Hanover Capital Mortgage Holdings Reports 2008 Fourth Quarter and Year End Results

EDISON, N.J., April 1  /PRNewswire-FirstCall/ -- Hanover Capital Mortgage Holdings, Inc. (NYSE Amex: HCM) (the "Company" or "HCM") reported net earnings (loss) for the quarter ended December 31, 2008 of $(2.77) million, or $(0.32) per share on a fully diluted basis, compared to $(37.7) million, or $(4.37) per share on a fully diluted basis, for the fourth quarter 2007.  Net earnings (loss) for the year ended December 31, 2008 was $(15.1) million, or  $(1.74) per share on a fully diluted basis, versus $(80.0) million, or $(9.68) per share on a fully diluted basis, for the year ended December 31, 2007. There was no estimated taxable income for REIT distribution purposes for the years ended December 31, 2008 and 2007.  Accordingly, the Company did not declare a fourth quarter dividend.

The Company's book value (deficit) per share declined to $(4.70) as of December 31, 2008 primarily attributable to the net loss of $(15.1) million for the year ended December 31, 2008.

For the year ended December 31, 2008, the Company had a net loss of $(15.1) million compared to a net loss of $(80.0) million for the previous  year. This  difference is primarily due to the significant impairments of the Subordinate MBS portfolio in 2007.  The impairments taken in 2008 were offset by the gain realized on the surrender of the Company's Subordinate MBS in settlement of the Repurchase Agreement obligation in August 2008. The remainder is attributable to the increase in the Company's general operating deficit for the year ended December 31, 2008.

Significant changes in the Company's financial position as of December 31, 2008, from December 31, 2007, are primarily related to the surrendering of the Subordinate MBS portfolio in August 2008, the reduction in the size of its Agency MBS portfolio and the debt related to the financing of those portfolio assets.

On September 30, 2008, the Company entered into an Agreement and Plan of Merger, with Walter Industries, Inc. ("Walter") and JWH Holding Company, which was amended and restated on October 28, 2008 and was subsequently amended and restated on February 6, 2009, to, among other things, add Walter Investment Management LLC ("Spinco"), a newly-created, wholly-owned subsidiary of Walter, as an additional party to the transaction. On February 17, 2009, the merger agreement was further amended to address certain closing conditions and certain Federal income tax consequences of the spin-off and merger. Our board of directors unanimously approved the merger, on the terms and conditions set forth in the second amended and restated merger agreement, as amended. In connection with the merger, the Surviving Corporation will be renamed "Walter  Investment Management Corporation."  The merger agreement contemplates that the merger will occur no later than June 30, 2009.

The Registration Statement of the Company on Form S-4, including the proxy statement/prospectus filed with the Securities and Exchange Commission relating  to the pending merger of Spinco and the Company, has been declared effective by the Securities and Exchange Commission.

In addition, in connection with the Company's pending merger, on September 30, 2008, the Company entered into an exchange agreement with Taberna Preferred Funding, Ltd. ("Taberna") and an exchange agreement with Amster Trading Company and Ramat  Securities, Ltd. (the "Amster Parties") (which exchange agreements were amended on February 6, 2009), to acquire (and subsequently cancel) the outstanding trust preferred securities of HST-I, currently held by Taberna, and the trust preferred securities of HST-II, currently held by the Amster Parties.

In connection with the pending merger, the Company established a record date of February 17, 2009, and will hold a special meeting of stockholders on April 15, 2009 to approve the merger and certain other transactions described in the  proxy statement/prospectus.  Pending approval by the Company's stockholders and the satisfaction of certain other conditions, the merger is expected to be completed in the second quarter 2009. No vote of Walter stockholders is required.

John A. Burchett, the Company's President and CEO, commented, "We look forward to our April 15, 2009 special meeting and are optimistic that the Company's shareholders will provide the requisite vote needed to approve of the pending merger with Spinco."

HCM will host an investor conference call on Thursday, April 2, 2009 at 11:00 AM EDT. The call will be broadcast over the Internet, at http://www.investorcalendar.com/. To listen to the call, please go to the Web site at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those not available to listen to the live broadcast, a replay will be available shortly after the call at http://www.investorcalendar.com/ for a period of 30 days.

To access the live call by  phone, dial 877-407-8035 (international callers  dial 201-689-8035) several minutes before the call.  A recorded replay may be heard through Monday, April 6, at 11:59 PM ET by dialing 877-660-6853  (international  callers dial 201-612-7415)  and  using playback account #286 and conference ID #318449.

Hanover Capital Mortgage Holdings, Inc. is a mortgage REIT staffed by seasoned  mortgage capital markets professionals.  HCM invests in prime mortgage loans and mortgage securities backed by prime mortgage loans.

For further information, visit HCM's Web site at http://www.hanovercapitalholdings.com/.

Additional Information and Where to Find It

In connection with the proposed spin-off of the financing business of Walter Industries, Inc. through its wholly-owned subsidiary, Walter Investment Management LLC, and the proposed merger of Walter Investment Management LLC  with Hanover Capital  Mortgage Holdings, Inc. and certain related transactions, Hanover Capital Mortgage Holdings, Inc. filed a registration statement with the SEC on Form S-4, as amended, containing a proxy statement/prospectus (Registration No. 333-155091), and Hanover Capital Mortgage Holdings, Inc. will be filing other documents regarding the proposed transaction with the SEC as well.  BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The proxy statement/prospectus has been mailed to stockholders of Hanover Capital Mortgage Holdings, Inc. and Walter Industries, Inc. Stockholders will be able to obtain a free copy of the proxy  statement/prospectus, as well as other  filings containing information about Hanover Capital Mortgage Holdings, Inc. and Walter Industries, Inc., without charge, at the SEC's Internet Web site (http://www.sec.gov/). Copies of the proxy statement/prospectus and the other filings with the SEC that will be incorporated by reference in the proxy statement/prospectus can also be obtained, without charge, at Hanover Capital Mortgage Holdings, Inc.'s Web site (http://www.hanovercapitalholdings.com/).

Walter Industries and Hanover and their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed merger and related transactions.  Information regarding Walter Industries' directors and executive officers is  available in Walter Industries' proxy statement for its 2009 annual meeting of stockholders and Walter Industries' 2008 Annual Report on Form 10-K, which were filed with the SEC on March 10, 2009, and February 27, 2009, respectively, and information regarding Hanover's directors and executive officers is available in Hanover's proxy statement for its 2008 annual meeting of stockholders and Hanover's 2008 Annual Report on Form 10-K, which were filed with the SEC on  April 24, 2008, and March 31, 2009, respectively. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in Hanover's proxy statement/prospectus and other materials referred to in Hanover's proxy statement/prospectus.

Safe Harbor Statement

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform  Act of 1995. Forward-looking statements, including expressions such as "believe," "anticipate," "expect," "estimate," "intend," "may," "will," and similar expressions involve known and unknown risks, uncertainties, and other factors that may cause Walter Industries' or Hanover's actual results in future periods to differ materially from the expectations expressed or implied by such forward-looking statements. These factors include, among others, the following: the market demand for Walter Industries' and Hanover's products as well as changes in costs and the availability of raw material, labor, equipment and transportation; changes in weather and geologic conditions; changes in extraction costs, pricing and assumptions and projections concerning reserves in Walter Industries' mining operations; changes in customer orders; pricing actions by Walter Industries'  and  Hanover's competitors, customers, suppliers and contractors; changes  in governmental policies and laws; further changes in the mortgage-backed capital markets; changes in general economic conditions; and the successful implementation and anticipated timing of any strategic actions and objectives that may be pursued, including the announced separation of the Financing business from Walter Industries. In particular, the separation of Walter Industries' Financing business is subject to a number of closing conditions which  may be outside of Walter Industries' control. Forward-looking statements made by Walter Industries in this release, or elsewhere, speak only as of the date on which the statements were made. Any forward-looking statements should be considered in context with the various disclosures made by Walter Industries and Hanover about our respective businesses, including the Risk Factors described in Walter Industries' 2008 Annual Report on Form 10-K, the Risk Factors described in Hanover's 2008 Annual Report on Form 10-K, and each of Walter Industries' and Hanover's other filings with the Securities and Exchange Commission. Neither Walter Industries nor Hanover undertakes any obligation to update its forward-looking statements as of any future date.

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      HANOVER CAPITAL MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS
          (in thousands, except share and per share data)

                                      December 31,  December 31,
                                             2008          2007
                                             ----          ----
                           Assets
  Cash and cash equivalents                  $501        $7,257
  Accrued interest receivable                  62         1,241
  Mortgage Loans
    Collateral for CMOs                     4,778         6,182
  Mortgage Securities
    Trading ($2,577 and $30,045,
     pledged respectively, at
     period ended)                          4,656        30,045
    Available for sale (all
     pledged under a single
     Repurchase Agreement)                      -        82,695
  Other subordinate security,
   available for sale                       1,585         1,477
  Equity investments in
   unconsolidated affiliates                  175         1,509
  Other assets                                647         4,782
                                              ---         -----
                                          $12,404      $135,188
                                          =======      ========
                         Liabilities
  Repurchase Agreements (secured
   with Mortgage Securities)                   $-      $108,854
  Note Payable (collateralized
   with Mortgage Securities
   classified as trading)                   2,300             -
  Collateralized mortgage
   obligations (CMOs)                       2,904         4,035
  Accounts payable, accrued
   expenses and other liabilities           1,191         5,954
  Obligation assumed under
   guarantee of lease in default by
   subtenant                                  831             -
  Deferred interest payable on
   liability to subsidiary trusts           4,597           755
  Liability to subsidiary trusts
   issuing preferred and capital
   securities                              41,239        41,239
                                           ------        ------
                                           53,062       160,837
                                           ------       -------

  Commitments and Contingencies                 -             -


               Stockholders' Equity (Deficit)
  Preferred stock, $0.01 par
   value, 10 million shares
   authorized, no shares issued
   and outstanding                              -             -
  Common stock, $0.01 par value,
   90 million shares authorized,
   8,654,562 and 8,658,562 shares
   issued and outstanding as of
   December 31, 2008 and December 31,
   2007, respectively                          86            86
  Additional paid-in capital              102,981       102,939
  Cumulative earnings (deficit)           (86,340)      (71,289)
  Cumulative distributions                (57,385)      (57,385)
                                          -------       -------
                                          (40,658)      (25,649)
                                          -------       -------
                                          $12,404      $135,188
                                          =======      ========



                               (Unadudited)
                             Three Months Ended         Years Ended
                                December 31,            December 31,
                                ------------            ------------
                               2008      2007      2008      2007      2006
                               ----      ----      ----      ----      ----

  Revenues
    Interest income            $258    $5,509   $10,592   $24,823   $24,278
    Interest expense          1,039     6,371    15,135    19,224    13,942
                              -----     -----    ------    ------    ------
                               (781)     (862)   (4,543)    5,599    10,336
    Loan loss provision           -         -         -         -         -
                                  -         -         -         -         -
      Net interest income      (781)     (862)   (4,543)    5,599    10,336
    Net gain realized on
     surrender of
     Subordinate MBS              -         -    40,929         -         -
    Gain (loss) on sale
     of mortgage assets          25         -       485      (803)      834
    Gain (loss) on mark
     to market of
     mortgage assets             90   (32,609)  (40,453)  (75,934)      148
    (Loss) gain on
     freestanding
     derivatives                  -      (469)      (98)    1,199    (2,344)
    Technology                   49       209       374     1,155     2,857
    Loan brokering and
     advisory services           30         -        65       157       105
    Other income (loss)          74    (1,161)    1,765    (1,542)      (77)
                                 --    ------     -----    ------       ---
      Total revenues           (513)  (34,892)   (1,476)  (70,169)   11,859
                               ----   -------    ------   -------    ------

  Expenses
    Personnel                   958       912     4,098     3,910     4,239
    Legal and professional      699       729     2,513     2,097     2,777
    Impairment of investments
     in unconsolidated
     affiliates                   -         -     1,064         -         -
    Lease obligation assumed
     from defaulting subtenant    -         -       993         -         -
    General and administrative  220       229     1,289     1,505     1,183
    Depreciation and
     amortization                17       155     1,045       616       708
    Occupancy                    79        82       327       315       315
    Technology                   11       113       159       526     1,109
    Financing                     -       257       896       815       415
    Goodwill impairment           -         -         -         -     2,478
    Other                       301       387     1,306       880       689
                                ---       ---     -----       ---       ---
      Total expenses          2,285     2,864    13,690    10,664    13,913
                              -----     -----    ------    ------    ------
        Operating
         income (loss)       (2,798)  (37,756)  (15,166)  (80,833)   (2,054)
  Equity in income of
   unconsolidated affiliates     30        28       115       110       110
  Minority interest in loss of
   consolidated affiliate         -         -         -         -        (5)
                                 --        --        --        --        --
  Income (loss) from
   continuing operations
   before income tax
   provision                 (2,768)  (37,728)  (15,051)  (80,723)   (1,939)
  Income tax provision            -         -         -         -        12
                                 --        --        --        --        --
    Income (loss) from
     continuing operations   (2,768)  (37,728)  (15,051)  (80,723)   (1,951)
                             ------   -------   -------   -------    ------

  DISCONTINUED OPERATIONS
    Income (loss) from
     discontinued operations
     before gain on sale and
     income tax provision         -        12         -      (611)     (917)
    Gain on sale of
     discontinued operations      -         -         -     1,346         -
    Income tax provision from
     discontinued operations      -         -         -         -        58
                                  -         -         -         -        --
    Income (loss) from
     discontinued operations      -        12         -       735      (975)
                                  -        --         -       ---      ----
  Net income (loss)         $(2,768) $(37,716) $(15,051) $(79,988)  $(2,926)
                            =======  ========  ========  ========   =======

  Net Income (loss) per
   common share - Basic
    Income (loss) from
     continuing operations   $(0.32)   $(4.37)   $(1.74)   $(9.77)   $(0.23)
    Income (loss) from
     discontinued operations      -         -         -      0.09     (0.12)
                                  -         -         -      ----     -----
      Net income (loss) per
       common share -
       Basic                 $(0.32)   $(4.37)   $(1.74)   $(9.68)   $(0.35)
                             ======    ======    ======    ======    ======
  Net Income (loss) per
   common share - Diluted
    Income (loss) from
     continuing operations   $(0.32)   $(4.37)   $(1.74)   $(9.77)   $(0.23)
    Income (loss) from
     discontinued operations      -         -         -      0.09     (0.12)
                                  -         -         -      ----     -----
      Net income (loss) per
       common share -
       Diluted               $(0.32)   $(4.37)   $(1.74)   $(9.68)   $(0.35)
                             ======    ======    ======    ======    ======

  Weighted average shares
   outstanding -
   Basic                  8,636,162 8,629,362 8,634,363 8,265,194 8,358,433
  Weighted average Shares
   outstanding -
   Diluted                8,636,162 8,629,362 8,634,363 8,265,194 8,358,433


DATASOURCE: Hanover Capital Mortgage Holdings, Inc.



CONTACT:  John Burchett, CEO, Irma Tavares, COO, or Harold McElraft, CFO,

all of Hanover Capital Mortgage Holdings, Inc., [phone]



Web Site:  http://www.hanovercapitalholdings.com/ 

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