05.31.2007 Car Ring Ton Lp Report Final

CCM

Carrington Capital Management, LLC

June 14, 2007 To the Limited Partners of Carrington Investment Partners, LP: For the month of May 2007, Carrington Investment Partners, LP returned +0.88% net of fees and expenses. Jan 2004 RoR (%)

RoR (%)

RoR (%)

RoR (%)

Feb 2004

Mar 2004

NA

NA

-0.04

-0.03

Jan 2005

Feb 2005

Mar 2005

April 2005

2.04

3.26

1.66

1.47

Jan 2006

Feb 2006

Mar 2006

Apr 2006

1.40

1.36

1.45

1.34

Jan 2007

Feb 2007

Mar 2007

Apr 2007

1.05

0.23

-1.21

0.80

0.88

Year-to-date net return: 1.74%

Apr 2004

May 2004

June 2004

July 2004

Aug 2004

Sep 2004

Oct 2004

Nov 2004

Dec 2004

FY 2004

0.54

2.39

3.11

4.44

2.28

1.90

-1.18

1.02

15.26%

May 2005

June 2005

July 2005

Aug 2005

Sep 2005

Oct 2005

Nov 2005

Dec 2005

FY 2005

1.75

0.92

1.96

1.38

1.71

0.86

0.83

1.19

20.77%

May 2006

June 2006

July 2006

Aug 2006

Sep 2006

Oct 2006

Nov 2006

Dec 2006

FY 2006

1.51

1.16

1.63

1.53

1.47

1.39

1.11

1.19

17.85%

May 2007

June 2007

July 2007

Aug 2007

Sep 2007

Oct 2007

Nov 2007

Dec 2007

FY 2007

Annualized since inception: 17.56%

Net return since inception: 66.90%

Monthly performance is calculated net of expenses and fees, including the base management fee (payable monthly) and the pro-rated performance fee (payable annually). The performance presented here is an estimate based on the weighted average performance of CIP (US), LP and CIP (Cayman), LP. Limited Partners should consult their monthly statements for individual performance.

Lots to discuss this month; sorry for the delayed release of the letter. All-in, CIP performance continues to march in the right direction again. We are still a bit muted from what we would consider to be our normalized pace, but we have opted to remain very cautious about the implementation of leverage and conservative with respect to our credit and prepayment curves. In general, the velocity of the slow down in prepayments has subsided to a level not seen on a portfolio basis since we started the Fund in 2004. Slower prepayment speeds obviously extend the duration of the cashflows of our deals, but bring the expectation of deterioration in credit performance – positive vs. negative influences on value. Over the last several months we have slowed our prepayment expectations which should, on the surface, create a value pickup; however, that value pickup is neutralized by a corresponding adjustment to our credit performance expectations. Interestingly enough, we continue to outperform our credit curves; we expected liquidation losses to the portfolio to be approximately $7.47MM for the month; actual losses totaled $5.34MM on a total collateral outstanding balance of $14.7Bn. Where we are giving up a bit of performance is in two areas; leverage and prepayment penalties. We could be utilizing higher leverage than our current 12% level and are looking at a few variations of a relatively low risk leverage implementation. Nonetheless, riding out the first quarter on a virtually unleveraged basis in the portfolio allowed us to avoid some of the Street level nonsense that has resulted in the turmoil felt by some of the highly leveraged strategies in the sector. We have kept liquidity high, kept a bit of cash on hand in the event we found something we wanted to buy. On the prepayment penalty front, our modeled cashflows indicated a projected $7.43MM in cashflow while our actual cashflow was on the order of $2.47MM. What happened? When prepayments slow in this part of a cycle, borrowers with prepayment penalties have a tendency to prepay slower than their counterparts without – makes sense and is a constant factor, but it is particularly evident when prepayments have slowed as much as the last quarter. We have always viewed prepayment penalties as a hedge against rapid prepayments, but, like any hedge, value is diminished when the market moves against the hedge. We have a corresponding value pickup in the underlying CE bonds that is evident when prepayments slow (and prepayment penalty cashflows diminish) but remember that we are also offsetting part of that value pickup with an increase in our credit curves commensurate with street expectations. Are we hitting the portfolio twice (essentially doubly hedged)? Possibly, but that would certainly be the conservative method. We have looked at alternatives to reducing the expectation of returns from the prepayment penalties such as haircutting the anticipated cashflows, but that approach would have a tendency to 1 Seven Greenwich Office Park, Greenwich, CT 06830 203-661-6186 (T) 203-661-6378 (F) www.CarringtonCap.com

CCM

Carrington Capital Management, LLC

understate value in a rising prepayment environment. We believe that we have the best balance of valuation and cashflow projection methodology to keep us in line with the Street opinion of fair value implemented currently and will continue to track the prepayment penalty issues longer term. Interesting also is our REO liquidation velocity – we sold 136 properties last month out of the total of 1,280 in beginning month inventory bringing our total properties sold to date to 652. Loss severity has grown slightly to a total of 19.4% inclusive of 1st and 2nd lien positions. We do expect severity to gradually move somewhat higher and are continuing to model to an overall 32.5% severity in conjunction with our liquidation curves. 2nds now account for only 1.09% of our entire portfolio – curiously, 85% are current but I don’t believe we are lining up enthusiastically to buy more……… As always, our deal and loan performance are posted to the public side of our website at www.CarringtonCap.com. Follow the link on the login page to the loan performance database. New Deals!!! Back to what we do best! In May, we purchased and began diligence on a $443MM loan pool (SERVICING RELEASED!!) tentatively to be our CARR 2007 EC1 deal. The loans were purchased from Bear Stearns’ EMC and Encore units and the resulting securities sold off the Carrington shelf will be underwritten by Bear, JPMorgan and Carrington in early July. We are asked frequently why we have not purchased more loans recently. It’s fairly simple: our capital flows have left our AUM relatively level for the past few months while prepayments in our underlying deals have slowed significantly. Our reinvestment requirements have pulled back to more like a $6.0Bn annual pace instead of last year’s $10Bn level. A higher new deal velocity will, of course, be required as we accept more capital into the fund on an ongoing basis. Are the loans available? Absolutely – we sorted through roughly $3.0Bn of new and relatively new production last month from another new origination source – more on that subject likely next month. In the interim, we expect the Bear transaction to be a regular staple in our diets for the foreseeable future. Remember also that we kept some powder dry for the servicing transaction. Servicing On May 16, Carrington Capital Management and our newly formed subsidiary Carrington Mortgage Services (CMS) was the winning bid at the auction of the former New Century Servicing business. CCM’s bid of 69 basis points for the approximately $18Bn of Mortgage Servicing Rights (MSRs) was actually topped by three basis points by Morgan Stanley in approximately 18 rounds of bidding, but CCM’s agreement to assume the liabilities of the business as opposed to purchasing only the financial assets provided sufficient additional benefit to New Century to render CCM the winning bid. CCM also agreed to purchase approximately $56MM of servicer advances embedded in the various Trusts serviced by the platform (and recoverable from the top of the cashflow) waterfall at 95% of face value. Under Dave Gordon’s expert guidance as President of Carrington Mortgage Services (CMS), we have begun the settlement and integration of the (soon-to-be) ex-New Century Servicing platform into CMS. Dave has brought in a team of very senior professionals to manage Human Resources, Servicing Support, Information Technology and Investor Reporting in addition to the outstanding team that we were fortunate to inherit from New Century. All in, we retained approximately 420 employees split between the main facility in Santa Ana, California and Fischers, Indiana. In addition, CMS has applied for and already received formal approval as a FreddieMac Servicer which was pivotal in obtaining rating agency and state licensing approvals.

2 Seven Greenwich Office Park, Greenwich, CT 06830 203-661-6186 (T) 203-661-6378 (F) www.CarringtonCap.com

CCM

Carrington Capital Management, LLC

In spite of whatever numbers the press may have published, Carrington will pay on settlement approximately $119MM for the Mortgage Servicing Rights (MSRs) and further, approximately $53MM for the Servicing Advances embedded in the various Trusts serviced by CMS. There are no additional cash outlays by CCM or CMS; only an assumption of certain operating liabilities including employees, facilities, fixtures and equipment. Bottom line is that CCM bought the servicing platform for the price of the financial assets only. The transaction is financed in a three tiered structure with equity, subordinated and senior notes. Several regulatory hurdles guided the construction of the financing structure; in addition we needed to make certain that the financing was consistent with market standards and conducive to the financing available from our bankers on the transaction, JPMorgan. MSRs are actually divided into two components for consideration; nominal and excess. The driver behind the structure is that the Nominal Servicing rights must be held by the licensed Servicer which must be a US Person from a tax perspective. Licensing is at a State specific level but suffice it to say that the Fund itself cannot be licensed as a servicer. The excess servicing may be purchased and retained by the Fund as a financial asset. To accommodate the regulatory and tax restrictions, CMS was created as a direct subsidiary of CCM. CCM contributed direct cash equity. CIP, on settlement, will then purchase a convertible subordinated secured note paying a 15% coupon, five year maturity, non-callable for two years from CMS supporting senior financing on a revolving line from JPMorgan. While the final terms and tranche sizes remain to be finalized, CCM equity is estimated to be $5.0MM, the Convertible Subordinated Note is estimated to be in a range of $45-65MM and the JPMorgan line covers the rest of the acquisition. The note structures were designed to be market and marketable and secured by the financial assets of CMS. CIP did not acquire and has no direct exposure to the operating liabilities of CMS. The benefits to CIP are several-fold. First and most important, direct and absolute control of the credit performance of the New Century originated assets on CIP’s balance sheet are now firmly in the hands of CCM, no longer an outside servicer. While we had always considered assembling our own servicing operation, prior to the demise of New Century the operating platforms were far too expensive for us to consider; as a result, we retained our Rights of the CE Holder provision that gave CCM mandatory control over the Foreclosure and REO Management processes. CCM is now in a position to work directly with borrowers to AVOID foreclosure, ultimately leading to better credit performance longer term. The Fund also benefits from a direct reduction in its overall servicing cost from the 50 basis points currently charged by a servicer on new deals to something more like 30 basis points from the excess servicing asset. Roughly speaking, if the Fund is able to reduce the servicing cost by 20 basis points on an entire new collateral pool it results in a yield pickup on the retained interests of approximately 200 basis points initially assuming 10% of the capital structure of the deal is retained on the Fund’s balance sheet. The division between nominal servicing and excess servicing is relatively straight forward on new deals – it can be written into the Pooling and Servicing Agreement. On existing deals, it’s a slightly more difficult proposition. New Century ran a fairly efficient and low cost servicing platform; its overall cost of servicing on an average balance of $39Bn last year was approximately 16 basis points while their income on the same balance was 50 basis points. The $39Bn included loans held prior to transfer to other investors and the current balance of loans on the platform is $17.2Bn, but the bottom line is that servicing is a profitable business if appropriately executed. We expect the overall cost of servicing to rise to something in the range of 25-28 basis points this year, leveling back down to somewhere in the low 20s in 2008. We will also grow the platform by adding new assets (loans) to be serviced through the Fund’s normal acquisitions. The convertible feature of the note provides a mechanism for CIP to participate in the longer term profits of the business while still earning a current return commensurate with the Fund’s return hurdles in a secured position.

3 Seven Greenwich Office Park, Greenwich, CT 06830 203-661-6186 (T) 203-661-6378 (F) www.CarringtonCap.com

CCM

Carrington Capital Management, LLC

Longer term, as current deals pay down and they are replaced with new deals, excess servicing will remain embedded in the Fund and the servicer will operate at a fee as close as possible to cost in order to transfer the benefit of the captive servicing unit completely to the Fund. Last, with a bit of effort on the IT side, the servicing business provides a jumpstart to captive origination; the ability to board new loan production. We expect to make some significant announcements with respect to internal production capabilities over the next few months. Stanwich Opportunity Fund As most are aware, we pulled back the documents and delayed the start date for the Stanwich Opportunity Fund in early May. When we designed the Fund initially, the opportunity set was structured around the bulk warehouse liquidations of defaulted, delinquent and distressed assets as multiple originators exited the business through one door or another. Our initial read on the market was that the available opportunity fit a closed end fund structure – more or less a liquidating trust with a specific capital and asset base. However, as we watched the feeding frenzy that ensued when the “Distressed” label was hung on the target assets, we saw bids for defaulted loans rise by 10-15 points, slightly delinquent product moved from the low to the mid-90s. Our initial projections of a return in the 30% range was revised downward on the move, and we found ourselves in a position where we did not feel comfortable taking in capital under the closed-end structure as we did not feel we could deliver a significant yield premium over our flagship fund, Carrington Investment Partners. As a result and in response to continuing investor interest, we have comprehensively revamped the documentation for the Stanwich Opportunities Fund in an effort to implement a broader investment thesis through an open-end fund structure with similar fee structures to CIP. Essentially, Stanwich will have the ability to invest in virtually everything in the single family mortgage credit arena that Carrington Investment Partners does not. To distinguish philosophically between the two Funds, CIP is a new production, new issue credit investor developing returns on CCM’s ability to identify, structure and manage credit risk on a loan level basis. Stanwich will take advantage of pricing dislocation in the market whether it be through distressed loans structures, securities or secondary market transactions by analyzing the credit risk and performance potential at the structure level. The strategy will function similarly to CIP in that Stanwich may be a takeout for the lower cashflows of securities created by Carrington Securities on a forward basis, but the majority of the interest in the Stanwich Fund has indicated that there is a strong desire to see us take advantage of other dislocated opportunities in the market, not just limited to delinquent, defaulted and “scratch-and-dent” loans. The revised Private Placement Memorandum has gone through its first turns; we fully expect to complete the offering documents in early July and to accept funding not later than August 1. Please contact me, Darren or Jack for additional reference. News Snippets: May 3rd May 3rd May 4th May 8th May 14th May 16th – May 17th May 23rd May 23rd June 2nd June 4th -

Novastar announces $1.9 billion line from Wachovia UBS announces close of Dillon Read on mortgage related losses Ellington buys $170mm in loans from New Century Accredited gets more liquidity from Wachovia Novastar dissolves REIT, declares subprime market is recovering. New Century loan servicing sells for 188mm Bernanke Speech – Lending curbs will restrain housing Fremont General agrees to sell it’s Commercial Loan business to iStar Fieldstone's shareholders approve deal with C-BASS Subprime loans performing better this year, Washington Mutual says Accredited Home to be bought for $400 mm by Lone Star

4 Seven Greenwich Office Park, Greenwich, CT 06830 203-661-6186 (T) 203-661-6378 (F) www.CarringtonCap.com

CCM

Carrington Capital Management, LLC

And finally, one of our favorites; Buffett on the subprime mortgage meltdown Warren Buffett said further "screw ups" in the subprime mortgage sector in the United States could be an opportunity for those with buying power.

As always, please do not hesitate to contact me directly for additional reference.

Bruce Rose, President and General Partner

5 Seven Greenwich Office Park, Greenwich, CT 06830 203-661-6186 (T) 203-661-6378 (F) www.CarringtonCap.com