change in the effective rate is due to the following:

• Aa ~~change~~decrease in ~~the mix of~~ non-taxable income as aestimated ~~result of HomeBanc Corp.’s election to be taxed as a~~ REIT ~~for the~~ taxable ~~year ended December 31, 2004. REIT taxable~~ income was $105.79 million in the first quarter of ~~2005.~~2007, ~~There~~compared ~~was~~to no$21.2 ~~corresponding~~million ~~amount~~in ~~for~~ the first quarter of ~~2004~~2006;

• Aa ~~valuation~~taxable ~~allowance~~loss inof approximately $37.2 million realized by HBMC during the first quarter of ~~2005~~2007, ofcompared to $418.56 million. ~~There~~in ~~was~~taxable noloss ~~corresponding~~realized ~~amount~~in ~~for~~ the first quarter of ~~2004~~2006; and

• ~~Taxable~~an ~~income~~addition ~~realized~~of by$14.4 ~~HBMC~~million recorded to the deferred tax asset valuation allowance during the first quarter of ~~2005~~2007, ~~which~~compared ~~includes~~to ~~gain~~a on$0.1 ~~sale~~million release of ~~loans~~the ~~sold~~deferred bytax ~~HBMC~~asset tovaluation ~~HomeBanc~~allowance ~~Corp~~during the first quarter of 2006.

AsHomeBanc ~~long~~Corp. asgenerally itdoes ~~maintains~~not ~~its~~pay ~~qualification~~any asincome ataxes ~~REIT,~~as ~~HomeBanc~~long as ~~Corp.~~it ~~generally~~continues ~~will~~to ~~not~~meet ~~be subject~~the criteria to ~~federal~~be ~~income~~a ~~tax on~~ REIT, ~~taxable~~including ~~income~~the ~~that~~distribution itof ~~distributes~~90% toof its ~~shareholders~~taxable income. ~~HBMC,~~Our asprimary aoperating ~~separate~~subsidiary, ~~income~~HBMC, ~~tax~~is ~~filer and~~ a TRS of HomeBanc Corp. As such, HBMC must record income tax expense or ~~benefit~~benefits based on its stand-alone earnings or losses., Asand ~~noted above,~~must ~~from~~file ~~time~~a toseparate ~~time,~~income tax return. HBMC sometimes sells and transfers mortgage loans to ~~the portfolio of loans held by~~ HomeBanc Corp. ~~for investment.~~ For ~~purposes of~~ GAAP purposes, no gain on sale is recognized on these mortgage loans sold and transferred ~~by HBMC~~ to ~~HomeBanc~~ ~~Corp.~~HomeBanc’s investment portfolio. However, for income tax purposes, mortgage loans sold and transferred to HomeBanc ~~Corp.’s portfolio~~ are transferred at their fair ~~value~~values, resulting in ~~HBMC realizing~~ a taxable gain or loss on sale to HBMC. The amortization of these gains or losses in subsequent periods also impact HomeBanc Corp.’s income for income tax purposes, but they are ignored for GAAP purposes.

During the three months ended March 31, 2007, the Company recorded $14.4 million in valuation allowance. As our taxable loss has increased, and the potential income from our tax strategies has decreased due to a decrease in the assets available to deploy into those strategies, our ability to recognize additional tax benefit has decreased, resulting in the need for a higher valuation allowance.

Business Segment Review

The following table displays results for our two segments for the three months ended March 31,:


	2007
	Mortgage Investment Operations		Mortgage Banking Operations			Intersegment Eliminations			Consolidated Totals
	(Dollars in thousands)
Net interest income	$	2,880	$	3,048		$	—		$	5,928
Provision for loan losses		341		—			—			341
Noninterest revenue		11,358		7,182			—			18,540
Noninterest expense		5,815		36,935			—			42,750

Income (loss) before income taxes	$	8,082	$	(26,705	)	$	—		$	(18,623	)

Average segment assets	$	6,010,300	$	794,400		$	(562,105	)	$	6,242,595


	2006
	Mortgage Investment Operations			Mortgage Banking Operations			Intersegment Eliminations			Consolidated Totals
	(Dollars in thousands)
Net interest income	$	29,593		$	2,505		$	(3,220	)	$	28,878
Provision for loan losses		39			—			—			39
Noninterest revenue		(1,173	)		10,806			—			9,633
Noninterest expense		2,473			38,929			(3,220	)		38,182

Income (loss) before income taxes	$	25,908		$	(25,618	)	$	—		$	290

Average segment assets	$	6,440,990		$	539,399		$	(448,004	)	$	6,532,385

Mortgage Investment Operations

The mortgage investment operations segment represents activities conducted at HomeBanc Corp. These activities historically have centered around generating net interest income through a portfolio of mortgage loans held for investment and MBS funded predominantly with CDOs and repurchase agreements, respectively.

Net Interest Income. Net interest income decreased during the quarter ended March 31, 2007 when compared with the year-earlier period. A significant driver of the decline was the one-time effect of certain derivative financial instruments during both the current period and the year-earlier period. During the first quarter of 2007, we sold $1.3 billion of MBS and subsequently repaid the debt used to purchase the MBS. As a result, $7.0 million was recorded, consistent with our classification of the impact of derivative financial instruments in effective hedging relationships with debt instruments, as an increase to interest expense because the forecasted interest payments associated with the MBS funding that we previously assessed as being probable of occurring were deemed probable to not occur. In contrast, during the first quarter of 2006, as a result of management’s change of intent with respect to the 2006-1 securitization and other anticipated securitizations, interest expense was reduced by $7.5 million representing the full terminated value of instruments initially designated in cash flow hedging relationships of the interest payments that would have occurred had this change of intent not taken place. Net interest income was also significantly impacted by net interest margin compression resulting from growth in the relative share of MBS in the portfolio and the flattened yield curve.

Provision for Loan Losses. The provision for loan losses increased from the first quarter of 2006 to the first quarter of 2007 as a result of increased delinquencies and net charge-offs. The provision recognized during both quarters was impacted by certain changes made to the Allowance methodology during the quarters preceding them.

Noninterest Revenue. Noninterest revenue increased significantly from period to period because of the gain of $12.5 million realized on the sale of substantially all of our securities available for sale.

Noninterest Expense. Noninterest expense increased in the current quarter when compared with the year-ealier period as a result of one-time charges during the quarter, including $2.7 million related to severance for our former CEO. We also recognized one-time charges of $0.4 million related to legal and accounting expenses associated with our consideration of various strategic alternatives, including potential changes in our operating model.

Mortgage Banking Operations

The mortgage banking operations segment represents activities conducted at HBMC. These activities historically have centered around origination of loans and the subsequent generation of gain on sale of these mortgage loans by originating loans in our store locations and realtor store-in-store locations for sale in addition to servicing loans for others.

Net Interest Income. Net interest income increased from period to period largely as the result of an increasing average balance of mortgage loans held for sale.

Noninterest Revenue. The main driver of the decline in noninterest revenue from quarter to quarter was the decrease in gain on sale of mortgage loans of $3.3 million. Marketplace conditions resulted in diminished execution as total gains decreased in spite of the fact that sales volume actually increased from $942.1 million during the first quarter of 2006 to $1.1 billion during the first quarter of 2007. Segment results do not reflect any gains on the transfer of loans from the mortgage banking segment to the mortgage investment segment.

Noninterest Expense. The noninterest expense during the first quarter of 2007 included one-time charges amounting to $5.7 million related to severance for Mr. Flood and Dr. Lopez, the restructuring of our sales management organization, the streamlining of production operation activities and the consolidation of rented facilities. In addition, we recorded $1.6 million in litigation costs. Noninterest expense was also impacted by a $3.2 million decline in intercompany interest expense as HomeBanc Corp. contributed capital to HBMC by forgiving intercompany debt on January 1, 2007, a $2.6 million decrease in marketing and promotions due largely to reduced SMA expenditures and advertising, and a $2.4 million decrease in salaries as a result of efforts to reduce compensation among G&A associates and within our sales management infrastructure.

Effects of Inflation

There have been no material changes from the effects of inflation ~~disclosures~~discussed ~~contained~~in ~~within~~our ~~the Company’s~~ Annual Report on Form 10-K for the year ended December 31, ~~2004~~2006. See Quantitative and Qualitative Disclosures About Market Risk-Interest Rate Risk. In general, short-tem interest rates remained stable during the quarter while mid- and long-term rates revolved around the ten year point with mid-term rates moving modestly lower and long-term rates moving slightly higher since December 31, 2006.

Cyclicality and Seasonality

The mortgage banking industry is cyclical and seasonal in nature. Mortgage loan production generally is greatest when interest rates are low, and declines as rates increase. Seasonal trends in purchase money mortgage originations reflect the pattern of home sales in the national housing market. Home sales typically rise during the spring and summer seasons and decline during the fall and winter seasons. The effect of this seasonality ismay be muted to the extent of mortgage refinancing activity, which is primarily driven by prevailing mortgage rates, and ismay be less in the Southeast due to more temperate winter weather than in other parts of the country. In addition, mortgage delinquency rates typically rise temporarily in the winter months driven by mortgagor payment patterns. Our purchase money mortgage loan origination volumes and revenues typically are lowest in the first and fourth calendar quarters, and highest in the second and third calendar quarters. Based on MBA projections as of April 23, 2007, mortgage originations in 2007 are expected to be 9.1% less than in 2006.

Contractual Obligations and Off Balance Sheet Arrangements

Interest rate lock commitments (“IRLCs”) are agreements to lend at specified interest rates for loans we intend to sell to third parties. Since many commitments to extend credit may expire without being drawn upon, total commitment amounts do not necessarily represent future cash flow requirements. ~~The~~We ~~Company~~ had $~~125~~422.67 million of outstanding IRLCs at March 31, ~~2005~~2007.

24On March 30, 2007, we completed a loan securitization treated as a sale, through the issuance by HomeBanc Mortgage Trust 2007-1, of approximately $296.8 million of certificates representing an interest in one pool of conventional, first-lien, adjustable-rate residential mortgage loans and one pool of conventional, second-lien, fixed- and adjustable-rate residential mortgage loans originated by HBMC. Additional information regarding this transaction is included in Note 13, “Securitizations,” to the condensed consolidated financial statements.

We have various contractual commitments and financial obligations that require future cash payments. The following table outlines the timing of payment requirements related to our commitments as of March 31, ~~2005~~2007 (dollars in thousands):

	Payments Due by Period
Contractual Obligations	Payments Due by Period
Contractual Obligations	Total		2005		2006-2007		2008-2009		Thereafter
	Total		2007		2008-2009		2010-2011		Thereafter
Financing arrangements (1)	$	721,926	$	721,926	$	—	$	—	$	—
Financing arrangements(1)	$	1,013,153	$	837,893	$	—	$	—	$	175,260
Operating leases (2)		72,711		7,698		21,478		17,907		25,628
Operating leases(2)		55,624		8,409		19,410		14,863		12,942
Employment agreements		54,~~020~~147		1,~~520~~847		2,~~025~~300		~~1,475~~—		—
Contractual marketing (3)		30,058		12,424		14,588		3,046		—
Contractual marketing(3)		20,986		7,744		10,041		3,201		—
Total	$	~~829~~1,~~715~~093,910	$	~~743~~855,~~568~~893	$	3831,~~091~~751	$	2218,~~428~~064	$	25188,~~628~~202

(1) Obligations for financing arrangements solely represent principal payments due under existing borrowing agreements and do not include the related future interest payments. Excluded from financing arrangements are $34.01 billion in ~~collateralized~~CDOs ~~debt obligations~~ issued in association with our securitization transactions. These securitizations are accounted for as secured borrowings with debt issuance directly financing loans held for investment. The ~~financing~~CDOs will be ~~paid~~repaid ~~down~~ as cash is received from borrowers, in the form of ~~both~~ scheduled payments, prepayments and ~~prepayments~~curtailments, on the underlying loan balances.

(2) Included in operating leases are leases for corporate office facilities and ~~branches~~stores. We entered into a lease of a new corporate facility at 2002 Summit Boulevard, Atlanta, Georgia in December 2003 to consolidate our Atlanta operations. Additionally, we are still liable for vacated office facilities located at 5775 Glenridge Drive, Atlanta, Georgia until March 2007. The annual rent for our former facility is currently $1.5 million. The landlord of our new corporate facility is contractually obligated to reimburse us for the amount of rent we are obligated to pay for the vacated facility, which facility is currently being marketed for sublease.

(3) Contractual marketing obligations represent costs associated with our ~~strategic marketing alliances~~SMAs.

Liquidity and Capital Resources

~~Similar~~Our tocore ~~many~~business ~~mortgage~~activities ~~REITs~~include, ~~following~~among ~~our~~other ~~reorganization~~things: and our election to be taxed as a REIT, we have increased and expect to continue to increase our returns by leveraging our equity through borrowings, including securitizations treated as debt for financial reporting and federal income tax purposes. We presently expect to seek a leverage ratio of 16 to 18 times the amount of our equity, although such levels will not be reached in the immediate term. We seek to match the maturities of our long-term borrowings to the maturities of our loans held for investment to reduce refinance risk and lessen the potential effects of changes in interest rates. The following discussion summarizes the financing methods that we use to take advantage of financing alternatives available to us.

~~Liquidity~~• ~~is a measure of our ability to meet potential cash requirements, including ongoing commitments to pay interest on and repay~~ the ~~principal~~origination ~~amounts of our borrowings, fund~~ and ~~maintain~~funding investments, make distributions to our shareholders and pay our general business expenses. We presently believe our current cash balances, funds available under our financing arrangements (as described below) and cash flows from operations, including proceeds from sales of ~~fixed-rate and adjustable-rate~~ mortgage loans, ~~will~~held bein ~~sufficient for~~ our ~~liquidity~~investment ~~requirements~~portfolio, ~~for the next 12 months. Our investments~~ and ~~assets~~our ~~also~~receipt ~~generate~~of ~~liquidity on an ongoing basis through mortgage~~ principal and interest payments, pre-payments and net earnings. Should our liquidity needs exceed these ongoing or immediate sources of liquidity, we believe that our mortgage loan portfolio could be sold to raise additional cash, subject to limitations on ~~such~~those sales needed to preserve our REIT status. We do, however, expect to continue the expansion that we have undertaken. From time to time, we may seek additional sources of capital through the issuance of debt or equity securities or by entering into new borrowing facilities. In the past, we have amended our credit facilities to permit additional leverage as we aggregated mortgage loans in anticipation of our initial public offering or securitization of mortgage loans. We currently have no commitments for any additional financings, and we cannot ensure that we will be able to access the capital markets or obtain any additional financing at the times required and on terms and conditions acceptable to us, if at all. If we fail to obtain needed additional financing, our growth would be slowed or suspended. ;

~~Warehouse~~• ~~Facilities~~the origination and funding of mortgage loans to be sold into the secondary market, and our receipt of the proceeds from those sales; and

We• ~~use~~servicing ~~a credit facility with third parties referred to as the “warehouse line” or “warehouse facility.” Under the warehouse line, HBMC borrows funds to originate new~~ mortgage loans~~, and in turn, pledges the mortgage loans to the warehouse lender as collateral~~. We maintain a syndicated warehouse facility led by JPMorgan Chase Bank, which at March 31, 2005 had $775.0 million committed and matures on June 7, 2005. As of March 31, 2005, the aggregate outstanding balance under the warehouse facility was $231.6 million, and the aggregate maximum amount available for additional borrowings was $543.4 million.

WeOur ~~were~~core business activities result in ~~compliance~~cash ~~with~~flows ~~all~~that ~~warehouse~~are ~~facility~~reported ~~financial~~in ~~covenants~~the condensed consolidated statement of cash flows in operating activities, as well as in investing activities and financing activities, consistent with the requirements of ~~March~~SFAS 31No. 95, Statement ~~2005~~of Cash Flows. As a result, we believe that a comparison of our distributions that may be required so long as we elect to be taxed as a REIT solely to our cash flows from operating activities would not provide readers with useful information regarding our liquidity position. Accordingly, we have made no such comparison in this Report.

~~Master~~Liquidity ~~Repurchase~~is ~~Agreements~~a measure of our ability to meet potential cash requirements, including ongoing commitments to pay interest on and repay the principal amounts of our borrowings, fund and maintain investments, make distributions to our shareholders and pay our general business expenses. We presently believe our current cash balances, funds available under our financing arrangements (as described below) and cash flows from operations, including proceeds from sales of fixed-rate and adjustable-rate mortgage loans and the net proceeds from the sale of our MBS, will be sufficient to support our liquidity requirements for the foreseeable future. Our investments and assets also generate liquidity on an ongoing basis through mortgage principal and interest payments, prepayments and net earnings. As we review and consider various strategic alternatives, including potential changes in our operating model, and as we implement our new business strategies, significant additional expenditures of cash likely will be required, perhaps in both the short- and long-term. From time to time, we may seek additional sources of capital through the issuance of debt or equity securities or by entering into new borrowing facilities.

~~HBMC~~In ~~also~~the ~~uses~~past, ~~repurchase~~we ~~agreements~~have amended our credit facilities from time to ~~finance~~time ato ~~portion~~permit ofadditional ~~the~~leverage as we aggregated mortgage loans ~~that~~in itanticipation ~~originates.~~of ~~Under~~our ~~these~~IPO ~~repurchase~~or ~~agreements,~~in anticipation ~~HBMC~~of ~~sells~~securitizations aof mortgage ~~loan~~loans. toWe ~~a counterparty~~currently have no commitments for any financings other than through our existing facilities, and ~~agrees~~we cannot assure you that we will be able to ~~repurchase~~access the ~~loan~~capital ~~from~~markets ~~the~~or ~~counterparty~~obtain any additional financing at athe ~~price~~times ~~equal~~required toand ~~the~~on ~~original~~terms ~~sale~~and ~~price~~conditions ~~plus~~acceptable anto ~~interest~~us, ~~factor~~if at all. ~~HBMC~~If ~~presently~~we ~~maintains~~fail ato ~~$150.0~~obtain ~~million~~needed ~~uncommitted~~additional ~~master~~financing, ~~repurchase~~our ~~agreement~~growth ~~with~~would ~~Merrill~~be ~~Lynch~~slowed ~~Mortgage Capital~~or ~~Inc~~suspended and/or we will be unable to pursue any such strategic alternatives. Additionally, ~~which~~in ~~expires~~the onevent ~~February~~our ~~24,~~cash ~~2006~~flows ~~upon~~from ~~being~~operating ~~amended~~activities, oninvesting ~~February~~activities 25and financing activities, ~~2005.~~exclusive Asof the impact of ~~March~~the 31payment of a dividend distribution, ~~2005~~are insufficient to pay a dividend distribution that we are required to make to maintain our status as a REIT, ~~the~~for ~~aggregate~~as ~~outstanding~~long ~~balance~~as ~~under~~we ~~the~~may ~~Merrill~~elect ~~Lynch~~to ~~repurchase~~do ~~facility~~so, ~~was~~then ~~$2.9~~our ~~million~~equity offerings, issuances of unsecured debt and the ~~aggregate~~sale ~~maximum~~of ~~amount available~~assets (including mortgage loans held for sale and held for investment) are additional sources ~~advances~~of ~~was~~cash ~~$147.1~~that ~~million~~we may use to make a particular dividend distribution.

2538

We were in compliance with all master repurchase agreement financial covenants as of March 31, 2005.

Fannie Mae As Soon As Pooled® Plus Program

In connection with the sale of conforming mortgage loans to Fannie Mae for cash or for their inclusion in a pool of mortgage-backed securities guaranteed by Fannie Mae, HBMC entered into an “As Soon As Pooled® Plus” agreement with Fannie Mae. The “As Soon As Pooled® Plus” agreement allows HBMC to receive cash from Fannie Mae in respect of the conforming mortgage loans up to 60 days in advance of the actual sale of these loans to Fannie Mae, allowing HBMC to pay down its borrowings under its warehouse facility. Much like HBMC’s repurchase facility, after a specified period of time, HBMC repurchases these mortgage loans from Fannie Mae for a premium, which equates to interest charged on the cash Fannie Mae advanced to HBMC. Unlike HBMC’s repurchase facility, HBMC does not then sell the loans to third-party investors, but instead sells them back to Fannie Mae immediately after they have been repurchased by HBMC. Before the conforming loans are sold for cash or pooled in mortgage-backed securities and, in the event of a decrease in the market value of the conforming loans, HBMC is subject to margin requirements which may require HBMC to transfer additional cash or mortgage loans to Fannie Mae in an amount equal to the amount of the decrease in market value.

Under the Fannie Mae agreement, HBMC may deliver to Fannie Mae individual mortgage loans against the transfer of funds to HBMC. Within 20 days of the loan’s closing, HBMC designates the loans for pooling or sale through Fannie Mae. This facility may be terminated by Fannie Mae at its discretion at any time. HBMC accounts for the cash payment it receives from Fannie Mae as a financing until HBMC has surrendered control over the loans to be delivered by it to Fannie Mae.

Loan Aggregation Facilities

HomeBanc Funding Corp. and Abetterwayhome Finance, LLC maintain a $500 million uncommitted master repurchase agreement with JPMorgan Chase Bank. As of March 31, 2005, the outstanding balance on this facility amounted to $358.2 million.

HomeBanc Funding Corp. II and Abetterwayhome Finance, LLC II maintain a similar $300 million uncommitted master repurchase agreement with Bear Stearns Mortgage Capital Corporation. As of March 31, 2005, the outstanding balance on this facility amounted to $121.6 million.

These facilities are used to purchase adjustable-rate mortgage loans from HBMC and to aggregate mortgage loans to be held for investment.

The Bear Stearns master repurchase agreement was amended on January 24, 2005, effective as of December 31, 2004, since we would not have met the GAAP net income covenant applicable at that date. The amendment requires us to have a consolidated GAAP net loss of no greater than $15 million for the quarter ending March 31, 2005, a consolidated GAAP net loss of no greater than $10 million for the quarter ending June 30, 2005, a consolidated GAAP net loss of no greater than $5 million for the quarter ending September 30, 2005, consolidated GAAP net income of no less than $1.00 for the quarter ending December 31, 2005 and consolidated GAAP net income of at least $2.00 for every two consecutive quarters thereafter.

We have expanded from time to time, and may continue to expand from time to time, our loan aggregation facilities on a temporary basis to facilitate securitizations and other financings. JPMorgan Chase Bank temporarily expanded its aggregation facility from $500 million to $600 million and extended the holding period for loans subject to such facility from 120 days to 180 days until the earlier of March 1, 2005 or the closing of our third securitized debt offering, which closed on February 23, 2005 at which time the terms of the facility reverted to the former limits.

We were in compliance with all aggregation facility financial covenants as of March 31, 2005.

Loan Securitizations

We ~~use~~have ~~mortgage~~completed ~~loan~~multiple securitizations ~~structured~~accounted ~~as debt~~ for ~~federal~~as ~~income~~collateralized ~~tax~~borrowings ~~and~~since ~~financial reporting~~July ~~purposes~~2004, asresulting ain ~~long-term~~the ~~primary~~issuance ~~means~~ of ~~financing~~approximately ~~and~~$6.3 ~~leveraging~~billion ~~our~~of ~~equity~~notes. ~~Our~~As ~~loan~~of ~~securitizations may be rated debt securities~~March 31, ~~or bonds~~2007, ~~secured~~the byoutstanding abalance ~~pool~~ of ~~mortgage~~our collateralized ~~loan~~borrowings ~~assets~~amounted ~~sold~~ to ~~HMB Acceptance Corp~~$4.,1 ~~a bankruptcy-remote vehicle wholly-owned by us, which then acts as depositor into the securitizations~~billion. ~~Securitization~~During ~~transactions are structured by determining cash flows from like-kind mortgage loan collateral and segmenting~~ the ~~cash~~first ~~flows~~quarter ~~into~~of ~~maturity~~2007, orwe ~~credit rated~~also ~~classes.~~completed ~~The~~a ~~principal~~securitization ~~securities~~treated ~~rating agencies, such~~ as ~~Standard~~a &sale ~~Poor’s~~under ~~Ratings~~SFAS ~~Services (“S&P”)~~No. 140, ~~Moody’s~~through ~~Investors~~the ~~Service~~issuance ~~(“Moody’s”)~~by ~~and/or~~HomeBanc ~~Fitch,~~Mortgage ~~Inc.~~Trust ~~(“Fitch”)~~2007-1 ~~provide~~of ~~ratings~~approximately on$296.8 ~~classes~~million of ~~these~~notes. ~~securitizations~~We ~~based~~expect onto acontinue ~~variety~~to ofuse ~~factors. The securities issued under~~ securitization ~~facilities~~transactions, ~~provide~~whether ~~liquidity~~structured ~~because~~as ~~they~~sales ~~can be bought~~ or ~~sold~~collateralized ~~quickly and cheaply~~borrowings, ~~versus~~as ~~sales~~a source of ~~entire~~liquidity ~~loan~~in ~~portfolios~~the future.

WeDebt ~~intend~~Facilities to continue to use our wholly-owned, bankruptcy-remote, single-purpose vehicles, HomeBanc Funding Corp. and HomeBanc Funding Corp. II, to aggregate mortgage loans pending securitization and for HMB Acceptance Corp. to act as depositor

26A summary of our outstanding debt facilities is as follows:


	As of March 31, 2007
Debt Facility	Maximum Borrowing Capacity			Outstanding Balance		Maturity Date	Changes Made to Debt Facility Since December 31, 2006 (1)
	(Dollars in thousands)
Warehouse Debt
Warehouse repurchase agreement led by JPMorgan Chase Bank (the “JPMorgan Warehouse Facility”)	$	500,000		$	406,596	October 30, 2007	On March 30, 2007, HomeBanc and HBMC entered into Amendment No. 1 to the JPMorgan Warehouse Facility, which changed certain financial covenants.

Repurchase line of credit with Liquid Funding, Ltd. (the “Liquid Funding Repurchase Agreement”)		150,000	⁽²⁾		—	March 27, 2008	On March 27, 2007, HomeBanc and HBMC entered into Amendment No. 3 to the Liquid Funding Repurchase Agreement, which extended the maturity date to March 27, 2008 from March 27, 2007.

As Soon As Pooled Plus^® line of credit with Fannie Mae		N/A			903	No maturity date.	None.

Loan and security agreement with JPMorgan Chase Bank (the “JPMorgan Loan Agreement”)		75,000			—	October 30, 2007	On April 9, 2007, HomeBanc and HBMC entered into Amendment No. 1 to the JPMorgan Loan Agreement, which clarified the security interest of the lender in collateral securing borrowings by HomeBanc and HBMC.

Repurchase line of credit with JPMorgan Chase Bank (the “2007 JPMorgan Repurchase Agreement”)	$	500,000		$	29,872	Terminable by either party, given a two- month notice	On January 23, 2007, HomeBanc and HBMC replaced the 2004 JPMorgan Repurchase Agreement with the 2007 JPMorgan Repurchase Agreement.


Total warehouse debt	$	1,225,000		$	437,371


Aggregation Facility Debt
Aggregation credit facility with Bear Stearns & Co. (the “Bear Stearns Repurchase Agreement”)		150,000	⁽²⁾		—	September 27, 2007	On January 22, 2007, HomeBanc and HBMC entered into Amendment No. 1 to the amended and restated Limited Guaranty of the Bear Stearns Repurchase Agreement, which amended and restated the negative covenants permitted to be incurred by HomBanc under the terms of the agreement.


Total aggregation facility debt	$	150,000		$	—


MBS Repurchase Agreement Debt
Master repurchase agreements - various counterparties	$	1,330,000		$	400,522	No stated maturity date.	None.

Total MBS repurchase agreement debt	$	1,330,000		$	400,522

(1)	See Note 5, “Borrowings,” to the condensed consolidated financial statements for a further explanation of changes made to the debt facilities since December 31, 2006.

(2)	The combined maximum borrowing capacity under the Liquid Funding Repurchase Agreement and the Bear Stearns Repurchase Agreement may not exceed $300 million.

~~into~~Many ~~the securitizations~~ of our ~~mortgage~~borrowing ~~loans.~~arrangements Wecontain ~~expect~~financial ~~that~~and ~~HMB~~non-financial ~~Acceptance Corp. will~~covenants, atand ~~times,~~we ~~own~~were ~~the~~in ~~subordinated~~compliance ~~and~~with ~~equity~~all ~~tranches~~ of~~, and receive~~ ~~the~~these ~~net~~covenants ~~interest~~as ~~on,~~of ~~our securitizations. We intend to form additional wholly-owned~~March 31, ~~bankruptcy-remote entities to aggregate and finance mortgage loans to take advantage of other financing opportunities that we may find attractive~~2007.

We seek to securitize our loans in economic volumes in an effort to realize efficiencies of scale and better execution. We presently expect that we will complete securitizations periodically depending on production volumes and execution costs. However, at times where we need more liquidity, we may securitize a smaller number of loans and lose some or all of the advantages of larger loan securitizations.

On February 23, 2005, we completed our third loan securitization, through an offering by HomeBanc Mortgage Trust 2005-1 (the “2005-1 Trust”), of approximately $1.1 billion of notes (the “2005-1 Notes”) backed by adjustable-rate, residential first mortgage loans. The approximate amount of each class of the 2005-1 Notes sold to the public, together with the interest rate and initial credit ratings for each class assigned by Moody’s and S&P, respectively, are set forth below:

Class	Approximate Principal Amount		Interest Rate Formula (all 1-Month LIBOR)	Ratings by Moody’s / S&P
A-1	$	848,625,000	LIBOR plus 0.25%	Aaa /AAA
A-2		109,783,000	LIBOR plus 0.31%	Aaa / AAA
M-1		21,957,000	LIBOR plus 0.46%	Aa1 / AA+
M-2		30,190,000	LIBOR plus 0.49%	Aa2 / AA+
M-3		11,527,000	LIBOR plus 0.52%	Aa3 / AA
M-4		10,978,000	LIBOR plus 0.70%	A1 / AA-
M-5		24,701,000	LIBOR plus 0.75%	A2 / A
M-6		12,076,000	LIBOR plus 0.80%	A3 / A-
B-1		12,076,000	LIBOR plus 1.25%	Baa1 /BBB+
B-2		12,076,000	LIBOR plus 1.30%	Baa2 / BBB

HMB Acceptance Corp. retained approximately $3.8 million of certificates representing the equity interest in the 2005-1 Trust. The 2005-1 Trust includes $1.097 billion of adjustable-rate, residential first mortgage loans originated by HBMC. Approximately 81.1% of the total portfolio consists of mortgage loans where the borrower pays interest, in some cases after an initial fixed-rate period of six months or three, five or seven years, based on the six-month LIBOR rate plus margin.

On March 31, 2005, we completed our fourth loan securitization, through an offering by HomeBanc Mortgage Trust 2005-2 (the “2005-2 Trust”), of approximately $170.9 million of notes (the “2005-2 Notes”) backed by adjustable-rate, residential second-lien mortgage loans. The approximate amount of each class of the 2005-2 Notes, together with the interest rate and initial credit ratings for each class assigned by Moody’s and Fitch, respectively, are set forth below:

Class	Approximate Principal Amount		Interest Rate Formula (all 1-Month LIBOR)	Ratings by Moody’s / Fitch
A-1	$	142,133,000	LIBOR plus 0.21%	Aaa / AAA
M-1		10,737,000	LIBOR plus 0.45%	Aa2 / AA+
M-2		3,080,000	LIBOR plus 0.49%	Aa3 / AA
M-3		5,633,000	LIBOR plus 0.68%	A2 / A+
M-4		2,464,000	LIBOR plus 0.72%	A3 / A
B-1		2,112,000	LIBOR plus 1.25%	Baa1 /A-
B-2		1,760,000	LIBOR plus 1.40%	Baa2 / BBB+
B-3		1,761,000	LIBOR plus 1.90%	Baa3 /BBB-
B-4		1,232,000	LIBOR plus 2.05%	Ba2 / BBB-

All classes of the 2005-2 Notes listed above were sold to the public except for the B-2, B-3 and B-4 classes, which were retained by the Company.

HMB Acceptance Corp. retained approximately $5.1 million of certificates representing the equity interest in the 2005-2 Trust. The 2005-2 Trust includes $176.0 million of adjustable-rate, residential second mortgage loans originated by HBMC.

We have accounted for all securitizations as debt financing in accordance with the provisions of SFAS No. 140. As of March 31, 2005, HMB Acceptance Corp. also had available $6.70 billion under an effective shelf registration statement available for future securitizations of mortgage loans.

Recent Accounting Developments

~~SFAS~~See ~~123(R)~~Note ~~required adoption for interim periods beginning after June 15~~2, ~~2005.~~“Summary ~~The Company previously planned to adopt this standard as~~ of ~~January~~ 1,Significant ~~2005;~~Accounting ~~however,~~Policies on— ~~April~~Recent ~~14,~~Accounting ~~2005~~Pronouncements, ~~the SEC approved Release No. 33-8568 (the “SEC release~~”) ~~delaying~~to the ~~effective~~condensed ~~date~~consolidated offinancial ~~SFAS No. 123(R) making it effective for public companies for annual~~statements, ~~rather~~contained ~~than~~elsewhere ~~interim,~~in ~~periods that begin after June 15, 2005. As a result of the issuance of the SEC Release, the Company will adopt~~ this ~~standard on January 1, 2006 and is still in the process of quantifying the impact that implementation will have upon the Company’s financial condition, results of operations and cash flows~~Report.

~~Part I.~~ Item 3: Quantitative and Qualitative Disclosures About Market Risk

Credit Risk

We are exposed to credit risk from the time we fund mortgage loans until they are either sold or the principal balance is repaid in full. While we have not experienced any significant credit losses to date, in the event of a significant rising interest rate environment and/or economic downturn, mortgage loan defaults may increase and result in credit losses that would adversely affect our liquidity and operating results. This risk ~~will~~may be magnified asto the extent we build our portfolio of adjustable-rate mortgage loans whose rates increase as the base rate (e.g., LIBOR) increases, subject to contractual limits.

Our hedging transactions using derivative financial instruments also involve certain additional risks such as counterparty credit risk ~~and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in the contract~~. The counterparties to our derivative ~~arrangements~~financial instruments are major financial institutions and securities dealers, which we believe are well capitalized with investment grade credit ratings, and with which we may have other financial relationships. While we do not anticipate nonperformance by any counterparty, we are exposed to potential credit losses in the event the counterparty fails to perform. Our exposure to credit risk in the event of default by a counterparty is the difference between the value of the contract and the current market price at the time of the default. There can be no assurance that we will be able to adequately protect against the foregoing risks and will ultimately realize an economic benefit that exceeds the related expenses incurred in connection with engaging in such hedging strategies.

Interest Rate Risk

Our mortgage loans held for investment also ~~will~~are be subject to “spread risk.” We presently expect that the majority of these loans will be adjustable-rate loans valued based on a market credit spread to a benchmark yield such as U.S. Treasury security and LIBOR yields. In other words, their value is dependent upon the yield demanded on such securities by the market based on their credit relative to the benchmark yield. Excessive supply of such loans combined with reduced investor demand will generally cause the market to require a higher yield on such securities, resulting in the use of a higher or wider spread over the benchmark yield to value such loans. Under such conditions, the value of our portfolio of mortgage loans held for investment would tend to decline. Conversely, if the spread used to value such loans were to decrease or tighten, the value of our loan portfolio would tend to increase. Such changes in the market value of our loan portfolio may directly affect our net equity, net income or cash ~~flow~~flows or have an indirect effect through their impact on our ability to borrow and access capital.

Our loans held for investment as of March 31, ~~2005~~2007 were primarily comprised of mortgage loans that have interest rates that change at one-month or six-month intervals based on changes in LIBOR. In addition, a portion of the loans that are held for investment are hybrid adjustable-rate loans, which carry an initial fixed coupon rate for the first three, five, seven or ~~seven~~ten years, with interest rates that reset each six months thereafter based on the six-month LIBOR rate plus a ~~margin~~spread. These mortgage loans also have lifetime caps (maximum allowed interest rates).

The table below shows the change in net interest income we estimate would occur from 50 and 100 basis point increases and decreases in interest rates based upon current funding and derivative financial instrument positions. This estimate reflects instantaneous changes that are then held constant for one year.

Instantaneous Interest Rate Change Analysis

on Mortgage Loans Held for Investment

Interest Rate Change from March 31, 2005	Change in Net Interest Income		Percentage Change in Net Interest Income
Interest Rate Change from March 31, 2007	Change in Net Interest Income			Percentage Change in Net Interest Income
(in basis points)	(Dollars in thousands)
+100	$~~(2,242)~~	(335	~~(4.7~~)%	(1.3	)%
+50	~~(1,121)~~	46	~~(2.4)~~	0.2
-50	~~1,121~~	(1,338	~~2.4~~)	(5.4	)
-100	~~2,242~~	(3,686	~~4.7~~)	(14.8	)

28Our mortgage loans held for sale as of March 31, 2007 were comprised of adjustable- and fixed-rate mortgage loans. The interest rates on adjustable-rate mortgage loans reset at various intervals and are generally subject to lifetime caps, while the rates on fixed-rate loans do not change. We also originate hybrid loans with both fixed and variable pricing components. We presently do not believe that we have significant interest rate risk on our mortgage loans held for sale under most of the interest rate scenarios we believe likely to occur. However, should interest rates move significantly before we sell the loans, we would be more significantly affected by the change in interest rates.

~~Table~~Changes in market interest rates affect our estimates of ~~Contents~~the fair value of our mortgage loans held for sale, IRLCs and the fair value of our derivatives which relate to these instruments, including swaps and forward sales of MBS and Treasury notes. MSRs are also included when assessing hedge position as they provide a natural hedge against changes in the fair value of our mortgage loans held for sale and IRLCs, diminishing the overall impact to the organization of shifts in the yield curve.

~~Our~~The ~~mortgage~~following ~~loans~~table ~~held~~summarizes ~~for~~the ~~sale~~sensitivity as of ~~March~~the ~~31,~~fair ~~2005~~value ~~were comprised~~ of ~~adjustable-~~our ~~and fixed-rate~~ mortgage loans. ~~The interest~~held ~~rates~~for onsale ~~adjustable-rate~~and ~~mortgage~~IRLCs ~~loans reset at various intervals~~ and ~~are~~of ~~generally subject to lifetime caps while~~ the ~~rates~~related onderivative ~~fixed-rate~~financial ~~loans~~instruments ~~do not change. We also originate hybrid loans with both fixed~~ and ~~variable~~MSR ~~pricing~~portfolio ~~components. We~~to ~~presently~~instantaneous doshifts ~~not believe that we have significant interest rate risk on our loans held for sale under most~~ of ~~the interest rate scenarios we believe likely to occur. However, should interest rates move significantly before we sell the loans, we~~various ~~would~~magnitudes bein ~~more significantly affected by~~ the ~~change~~yield incurve: ~~interest rates.~~

The following table shows our estimate of the effects of change in interest rates of 50 and 100 basis points, including both an increase and decrease for 30 days:


	+100 Basis Points			+50 Basis Points			-50 Basis Points			-100 Basis Points
	(Dollars in millions)
As of March 31, 2007
Change in fair value of mortgage loans held for sale and IRLCs	$	(20.165	)	$	(10.129	)	$	7.238		$	12.967
Change in fair value of MSRs, derivative financial instruments related to loans held for sale and IRLCs		14.812			8.423			(9.883	)		(18.194	)

Net Change	$	(5.353	)	$	(1.706	)	$	(2.645	)	$	(5.227	)

Changes in market interest rates affect our estimates of the fair value of our investment securities.

The table below shows the change in fair value of our investment securities we estimate would occur from 50 and 100 basis point increases and decreases in interest rates. This estimate reflects instantaneous changes that are then held constant for one year.

Instantaneous Interest Rate Change Analysis

on ~~Mortgage~~Investment ~~Loans~~Securities ~~Held for Sale~~

Interest Rate Change from March 31, 2005	Change in Net Interest Income		Percentage Change in Net Interest Income
Interest Rate Change from March 31, 2007	Change in Fair Value			Percentage Change in Fair Value
(in basis points)	(Dollars in thousands)
+100	$~~(125)~~	(8,775	~~(14.1~~)%	(2.8	)%
+50	~~(62)~~	(4,044	~~(7.1~~)	(1.3	)
-50	62	3,265	~~7.1~~	1.1
-100	~~125~~	5,768	~~14.1~~	1.9

~~Changes~~41 in market interest rates affect our estimates of the fair value of our mortgage loans held for sale, rate lock commitments and the fair value of our derivatives which relate to these instruments, including forward sales of mortgage-backed securities and Treasury notes.

The following table summarizes the sensitivity of the fair value of our mortgage loans held for sale and rate lock commitments and of the related derivatives to shifts in the treasury yield curve:

	+100 Basis Points			+50 Basis Points			-50 Basis Points			-100 Basis Points
	(Dollars in millions)
As of March 31, 2005
Change in fair value of mortgage loans held for sale and interest rate lock commitments	$	(5.474	)	$	(2.641	)	$	2.323		$	4.268
Change in fair value of derivative financial instruments related to loans held for sale and interest rate lock commitments		5.392			2.615			(2.351	)		(4.422	)
Net change	$	(0.082	)	$	(0.026	)	$	(0.028	)	$	(0.154	)

Part I. Item 4: Controls and Procedures

The management of HomeBanc is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information HomeBanc is required to disclose in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

HomeBanc’s management has evaluated, with the participation of HomeBanc’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of these disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of March 31, 2005, HomeBanc’s disclosure controls and procedures are effective in ensuring, to a reasonable assurance level, that all material information required to be disclosed and filed in this Report was recorded, summarized and reported within the time period required by the SEC’s rules and forms.

There was no change in HomeBanc’s internal control over financial reporting identified in connection with that evaluation that occurred during the quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, HomeBanc’s internal controls over financial reporting.

HomeBanc has hired, and will continue to hire finance, accounting, securitization and servicing personnel in an effort to continue to meet the requirements of being a public company and to keep these functions on pace with the growth in the Company’s operations. Similarly, HomeBanc assesses, and may change, its technology solutions from time to time to keep pace with growth in the Company’s operations.

~~Part~~Item II4: Controls and Procedures

HomeBanc’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15 and 15d-15 of the Exchange Act, that are designed to ensure that information HomeBanc is required to disclose in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information HomeBanc files or submits under the Exchange Act is accumulated and communicated to HomeBanc’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

HomeBanc’s management has evaluated, with the participation of HomeBanc’s Chief Executive Officer, President, Chief Operating Officer and Chief Financial Officer, along with the Deputy Chief Financial Officer, the effectiveness of the design and operation of these disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer, President, Chief Operating Officer and Chief Financial Officer, along with the Deputy Chief Financial Officer have concluded that, as of March 31, 2007, HomeBanc’s disclosure controls and procedures are effective in ensuring, to a reasonable assurance level, that all material information required to be disclosed and filed in this Report was recorded, summarized and reported within the time period required by the SEC’s rules and forms.

There was no change in HomeBanc’s internal control over financial reporting identified in connection with that evaluation that occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to affect, HomeBanc’s internal controls over financial reporting.

PART II

Item 1:

Legal Proceedings

~~None~~The nature of our business requires compliance with various state and federal lending laws and exposes us to a variety of legal proceedings and matters in the ordinary course of business, primarily related to foreclosures, bankruptcies, condemnation and quiet title actions, and alleged statutory and regulatory violations. We are also subject to legal proceedings from time to time related to employee and employment issues. We have recorded litigation reserves where we have determined such reserves to be required pursuant to GAAP, including the addition of $1.6 million in reserves during the first quarter of 2007. Our determinations regarding the need to establish litigation reserves requires us to make subjective judgments based upon our understanding of the then existing facts and status of the legal proceedings. These subjective judgments are inherently uncertain and are subject to change.

Over the past few years, there has been an increase in the number, and an expansion of the scope, of lawsuits directed at mortgage originators and other financial services companies alleging that loan originators, securities brokers and other employees with sales duties are required to be paid overtime under the Fair Labor Standards Act. Such claims include both lawsuits by single plaintiffs and collective actions involving multiple plaintiffs. We have received several such claims, and we currently are subject to several pending lawsuits in which the plaintiffs claim that they have been misclassified as being exempt from overtime payment and that they, accordingly, are owed backpay from us for unpaid overtime.

In particular, the following putative collective action is presently pending against the Company and Patrick S. Flood (“Flood”) (our former Chief Executive Officer): King, et al. v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 2:06-cv-96-MMH-SPC, United States District Court for the Middle District of Florida. There are also the following two multi-plaintiff actions presently pending against the Company and Flood: Tyler, et al. v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 0:06-60332-CIV-HURLEY/HOPKINS, United States District Court for the Southern District of Florida; and Clements, et al. v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 1:06-CV-2217-ODE, United States District Court for the Northern District of Georgia. A motion for conditional class certification is presently pending in the King case. The parties in Tyler have agreed to settle all claims against HomeBanc and Flood. On May 4, 2007, the Court approved the terms of the parties’ proposed settlement in a telephonic hearing and dismissed the Tyler case with prejudice on May 7, 2007. The plaintiffs in the Clements case have withdrawn their request for class certification, and several of the opt-in plaintiffs from the King case have withdrawn from that case and refiled as plaintiffs in the Clements case. We did not oppose these plaintiffs joining the Clements case. Based on a statement of claims filed by selected plaintiffs in the King and Tyler cases, and extrapolating therefrom, plaintiffs’ counsel in King (which are the same attorneys representing the Tyler plaintiffs) appear to be seeking multi-million dollar collective damages plus legal fees for King. The plaintiffs in Clements have yet to make any settlement demand or give any indication of the amount of damages and legal fees they seek.

In addition to the foregoing, we are also defending four single plaintiff actions in which non-exempt employees allege they were entitled to overtime pay in addition to those amounts which they were already paid by HomeBanc. The styles of these cases are Gilhuly v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:06-CV-1669-JA-KRS, United States District Court for the Middle District of Florida; Davis v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:06-CV-1668-JA-JGG, United States District Court for the Middle District of Florida; Gil v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:06-cv-1742-PCF-JGG, United States District Court for the Middle District of Florida; and White v. HomeBanc Mortgage Corporation and Patrick S. Flood, Civil Action No. 6:07-cv-169-ACC-JGG, United States District Court for the Middle District of Florida. The dollar amount of the alleged damages presently is not estimable.

These cases involve complex issues of law and fact and have not yet progressed to the point where we can: (1) predict their outcome; (2) precisely estimate damages that might result from such cases due to the uncertainty of the class certification and the number of potential participants in any class that may be certified; or (3) predict the effect that final resolution of any litigation might have on us, our business, financial condition or results of operations, although such effect could be materially adverse. After consulting with counsel, we believe that we have defenses to the claims against us in these cases and are vigorously defending these proceedings.

We also cannot predict the outcome of any other litigation pending or threatened against us, nor can we predict the effect that any litigation might have on us, our business, financial condition or results of operations, although such effect could be materially adverse.

Item 1A:

Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, operating results and cash flows.

The recent negative attention attracted by the subprime mortgage loan market has adversely affected the perception of our company and the trading price of our common stock.

The recent media, legislative and investor attention attracted by the subprime mortgage loan market has adversely affected the public perception of the mortgage loan industry generally, including the perception of our company. Although a very limited amount – less than 1% – of the mortgage loans that we originate are comprised of what we consider to be subprime mortgage loans, the trading price of our common stock has been adversely affected by the recent credit and other problems in the subprime lending market.

As a result of the recent problems faced by the subprime lending market, there has been a sharp decrease in the market price for mortgage loans – both prime and subprime – sold into the secondary market, which has negatively affected the pricing we receive from the sale of mortgage loans that we originate. These market conditions also may require us to become more stringent in originating loans in an effort to avoid credit issues, and could result in us having to repurchase a greater amount of mortgage loans than we historically have purchased, as the result of defaults, differences in perceived value of collateral and minor documentation errors.

The market conditions in the first quarter of 2007 have severely affected our gain on sale income and our net interest margin, and these market conditions may not improve in the foreseeable future.

We generate revenues from (1) the sale of mortgage loans that we originate and (2) the net interest income that we generate from our investment portfolio. During the first quarter of 2007, market conditions in the mortgage loan industry continued to deteriorate. As a result of these market conditions, we experienced a sharp decline in our gain on sale income from the sale or our mortgage loans that we originated, and a decline in the net interest income that we realized from our investment portfolio. There is no assurance that these market conditions will improve, or that we will be able to meaningfully adapt to these market conditions, and our net income (loss) may continue to suffer as a result.

The severely adverse market conditions in the mortgage loan industry have required us to continue to review any number of strategic alternatives, which may preclude the execution of strategic decisions previously announced by us.

We previously announced our intention to no longer operate our public company as a REIT beginning in 2007, and that we would consider any number of means of effecting that decision. However, as the result of the continued deterioration in market conditions in the mortgage loan industry, we may be unable to realize the benefits from this change in operating model. As a result, we continue to explore any number of strategic alternatives that may be available to us. There is no assurance that we will be able to determine the most appropriate strategic alternative, or that we will be able to successfully implement any alternative that we determine to pursue.

The decline in our mortgage origination volume could be larger than the decline forecasted for the mortgage origination industry generally, which would adversely affect our business, financial condition, results of operations and the price of our securities.

The Mortgage Bankers Association Long-Term Mortgage Finance Forecast, dated April 23, 2007, predicted a 4% increase in total mortgage originations and a 12% decrease in purchase money originations for the first quarter of 2007 as compared to the same period of 2006. Our total mortgage loan originations during the first quarter of 2007, when compared to the same period of 2006, declined 13%, and our purchase money mortgage originations also decreased 13% in the first quarter of 2007 when compared to the first quarter of 2006. The Florida Association of Realtors indicated a 27% decrease in existing home sales during the first quarter of 2007 compared to the same period of 2006.

The decline in both total originations and purchase money originations is due primarily to the adverse market conditions faced by our Florida operations, which comprised 44% of our total originations for the three months ended March 31, 2007. Our Florida mortgage loan volumes for the first quarter of 2007 reflected a 25% decrease from our volume the same period in 2006. If mortgage origination volume in Florida continues to lag behind the national market generally, our business, financial condition and results of operations will be adversely affected.

We face intense competition for qualified personnel, particularly experienced loan originators, and our inability to attract and retain such highly skilled originators would adversely affect our business, financial conditional, results or operations and the price of our securities.

Generally, our business is dependent upon the highly skilled, and often highly specialized, individuals, especially mortgage loan originators, that we employ. Our failure to identify, recruit and retain qualified associates, including, but not limited to, associates qualified to originate a large volume of mortgage loans, could harm our future operating results and may, in turn, negatively affect the price of our securities. Specifically, we depend on our associates to originate mortgage loans by, among other things, developing relationships with consumers, real estate agents and brokers, builders, corporations, our SMA partners and others, which we believe leads to repeat and referral business. Accordingly, we must be able to attract, motivate and retain skilled associates in order to remain competitive.

In addition, our growth strategy contemplates continually attracting and hiring additional qualified associates. The market for such persons is highly competitive and historically has experienced a high rate of turnover. Our most successful mortgage loan originators face any number of professional alternatives from other mortgage loan companies, and we may be unable to match the employment terms offered by such other companies. As a result, our most successful mortgage loan originators may elect to leave our company for more attractive employment offers.

Competition for qualified associates may lead to increased costs to hire and retain them, in addition to the expense and potential distraction to management, caused by filling vacancies. We cannot guarantee that we will be able to attract or retain qualified associates. If we cannot attract or retain a sufficient number of skilled associates, or even if we can retain them but at higher costs, we would generate fewer mortgage loans, and our business, financial condition, results of operations and the price of our securities could be harmed.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Equity Securities.

None

(b) Uses of Proceeds.

On February 3, 2005, the Securities and Exchange Commission declared effective our Registration Statement on Form S-11 (Commission File No. 333-121900), relating to the second public offering of our common stock.

Pursuant to the Prospectus, dated February 3, 2005, contained in the Registration Statement, we issued and sold a total of 10,925,000 shares of our common stock (including 1,425,000 shares or our common stock sold pursuant to the underwriters’ overallotment option) to the public at a price of $9.10 per share. The aggregate offering price of the shares of our common stock that we sold in this offering, or the gross proceeds to us, was approximately $99.4 million. After deducting underwriting commissions of approximately $5.4 million and other estimated expenses of the offering of approximately $1.0 million, we received total net proceeds from the offering of approximately $93.0 million. The joint lead underwriters were J.P. Morgan Securities Inc. and Friedman, Billings & Ramsey & Co.

As of March 31, 2005, we had applied all of the net proceeds of the offering as follows:

• Approximately $92.0 million to repay outstanding amounts owed under our syndicated warehouse facility led by JPMorgan Chase Bank;

• Approximately $1.0 million for other general corporate purposes, including working capital and expansion of our business.

None of the expenses paid by us, and none of the actual uses of the net proceeds described above, were direct or indirect payments to any of our directors or officers, or their associates, or to persons owning 10 percent or more of any class of our equity securities, or to our affiliates.

None

(c)	Repurchases of Equity Securities.

On February 27, 2007, our board of directors authorized a share repurchase program of up to $16.5 million of our common stock. A public announcement of the authorization was made the same day.

The following table shows the share repurchase activity during the quarter ended March 31, 2007:


Month	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (1)
March 5 – 31	3,593,900	$	2.71	3,593,900

Total	3,593,900	$	2.71	3,593,900

(1)	The approximate dollar value of the common stock that may yet be purchased under the Repurchase Program was $6.8 million as of March 31, 2007.

Item 3:

Defaults Upon Senior Securities

None

Item 4:

Submission of Matters to a Vote of Security Holders

None

Item 5:

Other Information

None

Item 6:

Exhibits

ExhibitNumber		Description
3.1		Articles of Incorporation of HomeBanc Corp. (incorporated by reference from Exhibit 3.1 to HomeBanc Corp.’s Registration Statement on Form S-11, dated July 13, 2004, File No. 333-113777 (the “Form S-11”)).
3.1(i)		Articles of Incorporation of HomeBanc Corp. (Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-11 as filed with the Commission on March 19, 2004, Commission File No. 333- 113777, and incorporated herein by this reference thereto).
3.2		Amendment to the Articles of Incorporation of HomeBanc Corp. (incorporated by reference from Exhibit 3.3 to the Form S-11).
3.1(ii)		Articles of Amendment of HomeBanc Corp. (Filed as Exhibit 3.3 to the Company’s Amendment No. 1 to Registration Statement on Form S-11 as filed with the Commission on May 19, 2004, Commission File No. 333- 113777, and incorporated herein by this reference thereto).
3.3		Bylaws of HomeBanc Corp. (incorporated by reference from Exhibit 3.2 to the Form S-11).
3.1(iii)		Articles of Amendment of HomeBanc Corp. (Filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A as filed with the Commission on February 3, 2006, Commission File No. 001- 32245, and incorporated herein by this reference thereto).
10.1		Amendment No. 4 to Master Repurchase Agreement, dated as of January 24, 2005, by and between Bear Stearns Mortgage Capital Corporation, Abetterwayhome Finance, LLC II, and HomeBanc Funding Crop. II. (incorporated by reference from Exhibit 10.1 to HomeBanc Corp.’s Current Report on Form 8-K dated January 24, 2005 and filed January 25, 2005).
3.1(iv)		Articles of Amendment of HomeBanc Corp. (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated March 13, 2006, as filed with the Commission on March 14, 2006, Commission File No. 001-32245, and incorporated herein by this reference).
10.2		Amendment No. 2 to Limited Guaranty, dated as of January 24, 2005, by and between Bear Stearns Mortgage Capital Corporation and HomeBanc Corp. (incorporated by reference from Exhibit 10.2 to HomeBanc Corp.’s Current Report on Form 8-K dated January 24, 2005 and filed January 25, 2005).
3.2		Bylaws of HomeBanc Corp., as amended on March 13, 2006 (Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, dated March 13, 2006, as filed with the Commission on March 14, 2006, Commission File No. 001-32245, and incorporated herein by this reference).
10.3		Mortgage Loan Purchase Agreement, dated as of February 1, 2005, by and between HMB Acceptance Corp. and HomeBanc Corp. (incorporated by reference from Exhibit 10.1 to HomeBanc Corp.’s Current Report on Form 8-K dated February 23, 2005 and filed February 28, 2005).
10.1(i)(a)		Master Repurchase Agreement dated as of January 23, 2007 between JPMorgan Chase Bank, N.A; HomeBanc Corp., and HomeBanc Mortgage Corporation (the “JPMorgan Master Repurchase Agreement”). (Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, dated January 19, 2007, as filed with the Commission on January 24, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
10.4		Trust Agreement, dated as of February 1, 2005, by and among HMB Acceptance Corp., Wilmington Trust Company and U.S. Bank National Association (incorporated by reference from Exhibit 10.2 to HomeBanc Corp.’s Current Report on Form 8-K dated February 23, 2005 and filed February 28, 2005).
10.5		Transfer and Servicing Agreement, dated as of February 1, 2005, by and among HomeBanc Mortgage Trust 2005-1, HMB Acceptance Corp., U.S. Bank National Association, Wells Fargo Bank, National Association and HomeBanc Corp. (incorporated by reference from Exhibit 10.3 to HomeBanc Corp.’s Current Report on Form 8-K dated February 23, 2005 and filed February 28, 2005).
10.6		Indenture, dated as of February 1, 2005, by and among HomeBanc Mortgage Trust 2005-1 and U.S. Bank National Association (incorporated by reference from Exhibit 10.4 to HomeBanc Corp.’s Current Report on Form 8-K dated February 23, 2005 and filed February 28, 2005).
10.7		Amendment No. 6 to Master Repurchase Agreement, dated as of February 25, 2005, among Merrill Lynch Mortgage Capital Inc., HomeBanc Mortgage Corporation and HomeBanc Corp. (incorporated by reference from Exhibit 10.1 to HomeBanc Corp.’s Current Report on Form 8-K dated February 25, 2005 and filed March 3, 2005).
10.8		Letter Agreement dated March 2, 2005 among HomeBanc Corp., HomeBanc Mortgage Corporation and JP Morgan Chase Bank (incorporated by reference from Exhibit 10.2 to HomeBanc Corp.’s Current Report on Form 8-K dated February 25, 2005 and filed March 3, 2005).
10.9		Second Amendment to Lease, dated as of March 30, 2005, by and between Perimeter Summit Parcel 2 Limited Partnership and HomeBanc Mortgage Corporation (incorporated by reference from Exhibit 10.1 to HomeBanc Corp.’s Current Report on Form 8-K dated March 30, 2005 and filed April 5, 2005).
10.10		Mortgage Loan Purchase Agreement, dated as of March 1, 2005, by and between HMB Acceptance Corp. and HomeBanc Corp. Corporation (incorporated by reference from Exhibit 10.1 to HomeBanc Corp.’s Current Report on Form 8-K dated March 31, 2005 and filed April 6, 2005).
10.11		Trust Agreement, dated as of March 1, 2005, by and among HMB Acceptance Corp., Wilmington Trust Company, Wells Fargo Bank, N.A. and U.S. Bank National Association (incorporated by reference from Exhibit 10.2 to HomeBanc Corp.’s Current Report on Form 8-K dated March 31, 2005 and filed April 6, 2005).
10.12		Transfer and Servicing Agreement, dated as of March 1, 2005, by and among HomeBanc Mortgage Trust 2005-2, HMB Acceptance Corp., U.S. Bank National Association, Wells Fargo Bank, N.A. and HomeBanc Corp. (incorporated by reference from Exhibit 10.3 to HomeBanc Corp.’s Current Report on Form 8-K dated March 31, 2005 and filed April 6, 2005).
10.13		Indenture, dated as of March 1, 2005, by and among HomeBanc Mortgage Trust 2005-2, Wells Fargo Bank, N.A. and U.S. Bank National Association (incorporated by reference from Exhibit 10.4 to HomeBanc Corp.’s Current Report on Form 8-K dated March 31, 2005 and filed April 6, 2005).

3145

*11		Statement Regarding Computation of Per Share Earnings
ExhibitNumber		Description
31.1		Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).
10.1(i)(b)		Amendment No. 1 to Master Repurchase Agreement dated as of March 30, 2007 between JPMorgan Chase Bank, N.A, as agent, HomeBanc Mortgage Corporation, HomeBanc Corp. and the Buyers party to the JPMorgan Master Repurchase Agreement. (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated March 30, 2007, as filed with the Commission on April 6, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
31.2		Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).
10.1		Amendment No. Three to Master Repurchase Agreement, dated as of March 27, 2007, by and among HomeBanc Corp., HomeBanc Mortgage Corporation and Liquid Funding, Ltd. (the “Liquid Funding Master Repurchase Agreement”). (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated March 27, 2007, as filed with the Commission on March 29, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.2		Amendment No. 1 to Amended and Restated Limited Guaranty, dated as of January 22, 2007, by and between Bear Stearns Mortgage Capital Corporation and the Company. (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated January 19, 2007, as filed with the Commission on January 24, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
32.2		Certification of the Chief Financial Officer pursuant to 18.U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.3(a)		Mortgage Loan Purchase Agreement, dated as of March 1, 2007, by and between HMB Acceptance Corp. and HomeBanc Mortgage Corporation (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated March 30, 2007, as filed with the Commission on April 6, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
10.3(b)		Trust Agreement, dated as of March 1, 2007, by and among HMB Acceptance Corp., Wilmington Trust Company and U.S. Bank National Association (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated March 30, 2007, as filed with the Commission on April 6, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
10.3(c)		Pooling and Servicing Agreement, dated as of March 1, 2007, by and among HomeBanc Mortgage Trust 2007-1, HMB Acceptance Corp., HomeBanc Mortgage Corporation, Wells Fargo Bank, N.A., U.S. Bank National Association and Wilmington Trust Company. (Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, dated March 30, 2007, as filed with the Commission on April 6, 2007, Commission File No. 001-32245, and incorporated herein by this reference thereto).
10.4(i)		Form of 2007 Restricted Stock Unit Award Certificate.(1)*
10.5(i)		Separation and Release Agreement, dated as of January 19, 2007, by and between HomeBanc Corp. and Patrick S. Flood.(1)*
10.5(ii)		Employment Agreement, dated as of January 29, 2007, by and between HomeBanc Corp. and Kevin D. Race. (1)*
10.5(iii)		Separation and Release Agreement, dated as of February 14, 2007, by and between HomeBanc Corp. and Dr. Paul Lopez.(1)*
11		Statement Regarding Computation of Per Share Earnings.***
12.1		Statement Regarding Computation of Earnings to Fixed Charges.(1)
12.2		Statement Regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. (1)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)**
31.2		Certification of Deputy Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)**

*46 ~~Data required by Statement of Financial Accounting Standards No. 128, Earnings per Share, is provided in Note 5 to the condensed consolidated financial statements included in this Report.~~


Exhibit Number		Description
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)**

32.2		Certification of Deputy Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(1)**

*	Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report.

The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q and are “furnished” to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

***	Data required by Statement of Financial Accounting Standard No. 128, Earnings per Share, is provided in Note 7 to the condensed consolidated financial statements included in this Report.

(1)	Filed herewith via EDGAR.

SIGNATURES

Pursuant to the requirements of ~~Section~~ Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 16 10, ~~2005~~2007.

	HOMEBANC CORP.
May 16, 2005	By:	/s/ PATRICK S. FLOOD
May 10, 2007	By:	/s/ KEVIN D. RACE
		Patrick S. Flood
		Chairman and Chief Executive Officer
May 16, 2005	By:	/s/ KEVIN D. RACE
		Kevin D. Race
		Chief Financial Officer
		Chief Executive Officer, President, Chief Operating Officer and Chief Financial Officer
May 10, 2007	By:	/s/ NICOLAS V. CHATER
		Nicolas V. Chater
		Deputy Chief Financial Officer

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