ECC Capital to Sell its Subprime Mortgage Division to Bear Stearns

ECC Capital Corporation, a mortgage finance real estate investment trust (REIT) that originates and invests in residential mortgage loans, today announced that it has entered into an agreement to sell certain operating assets used in its subprime wholesale mortgage banking division to Bear Stearns Residential Mortgage Corporation, an affiliate of Bear Stearns & Co., for approximately $26 million in cash and Bear Stearns’ assumption of certain lease liabilities. ECC Capital will retain other obligations arising from its subprime wholesale mortgage banking division, including but not limited to, loan repurchase obligations, remaining leases and personnel related liabilities. ECC Capital will also retain the majority of its core assets, including its residual interests in mortgage-backed securities and associated servicing rights. Upon completion of the transaction, which is expected to close by the end of 2006, ECC Capital will effectively exit the subprime wholesale mortgage origination business. Within thirty days after the close of the transaction, ECC Capital expects to make an initial distribution to stockholders of approximately $0.80 per share.

“After extensively considering a wide range of strategic alternatives, the Special Committee of the Board of Directors, with advice from our senior management and our financial and legal advisors, has determined that the sale of our subprime wholesale mortgage banking division to Bear Stearns, and the resulting reduction in operating losses that have continued with the division, represents the best course of action for our stockholders,” said Shabi Asghar, ECC Capital’s President and Co-CEO. “ECC Capital is continuing to explore strategic alternatives with respect to maximizing the value of its remaining assets in order to provide additional distributions to stockholders and satisfy its remaining liabilities. Alternatives being considered include the sale of remaining operating assets, the residual interests and associated servicing rights or, in the case of the residuals, collection of remaining cash flows through 2010.”

The amount and timing of any future distributions will depend on whether the Company elects to sell its residual interests, in whole or in part, or elects to collect the remaining cash flows over the life of such residuals. Following any sale of the remaining assets and/or the realization, over time, of cash flows from the Company’s residual interests, ECC Capital expects to be able to make total distributions over time to its stockholders of at least $1.60, which includes the initial distribution specified above. The Company intends to maintain its REIT status for the period of time during which it holds the residual interests in its securitizations.

In connection with the signing of this transaction, ECC Capital entered into an enhanced warehouse repurchase agreement and loan purchase arrangement with Bear Stearns, which are expected to provide increased stability during the period prior to closing by allowing Encore Credit to take advantage of Bear Stearns’ capital markets expertise and secondary market execution.

Under terms of the agreement, Bear Stearns will acquire the assets of ECC Capital’s subprime wholesale mortgage banking division, including property and equipment, customer lists, intellectual property and information technology systems used by ECC Capital, along with selected whole loans. Bear Stearns will assume only those liabilities that are necessary for Bear Stearns to continue to support the originations generated by the subprime wholesale mortgage banking division, including leases for ECC Capital’s operating centers in Irvine, CA, Downers Grove, IL and Glen Allen, VA. The business will continue to operate as a division of Bear Stearns Residential Mortgage Corporation. Mr. Asghar will head up the division as its CEO and President. Bear Stearns intends to continue using the Encore Credit brand name

Friedman, Billings, Ramsey & Co., Inc. and Milestone Advisors, LLC served as ECC Capital’s co-financial advisors, and Latham & Watkins LLP served as ECC Capital’s legal advisor. Stifel, Nicolaus & Co., Inc. issued a fairness opinion and Venable LLP acted as legal advisor to the Special Committee of the Board of Directors.