-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFSBPCWGK9EEoNfnIPdbHUTDNNmfBSOzp4ThESW4pMOB9OD2QX3fMApUjjeHztkP HEjJ9jcRPajUyfKz+GoAbg== 0000841501-07-000020.txt : 20071114 0000841501-07-000020.hdr.sgml : 20071114 20071114140812 ACCESSION NUMBER: 0000841501-07-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071114 DATE AS OF CHANGE: 20071114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND A CALIF LTD PARTNERSHIP CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17248 FILM NUMBER: 071243224 BUSINESS ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 BUSINESS PHONE: 925-280-5393 MAIL ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND DATE OF NAME CHANGE: 19940902 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND II DATE OF NAME CHANGE: 19920703 10-Q 1 omif10q0907.htm OMIF 10Q AT 9/30/07 omif10q0907.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM l0-Q

(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 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 number 000-17248

OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
(Exact Name of Registrant as Specified In Its Charter)


California
  
68-0023931
(State or other jurisdiction
  
(I.R.S. Employer Identification No.)
of incorporation or organization)
    
     
2221 Olympic Boulevard
    
Walnut Creek, California
  
94595
(Address of principal executive offices)
  
(Zip Code)
     
(925) 935-3840
    
Registrant’s telephone number,
    
including area code
    

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

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 accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [   ]
Accelerated filer [   ]
Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [   ] No [X]

1



 
TABLE OF CONTENTS
  
     
 
PART I – FINANCIAL INFORMATION
  
   
Page
     
     
 
 
     
     
     
     
 
PART II – OTHER INFORMATION
  
     
     
     



Exhibit 31.1
Exhibit 31.2
Exhibit 32


2

PART I – FINANCIAL INFORMATION
 
 

OWENS MORTGAGE INVESTMENT FUND,
 a California Limited Partnership

Consolidated Balance Sheets

September 30, 2007 (UNAUDITED) and December 31, 2006



 
  
 
September 30
2007
  
December 31
2006
  
ASSETS
              
Cash and cash equivalents
  
$
14,484,292
  
$
23,283,770
  
Restricted cash
    
1,000,000
    
1,000,000
  
Loans secured by trust deeds, net of allowance for losses of $4,591,000 in 2007 and $4,225,000 in 2006
    
241,045,521
    
245,918,631
  
Interest and other receivables
    
4,294,058
    
3,988,644
  
Real estate held for sale, net of allowance for losses of $0 in 2007 and $405,388 in 2006
    
31,524,395
    
12,754,703
  
Real estate held for investment, net of accumulated depreciation and amortization of $2,830,175 in 2007 and $2,345,871 in 2006
    
22,107,612
    
16,945,692
  
 
  
$
314,455,878
  
$
303,891,440
  
 
              
LIABILITIES AND PARTNERS’ CAPITAL
              
LIABILITIES:
              
Accrued distributions payable
  
$
596,680
  
$
573,908
  
Due to general partner
    
9,257
    
231,439
  
Accounts payable and accrued liabilities
    
938,852
    
726,525
  
Deferred gain on sale of real estate
    
908,397
    
914,905
  
Note payable
    
10,500,000
    
10,500,000
  
Total Liabilities
    
12,953,186
    
12,946,777
  
 
              
Minority interest
    
114,831
    
140,385
  
 
              
PARTNERS’ CAPITAL (units subject to redemption):
              
General partner
    
2,961,375
    
2,866,930
  
Limited partners
    
298,426,486
    
287,937,348
  
Total Partners’ Capital
    
301,387,861
    
290,804,278
  
 
  
$
314,455,878
  
$
303,891,440
  

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

3

OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2007 and 2006
(UNAUDITED)
 
  
For the Three Months Ended
  
For the Nine Months Ended
  
 
  
September 30,
2007
  
September 30,
2006
  
September 30,
2007
  
September 30,
2006
  
 
                          
REVENUES:
                          
Interest income on loans secured by trust deeds
  
$
6,350,225
  
$
6,615,539
  
$
19,502,138
  
$
21,989,726
  
Gain on sale of real estate
    
803,541
    
301,889
    
991,249
    
378,848
  
Rental and other income from real estate properties
    
1,071,203
    
862,772
    
2,809,069
    
2,669,298
  
Other income
    
111,615
    
121,563
    
377,123
    
294,395
  
Total revenues
    
8,336,584
    
7,901,763
    
23,679,579
    
25,332,267
  
 
                          
EXPENSES:
                          
Management fees to general partner
    
165,983
    
1,243,482
    
856,063
    
5,168,298
  
Servicing fees to general partner
    
163,441
    
165,621
    
529,139
    
517,889
  
Carried interest to general partner
    
46,452
    
2,068
    
46,452
    
6,484
  
Administrative
    
12,000
    
12,000
    
36,000
    
36,000
  
Legal and accounting
    
139,242
    
50,025
    
341,605
    
196,658
  
Rental and other expenses on real estate properties
    
836,014
    
592,901
    
2,105,771
    
1,847,146
  
Interest expense
    
156,961
    
194,561
    
1,294,460
    
1,325,022
  
Minority interest
    
3,896
    
9,039
    
8,718
    
17,901
  
Provision for (reversal of) loan losses
    
(79,000
)
  
75,000
    
1,744,515
    
75,000
  
Recovery of losses on real estate held for sale
    
—
    
(43,059
)
  
(349,224
)
  
(43,059
)
Other
    
19,659
    
5,768
    
47,532
    
40,758
  
Total expenses
    
1,464,648
    
2,307,406
    
6,661,028
    
9,188,097
  
                           
Net income from continuing operations
  
$
6,871,936
  
$
5,594,357
  
$
17,018,551
  
$
16,144,170
  
                           
Net loss from discontinued operations
    
—
    
(22,542
)
  
—
    
(238,908
)
                           
Net income
  
$
6,871,936
  
$
5,571,815
  
$
17,018,551
  
$
15,905,262
  
 
                          
Net income allocated to general partner
  
$
67,523
  
$
55,187
  
$
168,165
  
$
157,522
  
 
                          
Net income allocated to limited partners
  
$
6,804,413
  
$
5,516,628
  
$
16,850,386
  
$
15,747,740
  
 
                          
Net income allocated to limited partners per weighted average limited partnership unit
  
$
.02
  
$
.02
  
$
.06
  
$
.05
  
 
                          
Weighted average limited partnership units
    
296,528,000
    
286,936,000
    
290,624,000
    
286,691,000
  


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


4



OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2007 and 2006
(UNAUDITED)
 
  
September 30
  
September 30
  
   
2007
  
2006
  
CASH FLOWS FROM OPERATING ACTIVITIES:
              
Net Income
  
$
17,018,551
  
$
15,905,262
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
Gain on sale of real estate properties
    
(991,249
)
  
(378,848
)
Gain on sale of discontinued operation
    
—
    
(4,048
)
Provision for loan losses
    
1,744,515
    
75,000
  
Recovery of losses on real estate held for sale
    
(349,224
)
  
(43,059
)
Depreciation and amortization
    
513,289
    
525,371
  
Changes in operating assets and liabilities:
              
Interest and other receivables
    
(1,225,660
)
  
(820,860
)
Accounts payable and accrued liabilities
    
212,327
    
(181,991
)
Due to general partner
    
(222,182
)
  
730,841
  
Interest payable to general partner
    
—
    
27,223
  
Net cash provided by operating activities
    
16,700,367
    
15,834,891
  
               
CASH FLOWS FROM INVESTING ACTIVITIES:
              
Investment in loans secured by trust deeds
    
(126,668,426
)
  
(126,851,049
)
Principal collected on loans
    
92,625,277
    
127,098,573
  
Sales of loans to third parties
    
12,348,525
    
23,000,000
  
Investment in real estate properties
    
(524,357
)
  
(862,310
)
Net proceeds from disposition of real estate properties
    
3,156,886
    
1,705,571
  
Minority interest in limited liability companies
    
(25,554
)
  
(10,099
)
Net cash (used in) provided by investing activities
    
(19,087,649
)
  
24,080,686
  
               
CASH FLOWS FROM FINANCING ACTIVITIES:
              
Proceeds from sale of partnership units
    
10,889,750
    
133,968
  
Net repayments on line of credit
    
—
    
(16,300,000
)
Partners’ cash distributions
    
(5,163,895
)
  
(4,971,407
)
Partners’ capital withdrawals
    
(12,138,051
)
  
(9,665,171
)
Net cash used in financing activities
    
(6,412,196
)
  
(30,802,610
)
               
Net (decrease) increase in cash and cash equivalents
    
(8,799,478
)
  
9,112,967
  
               
Cash and cash equivalents at beginning of period
    
23,283,770
    
6,139,028
  
               
Cash and cash equivalents at end of period
  
$
14,484,292
  
$
15,251,995
  
               
Supplemental Disclosures of Cash Flow Information
              
Cash paid during the period for interest
  
$
1,307,563
  
$
1,273,948
  

See notes 2, 3 and 4 for supplemental disclosure of noncash operating and investing activities.
The accompanying notes are an integral part of these consolidated financial statements.

5
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of the management of Owens Mortgage Investment Fund, a California Limited Partnership, (the “Partnership”) the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. Certain information and footnote disclosures presented in the Partnership’s annual consolidated financial statements are not included in these interim financial statements. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Partnership’s Form 10-K for the fiscal year ended December 31, 2006 filed with the Securities and Exchange Commission. The results of operations for the three and nine month periods ended September 30, 2007 are not necessarily indicative of the operating results to be expected for the year ending December 31, 2007.

 
Basis of Presentation

The consolidated financial statements include the accounts of the Partnership and its majority-owned limited liability companies. All significant inter-company transactions and balances have been eliminated in consolidation. The Partnership is in the business of providing mortgage lending services and manages its business as one operating segment.

Certain reclassifications, not affecting previously reported net income or total partner capital, have been made to the previously issued consolidated financial statements to conform to the current year presentation.

The 2006 classification of loans secured by trust deeds displayed in Note 2 of the consolidated financials statements has been revised in the current year to reflect such loans by property type.  This reclassification did not impact the financial position or results of operations of the Partnership.

Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates relate principally to the determination of the allowance for loan losses, including the valuation of impaired loans and the valuation of real estate held for sale and investment.  Actual results could differ significantly from those estimates.
 
Income Taxes

No provision for federal and state income taxes (other than the $800 state minimum tax) is made in the consolidated financial statements since the Partnership is not a taxable entity.  Accordingly, any income or loss is included in the tax returns of the partners.
 

 

 

 

6
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

NOTE 2 - LOANS SECURED BY TRUST DEEDS AND ALLOWANCE FOR LOAN LOSSES

Loans secured by trust deeds as of September 30, 2007 and December 31, 2006 are as follows:
  
   
2007
    
2006
  
By Property Type:
            
Commercial
  
$
137,345,590
    
$
112,355,502
  
Condominiums
    
76,852,871
      
61,110,134
  
Apartments
    
5,273,893
      
11,416,257
  
Single family homes (1-4 Units)
    
1,021,649
      
650,000
  
Improved and unimproved land
    
25,142,518
      
64,611,738
  
                 
   
$
245,636,521
    
$
250,143,631
  
                 
By Deed Order:
                
First mortgages
  
$
233,918,755
    
$
231,040,770
  
Second mortgages
    
11,717,766
      
19,102,861
  
                 
   
$
245,636,521
    
$
250,143,631
  

The Partnership’s loan portfolio above includes Construction Loans and Rehabilitation Loans. Construction Loans are determined by the General Partner to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties.  The General Partner has approved the borrowers up to a maximum loan balance; however, disbursements are made in phases throughout the construction process.  As of September 30, 2007 and December 31, 2006, the Partnership held Construction Loans totaling approximately $12,419,000 and $61,514,000, respectively, and had commitments to disburse an additional $6,356,000 and $2,789,000, respectively, on Construction Loans.

The Partnership also makes loans, the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties, or are used to complete improvements to land.  The General Partner has determined that these are not Construction Loans.   These loans are referred to as Rehabilitation Loans. As of September 30, 2007 and December 31, 2006, the Partnership held Rehabilitation Loans totaling approximately $41,964,000 and $35,809,000, respectively, and had commitments to disburse an additional $12,285,000 and $15,194,000, respectively, on Rehabilitation Loans.

7
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

Scheduled maturities of loans secured by trust deeds as of September 30, 2007 and the interest rate sensitivity of such loans are as follows:

 
  
Fixed
Interest
Rate
    
Variable
Interest
Rate
    
Total
  
                         
Year ending September 30:
                        
2007 (past maturity)
  
$
53,098,464
    
$
1,600,000
    
$
54,698,464
  
2008
    
139,423,342
      
—
      
139,423,342
  
2009
    
22,630,093
      
—
      
22,630,093
  
2010
    
6,083,182
      
57,641
      
6,140,823
  
2011
    
—
      
—
      
—
  
2012
    
—
      
—
      
—
  
Thereafter (through 2016)
    
814,587
      
21,929,212
      
22,743,799
  
                         
   
$
222,049,668
    
$
23,586,853
    
$
245,636,521
  

Variable rate loans use as indices the one-year, five-year and ten-year Treasury Constant Maturity Index (4.05%, 4.23% and 4.59%, respectively, as of September 30, 2007), the prime rate (7.75% as of September 30, 2007) or the weighted average cost of funds index for Eleventh or Twelfth District savings institutions (4.36% and 3.66%, respectively, as of September 30, 2007) or include terms whereby the interest rate is adjusted at a specific later date. Premiums over these indices have varied from 250–650 basis points depending upon market conditions at the time the loan is made.

8
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

The following is a schedule by geographic location of loans secured by trust deeds as of September 30, 2007 and December 31, 2006:
 
   
September 30, 2007
Balance
  
Portfolio
Percentage
  
December 31, 2006
Balance
  
Portfolio
Percentage
  
                       
Arizona
  
$
12,537,138
  
5.10%
  
$
29,382,542
  
11.75%
  
California
    
144,023,906
  
58.63%
    
141,737,933
  
56.66%
  
Colorado
    
14,000,000
  
5.70%
    
14,000,000
  
5.60%
  
Florida
    
23,482,581
  
9.56%
    
—
  
—%
  
Hawaii
    
1,300,000
  
0.53%
    
1,300,000
  
0.52%
  
Idaho
    
3,488,667
  
1.42%
    
3,245,264
  
1.30%
  
Nevada
    
1,653,209
  
0.67%
    
19,534,922
  
7.81%
  
New York
    
9,420,000
  
3.84%
    
—
  
—%
  
Oregon
    
88,047
  
0.04%
    
—
  
—%
  
Pennsylvania
    
1,650,071
  
0.67%
    
—
  
—%
  
Tennessee
    
9,716,101
  
3.96%
    
7,769,947
  
3.11%
  
Texas
    
2,635,000
  
1.07%
    
2,635,000
  
1.05%
  
Utah
    
4,588,893
  
1.87%
    
13,516,257
  
5.40%
  
Virginia
    
2,230,000
  
0.91%
    
2,230,000
  
0.89%
  
Washington
    
14,822,908
  
6.03%
    
14,791,766
  
5.91%
  
                       
   
$
245,636,521
  
100.00%
  
$
250,143,631
  
100.00%
  

As of September 30, 2007 and December 31, 2006, the Partnership’s loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 33% ($80,221,000) and 45% ($111,237,000), respectively, of the loan portfolio. The Northern California region (which includes the following counties and all counties north: Monterey, Fresno, Kings, Tulare and Inyo) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate.

As of September 30, 2007 and December 31, 2006, approximately $232,632,000 (94.7%) and $237,118,000 (94.8%) of Partnership loans are interest-only and require the borrower to make a “balloon payment” on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans.

During the three and nine months ended September 30, 2007 and 2006, the Partnership refinanced loans totaling approximately $0 and $0, respectively, and $8,953,000 and $16,500,000, respectively, thereby extending the maturity dates of such loans.

As of September 30, 2007 and December 31, 2006, the Partnership had eighteen and thirteen past maturity loans totaling approximately $54,698,000 and $58,582,000, respectively. Occasionally, when collectibility is reasonably assured, the Partnership allows borrowers that are not delinquent in monthly payments to continue to make the payments on debt past maturity for periods of time without formally filing a notice of default.

9
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

As of September 30, 2007 and December 31, 2006, the Partnership had ten and eight impaired loans, respectively, that were delinquent in monthly payments greater than ninety days totaling approximately $24,115,000 and $18,835,000, respectively.  This included five and two matured loans totaling $15,485,000 and $2,900,000, respectively. In addition, thirteen and eleven loans totaling approximately $39,213,000 and $55,682,000, respectively, were past maturity but current in monthly payments as of September 30, 2007 and December 31, 2006, respectively (combined total of delinquent loans of $63,328,000 and $74,517,000, respectively). Of the impaired loans, approximately $11,800,000 and $0, respectively, were in the process of foreclosure and $1,600,000 and $8,176,000, respectively, involved borrowers who were in bankruptcy as of September 30, 2007 and December 31, 2006.  The Partnership foreclosed on three and four loans during the three and nine months ended September 30, 2007, respectively, with aggregate principal balances totaling $19,626,000 and $26,202,000, respectively, and obtained the properties via the trustee’s sales.

 
In August 2007, the Partnership foreclosed on a $3,268,000 first mortgage loan secured by a mixed-use retail building in the process of rehabilitation located in Sacramento, California and unimproved land located in Marysville, California and obtained the properties via the trustee’s sale.

In August and September 2007, the Partnership foreclosed on two first mortgage loans in the total amount of approximately $16,358,000 secured by 75 improved, residential lots and a golf course located in Auburn, California and obtained the properties via the trustee’s sales.

In June 2007, the Partnership foreclosed on a first mortgage loan secured by undeveloped residential land located in Madera County, California in the amount of approximately $6,576,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as a result of the foreclosure (such as legal and foreclosure fees and delinquent property taxes) in the total amount of approximately $253,000 were capitalized to the basis in the property (total of approximately $6,829,000).  At the time of foreclosure, an appraisal was obtained that valued the property at $5,450,000, thus, resulting in a charge-off against the allowance for loan losses of approximately $1,379,000.

Of the total past maturity loans as of September 30, 2007, two loans with a total principal balance of approximately $2,635,000 had the maturity dates extended subsequent to September 30, 2007. In October 2007 (subsequent to quarter end), the Partnership began foreclosure proceedings by filing a notice of default on an impaired loan with a principal balance of approximately $5,817,000 as of September 30, 2007.

During the first quarter of 2007, the Partnership funded a $30,000,000 portion of a $75,200,000 mortgage loan secured by a condominium complex (in the process of conversion and renovation) located in Miami, Florida and entered into a Co-Lending and Servicing Agent Agreement (the “Agreement”) with three other co-lenders in the loan.  The General Partner is also a co-lender in the subject loan and is party to the Agreement. The interest rate payable to the Partnership and the General Partner on the loan is 10% per annum. Pursuant to the Agreement, the Partnership and the General Partner, as senior co-lenders, have priority on a pro-rata basis over all other co-lenders in such loan and shall first receive their share of interest in the loan prior to any other co-lender and next shall receive their share of principal in the loan prior to any other co-lender in the loan (after any protective advances made are reimbursed to the co-lenders on a pro-rata basis).  The servicer of the loan is one of the co-lenders (the “Lead Lender”) and the Partnership receives the payments on the loan from the Lead Lender. As of September 30, 2007, the borrower is in default of the loan documents even though the payments on the loan are not delinquent greater than ninety days, and management of the project has been assumed by the Lead Lender. As of September 30, 2007, the Partnership had funded $219,000 of protective advances to complete renovations to the property and funded an additional $293,000 subsequent to quarter end. As of September 30, 2007, the Partnership’s and General Partner’s remaining principal balance in the subject loan was approximately $23,483,000 and $7,828,000, respectively.  Due to the underlying collateral value and the Partnership’s and General Partner’s senior position over the other co-lenders in the loan, management of the General Partner does not believe that the Partnership will incur a loss related to this loan.

10
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    


During the first quarter of 2007, the President of the General Partner, funded a $600,000 second deed of trust secured by the same property (and to the same borrower) on which the Partnership has a first deed of trust in the amount of $2,400,000 at an interest rate of 11% per annum .  The interest rate on the President’s loan is 12% per annum.

The average recorded investment in impaired loans (including loans delinquent in payments greater than 90 days) was approximately $35,567,000 and $20,595,000 as of September 30, 2007 and 2006, respectively.  For the three and nine months ended September 30, 2007 and 2006, interest income recognized on impaired loans totaled approximately $425,000 and $1,395,000, respectively and $233,000 and $2,300,000, respectively.  For the three and nine months ended September 30, 2007 and 2006, interest income received on impaired loans totaled approximately $345,000 and $1,117,000, respectively, and $1,002,000 and $1,884,000, respectively. The Partnership has discontinued the accrual of interest on all loans that are delinquent in monthly payments greater than ninety days. Cash receipts are allocated to interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Partnership’s investment in the loan is fully recoverable.

The Partnership’s allowance for loan losses was $4,591,000 and $4,225,000 as of September 30, 2007 and December 31, 2006, respectively, of which the entire balance was a non-specific allowance.

Changes in the allowance for loan losses for the three and nine months ended September 30, 2007 and 2006 were as follows:
 
 
  
Three Months Ended September 30,
  
Nine Months Ended September 30,
  
 
  
2007
  
2006
  
2007
  
2006
  
Balance, beginning of period
  
$
4,670,000
  
$
4,150,000
  
$
4,225,000
  
$
4,150,000
  
Provision (reversal)
    
(79,000
)
  
75,000
    
1,744,515
    
75,000
  
Recovery of bad debts
    
—
    
—
    
—
    
—
  
Charge-off
    
—
    
—
    
(1,378,515
)
  
—
  
Balance, end of period
  
$
4,591,000
  
$
4,225,000
  
$
4,591,000
  
$
4,225,000
  

The General Partner believes that the allowance for estimated loan losses is appropriate as of September 30, 2007 and December 31, 2006. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the underlying collateral.








11
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

NOTE 3 - REAL ESTATE HELD FOR SALE

Real estate held for sale as of September 30, 2007 and December 31, 2006 consists of the following properties acquired through foreclosure from 1997 through 2007:

   
2007
  
2006
  
Manufactured home subdivision development,  Ione, California (15 and 17 lots, respectively)
  
$
843,642
  
$
869,450
  
Undeveloped industrial land, Gresham, Oregon, net of valuation allowance of $250,000 in 2006
    
—
    
1,374,048
  
Undeveloped industrial land, San Jose, California
    
3,025,992
    
3,025,992
  
Industrial land and buildings, Santa Clara, California
    
4,258,407
    
4,258,407
  
Three condominium units, Lincoln City, Oregon, net of valuation allowance of $155,388 in 2006 (held within Oregon Leisure Homes, LLC)
    
—
    
415,338
  
Manufactured home subdivision development, Lake Charles, Louisiana (held within Dation, LLC)
    
2,847,974
    
2,811,468
  
Mixed-use retail building, Sacramento, California
    
2,850,000
    
—
  
Unimproved residential land, Marysville, California
    
594,610
    
—
  
Golf course, Auburn, California (held within DarkHorse Golf Club, LLC)
    
3,340,000
    
—
  
75 improved residential lots, Auburn, California
    
13,763,770
    
—
  
   
$
31,524,395
  
$
12,754,703
  

The acquisition of certain real estate properties through foreclosure (including properties held for investment – see Note 4) resulted in non-cash increases in real estate and non-cash decreases in loans secured by trust deeds and interest and other receivables of approximately $25,743,000 for the nine months ended September 30, 2007.  There were no foreclosures during the nine months ended September 30, 2006.

During the three months ended September 30, 2007, one lot located in a manufactured home subdivision development located in Ione, California (that was acquired by the Partnership through foreclosure in 1997) was sold for $40,000, resulting in a gain to the Partnership of approximately $24,000.

During the three months ended September 30, 2007, the Partnership sold the undeveloped land located in Gresham, Oregon for net sales proceeds of approximately $2,397,000 resulting in gain on sale of approximately $773,000.

12
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

Changes in the allowance for real estate losses for the three and nine months ended September 30, 2007 and 2006 were as follows:
 
  
Three Months Ended September 30,
  
Nine Months Ended September 30,
  
 
  
2007
  
2006
  
2007
  
2006
  
Balance, beginning of period
  
$
—
  
$
660,000
  
$
405,388
  
$
660,000
  
Provision
    
—
    
—
    
—
    
—
  
Recovery of losses
    
—
    
(254,612
)
  
(405,388
)
  
(254,612
)
Charge-off
    
—
    
—
    
—
    
—
  
Balance, end of period
  
$
—
  
$
405,388
  
$
—
  
$
405,388
  

The recovery of losses on real estate held for sale for the nine months ended September 30, 2007 relates to the sales of condominium units in Oregon Leisure Homes, LLC (see below) and the reversal of the $250,000 allowance for the undeveloped land located in Gresham, Oregon due to the recovery of the original cost of the property pursuant to a sale which closed in July 2007.  Of the total recovery amount, $56,164 was included in gain on sale of real estate (for a condominium unit sold in Oregon Leisure Homes, LLC) and $349,224 was recorded as recovery of estimated losses on real estate properties held for sale in the accompanying consolidated statements of income.

Investment in Limited Liability Companies

Oregon Leisure Homes, LLC

Oregon Leisure Homes, LLC (OLH) is an Oregon limited liability company formed in 2001 for the purpose of developing and selling eight condominium units located in Lincoln City, Oregon, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership is the sole member in OLH. The assets, liabilities, income and expenses of OLH have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.

During the nine months ended September 30, 2007 and 2006, the Partnership advanced an additional $17,000 and $73,000, respectively, to OLH for continued operation and marketing of the condominium units and received repayment of advances of $665,000 and $731,000, respectively, from sales of condominium units and collections on notes receivable. During the nine months ended September 30, 2007, OLH sold three condominium units for total net sales proceeds of approximately $656,000, resulting in gain on sale of approximately $141,000.  The net income to the Partnership from OLH was approximately $0 and $331,000 for the three months ended September 30, 2007 and 2006, respectively, and $231,000 and $282,000 for the nine months ended September 30, 2007 and 2006, respectively.

Dation, LLC

Dation, LLC (Dation) was formed in 2001 between the Partnership and an unrelated developer for the purpose of developing and selling lots in a manufactured home park located in Lake Charles, Louisiana, which were acquired by the Partnership via a deed in lieu of foreclosure. The Partnership advances funds to Dation as needed. The Partnership owns 50% of Dation and is co-manager. Pursuant to the Operating Agreement, the Partnership is to receive 50% of Dation’s profits and losses after receipt of all interest on the original loan and priority return on partner contributions allocated at the rate of 12% per annum. The Partnership has recorded 100% of Dation’s net losses since inception because it has the majority of the risks and rewards of ownership. The assets, liabilities, income and expenses of Dation have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.

13
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

Dation sold no lots or houses during the three months ended September 30, 2007. Dation sold one manufactured house (without lot) during the three months ended September 30, 2006, resulting in gain on sale to the Partnership of approximately $5,000.  Dation repaid $5,000 and $63,000 of Partnership capital contributions during the three months ended September 30, 2007 and 2006, respectively.

The net income to the Partnership from Dation was approximately $24,000 and $33,000 for the three months ended September 30, 2007 and 2006, respectively, and $95,000 and $177,000 for the nine months ended September 30, 2007 and 2006, respectively.

DarkHorse Golf Club, LLC

DarkHorse Golf Club, LLC (DarkHorse) is a California limited liability company formed in August 2007 for the purpose of operating the DarkHorse golf course located in Auburn California, which was acquired by the Partnership via foreclosure in August 2007. The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.  The golf course is being operated and managed by an unrelated company.

The net loss to the Partnership from DarkHorse was approximately $4,000 for the three months ended September 30, 2007.

NOTE 4 - REAL ESTATE HELD FOR INVESTMENT

Real estate held for investment as of September 30, 2007 is comprised of a retail property located in Greeley, Colorado held within 720 University, LLC (see below), a light industrial building located in Paso Robles, California, a commercial building located in Roseville, California, and undeveloped land located in Madera County, California and is comprised of the following as of September 30, 2007 and December 31, 2006:

   
2007
    
2006
  
Land
  
$
9,799,063
    
$
4,349,063
  
Buildings
    
10,134,266
      
10,108,411
  
Improvements
    
4,269,218
      
4,134,381
  
Other
    
735,240
      
699,708
  
     
24,937,787
      
19,291,563
  
Less: Accumulated depreciation and amortization
    
(2,830,175
)
    
(2,345,871
)
   
$
22,107,612
    
$
16,945,692
  
 
During the nine months ended September 30, 2007, the Partnership foreclosed on a first mortgage loan secured by undeveloped residential land located in Madera County, California in the amount of approximately $6,576,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as a result of the foreclosure (such as legal and foreclosure fees and delinquent property taxes) in the total amount of approximately $253,000 were capitalized to the basis in the property (total of approximately $6,829,000).  At the time of foreclosure, an appraisal was obtained that valued the property at $5,450,000, thus, resulting in a charge-off against the allowance for loan losses of approximately $1,379,000.


14
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

Bayview Gardens, LLC

The Partnership was the sole member of a limited liability company, Bayview Gardens, LLC (Bayview), which operated an assisted living facility located in Monterey, California obtained by the Partnership via a deed in lieu of foreclosure on a first mortgage loan in June 2004. In June 2006, the facility was sold for cash of $575,000 and a note secured by the property in the amount of $5,025,000 (net proceeds of $5,592,000 after selling costs).  The sale resulted in deferred gain of approximately $915,000.  Principal payments on the loan were collected during the three months ended September 30, 2007, resulting in recognition of gain on sale of real estate of approximately $7,000 under the installment method.  The deferred gain was approximately $908,000 as of September 30, 2007. Bayview Gardens, LLC was dissolved in December 2006.

The net loss to the Partnership from Bayview operations was $23,000 and $239,000 for the three and nine months ended September 30, 2006, respectively.  These amounts have been reported as net loss from discontinued operations in the accompanying consolidated statements of income as the Partnership believes it has no continuing involvement in the property’s operations.

720 University, LLC

The Partnership has an investment in a limited liability company, 720 University, LLC (720 University), which owns a commercial retail property located in Greeley, Colorado. The Partnership receives 65% of the profits and losses in 720 University after priority return on partner contributions is allocated at the rate of 10% per annum. The assets, liabilities, income and expenses of 720 University have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The net income to the Partnership was approximately $45,000 and $76,000 (including depreciation and amortization of $143,000 and $129,000) for the three months ended September 30, 2007 and 2006, respectively, and $125,000 and $249,000 (including depreciation and amortization of $437,000 and $377,000) for the nine months ended September 30, 2007 and 2006, respectively. The minority interest of the joint venture partner of approximately $115,000 and $140,000 as of September 30, 2007 and December 31, 2006, respectively, is reported in the accompanying consolidated balance sheets. The Partnership’s investment in 720 University property and improvements was approximately $14,266,000 and $14,550,000 as of September 30, 2007 and December 31, 2006, respectively.

NOTE 5 - TRANSACTIONS WITH AFFILIATES

 
In consideration of the management services rendered to the Partnership, Owens Financial Group, Inc. (“OFG”), the General Partner, is entitled to receive from the Partnership a management fee payable monthly, subject to a maximum of 2.75% per annum of the average unpaid balance of the Partnership’s mortgage loans.

All of the Partnership’s loans are serviced by OFG, in consideration for which OFG receives up to .25% per annum of the unpaid principal balance of the loans.

OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual calendar year basis. Even though the fees for a particular month may exceed one-twelfth of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the twelve months may not exceed the stated limits. Due to a decline in the performance of the Partnership during the three and nine months ended September 30, 2007 and in order to maintain yield paid to the limited partners at a level consistent with prior periods, OFG again accepted a large reduction in its management fee in the third quarter to offset a decrease in interest income collected on mortgage loans during the period. Management fees amounted to approximately $166,000 and $1,243,000 for the three months ended September 30, 2007 and 2006, respectively, and $856,000 and $5,168,000, for the nine months ended September 30, 2007 and 2006, respectively. Service fees amounted to approximately $163,000 and $166,000 for the three months ended September 30, 2007 and 2006, respectively, and $529,000 and $518,000 for the nine months ended September 30, 2007 and 2006, respectively. The maximum servicing fees were paid to the General Partner during the three and nine months ended September 30, 2007 and 2006.

15
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    


If the maximum management fees had been paid to the General Partner during the three and nine months ended September 30, 2007, the management fees would have been $1,798,000 (increase of $1,632,000) and $5,820,000 (increase of $4,964,000), respectively, which would have reduced net income allocated to limited partners by approximately 23.8% and 29.2%, respectively, and would have reduced net income allocated to limited partners per weighted average limited partner unit by the same percentages to $.02 and $.04, respectively.

The maximum management fee permitted under the Partnership Agreement is 2.75% per year of the average unpaid balance of mortgage loans.  For the years 2004, 2005 and 2006 and the nine months ended September 30, 2007 (annualized), the management fees were 2.00%, 2.27%, 2.04% and 0.40% of the average unpaid balance of mortgage loans, respectively.

Pursuant to the Partnership Agreement, OFG receives all late payment charges from borrowers on loans owned by the Partnership, with the exception of loans participated with outside entities. The amounts paid to or collected by OFG for such charges totaled approximately $153,000 and $659,000 for the three months ended September 30, 2007 and 2006, respectively, and $348,000 and $956,000 for the nine months ended September 30, 2007 and 2006, respectively. In addition, the Partnership remits other miscellaneous fees to OFG, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $15,000 and $23,000 for the three months ended September 30, 2007 and 2006, respectively, and $35,000 and $77,000 for the nine months ended September 30, 2007 and 2006, respectively.

OFG originates substantially all loans the Partnership invests in and receives loan origination fees from borrowers. Such fees earned by OFG amounted to approximately $1,451,000 and $756,000 on loans originated of approximately $36,885,000 and $24,480,000 for the three months ended September 30, 2007 and 2006, respectively, and approximately $4,554,000 and $4,556,000 on loans originated of approximately $161,156,000 and $133,521,000 for the nine months ended September 30, 2007 and 2006, respectively. Of the $4,554,000 and $4,556,000 in loan origination fees earned by OFG during the nine months ended September 30, 2007 and 2006, $560,000 and $870,000, respectively, were back-end fees that will not be collected until either some future date or when the related loans are paid in full.

OFG is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations in the Partnership Agreement). The amounts reimbursed to OFG by the Partnership were approximately $12,000 and $12,000 during the three months ended September 30, 2007 and 2006, respectively, and approximately $36,000 and $36,000 during the nine months ended September 30, 2007 and 2006, respectively.


16
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

NOTE 6 - NOTE PAYABLE

The Partnership has a note payable with a bank in the amount of $10,500,000 through its investment in 720 University (see note 4), which is secured by the retail development located in Greeley, Colorado. The note requires monthly interest payments until March 1, 2010 at a fixed rate of 5.07% per annum. Commencing April 1, 2010, monthly payments of $56,816 will be required, with the balance of unpaid principal due on March 1, 2015. Interest expense for the three months ended September 30, 2007 and 2006 was approximately $136,000 and $136,000, respectively, and approximately $404,000 and $404,000 for the nine months ended September 30, 2007 and 2006, respectively. The note contains certain covenants, which the Company has complied with as of September 30, 2007.

NOTE 7 - LINE OF CREDIT PAYABLE

The Partnership has a line of credit agreement with a group of banks, which provides interim financing on mortgage loans invested in by the Partnership. All assets of the Partnership are pledged as security for the line of credit. The amount of credit available under this line of credit is $40,000,000. In July 2007, the line of credit agreement was extended to July 31, 2009. There was no balance outstanding on the line of credit as of September 30, 2007 and December 31, 2006. Borrowings under the line of credit bear interest at the bank’s prime rate, which was 7.75% and 8.25% as of September 30, 2007 and 2006, respectively. Interest expense was approximately $21,000 and $59,000 for the three months ended September 30, 2007 and 2006, respectively, and approximately $891,000 and $894,000 for the nine months ended September 30, 2007 and 2006, respectively. The Partnership is required to maintain non-interest bearing accounts in the total amount of $1,000,000 with the banks, which has been reflected as restricted cash in the accompanying balance sheets.  The agreement requires the Partnership to meet certain financial covenants including profitability, minimum tangible net worth and total liabilities to tangible net worth. The Partnership has complied with these covenants as of September 30, 2007.

NOTE 8 – PARTNERS’ CAPITAL
 
The Partnership originally registered 200,000,000 Units under Registration No. 333-69272 of which 99,926,200 Units remained available for sale, at a purchase price of $1.00 per Unit, as of September 30, 2007. The Partnership had been closed to most new limited partner investments since September 2001. However, beginning in June 2007, the Partnership reopened to new contributions from existing limited partners only on a limited basis.  The Partnership sold an aggregate of approximately $1,614,000 and $9,183,000 Units during the second and third quarter of 2007, respectively, to existing limited partners since reopening the sale in June 2007. Changes in partners’ capital for the nine months ended September 30, 2007 were as follows:

   
General
  
Limited partners
  
Total
Partners’
  
   
partner
  
Units
  
Amount
  
capital
  
                           
Balances, December 31, 2006
  
$
2,866,930
    
288,133,368
  
$
287,937,348
  
$
290,804,278
  
                           
Net income
    
168,165
    
16,850,386
    
16,850,386
    
17,018,551
  
Sale of partnership units
    
92,904
    
10,796,846
    
10,796,846
    
10,889,750
  
Partners’ withdrawals
    
—
    
(12,138,051
)
  
(12,138,051
)
  
(12,138,051
)
Partners’ distributions
    
(166,624
)
  
(5,020,043
)
  
(5,020,043
)
  
(5,186,667
)
                           
Balances, September 30, 2007
  
$
2,961,375
    
298,622,506
  
$
298,426,486
  
$
301,387,861
  

17
      
        OWENS MORTGAGE INVESTMENT FUND,      
      
        a California Limited Partnership      
      
        
      
      
        Notes to Consolidated Financial Statements (Unaudited)      
      
        
      
      
        September 30, 2007      
      
        
      
    

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Construction/Rehabilitation Loans

The Partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception.  The Partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents.  As of September 30, 2007, there were $18,641,000 of undisbursed loan funds which will be funded by a combination of repayments of principal on current loans, line of credit draws or capital contributions from limited partners.  The Partnership does not maintain a separate cash reserve to hold the undisbursed obligations that will be funded.

Legal Proceedings

The Partnership is involved in various legal actions arising in the normal course of business.  In the opinion of management, such matters will not have a material effect upon the financial position of the Partnership.

18


 
PART I – Item 2.
 
 
 

Forward Looking Statements

Some of the information in this Form 10-Q may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as “may”, “will”, “expect”, “anticipate”, “estimate”, “continue” or other similar words. These statements discuss expectations, hopes, intentions, beliefs and strategies regarding the future, contain projections of results of operations or of financial conditions or state other forward-looking information. When considering such forward-looking statements you should keep in mind the risk factors and other cautionary statements in the Partnership’s Form 10-Q and in the most recent Form 10-K. Forward-looking statements include, among others, statements regarding future interest rates and economic conditions and their effect on the Partnership and its assets, trends in real estate markets in which the Partnership does business, effects of competition, estimates as to the allowance for loan losses and the valuation of real estate held for sale and investment, estimates of future limited partner withdrawals, additional foreclosures in 2007 and their effects on liquidity, and recovering certain values for properties through sale. Although management of the Partnership believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there are certain factors, in addition to these risk factors and cautioning statements, such as unexpected changes in general economic conditions or interest rates, local real estate conditions (including a downturn in the real estate markets where the Partnership has made loans), adequacy of reserves, the impact of competition and competitive pricing, or weather and other natural occurrences that might cause a difference between actual results and those forward-looking statements.  All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Critical Accounting Policies

In preparing the consolidated financial statements, management is required to make estimates based on the information available that affect the reported amounts of assets and liabilities as of the balance sheet dates and revenues and expenses for the reporting periods. Such estimates relate principally to the determination of (1) the allowance for loan losses including the accrued interest and advances that are estimated to be unrecoverable based on estimates of amounts to be collected plus estimates of the value of the property as collateral and (2) the valuation of real estate held for sale and investment. At September 30, 2007 the Partnership owned twelve real estate properties, including three within limited liability companies.

Loans and related accrued interest and advances are analyzed on a periodic basis for recoverability. Delinquencies are identified and followed as part of the loan system. Provisions are made to adjust the allowance for loan losses and real estate held for sale to an amount considered by management to be adequate, with consideration to original collateral values at loan inception and to provide for unrecoverable accounts receivable, including impaired and other loans, accrued interest, and advances on loans.

Recent trends in the economy have been taken into consideration in the aforementioned process of arriving at the allowance for loan losses and real estate. Actual results could vary from the aforementioned provisions for losses. If the probable ultimate recovery of the carrying amount of a loan, with consideration of the fair value of collateral, is less than amounts due according to the contractual terms of the loan agreement, the carrying amount of the loan is reduced to the present value of future cash flows discounted at the loan’s effective interest rate. If a loan is collateral dependent, it is valued by management at the estimated fair value of the related collateral. Estimated collateral fair values are determined based on internal and external appraisals, opinions of fair value from third party real estate brokers and/or comparable third party sales.

If events and/or changes in circumstances cause management to have serious doubts about the collectibility of the contractual payments or when monthly payments are delinquent greater than ninety days, a loan is categorized as impaired and interest is no longer accrued. Any subsequent payments received on impaired loans are first applied to reduce any outstanding accrued interest, and then are recognized as interest income, except when such payments are specifically designated principal reduction or when management does not believe the Partnership’s investment in the loan is fully recoverable.

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Real estate held for sale includes real estate acquired through foreclosure (including two properties within consolidated limited liability companies) and is stated at the lower of the recorded investment in the loan, inclusive of any senior indebtedness, or at the property’s estimated fair value, less estimated costs to sell.

Real estate held for investment includes real estate purchased or acquired through foreclosure and is initially stated at the lower of cost or the recorded investment in the loan, or the property’s estimated fair value.  Depreciation of buildings and improvements is provided on the straight-line method over the estimated remaining useful lives of buildings and improvements.  Depreciation of tenant improvements and amortization of lease commissions is provided on the straight-line method over the lives of the related leases.  Costs related to the improvement of real estate held for sale and investment are capitalized, whereas those related to holding the property are expensed.

The Partnership periodically compares the carrying value of real estate held for investment to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

Related Parties

The General Partner of the Partnership is Owens Financial Group, Inc. (“OFG” or the “General Partner”).  All Partnership business is conducted through the General Partner, which arranges, services, and maintains the loan portfolio for the benefit of the Partnership.  The fees received by the General Partner are paid pursuant to the Partnership Agreement and are determined at the sole discretion of the General Partner, subject to the limitations imposed by the Partnership Agreement. In the past, the General Partner has elected not to take the maximum compensation in order to maintain return to the limited partners at historical levels.  There can be no assurance that the General Partner will continue to do this in the future. The following is a list of various Partnership activities for which related parties are compensated.

·
Management Fees - In consideration of the management services rendered to the Partnership, the General Partner is entitled to receive from the Partnership a management fee payable monthly, subject to a maximum of 2.75% per annum of the average unpaid balance of the Partnership’s mortgage loans at the end of each month in the calendar year. Management fees amounted to approximately $166,000 and $1,243,000 for the three months ended September 30, 2007 and 2006, respectively.

·
Servicing Fees– All of the Partnership’s loans are serviced by the General Partner, in consideration for which the General Partner is entitled to receive from the Partnership a monthly fee, which, when added to all other fees paid in connection with the servicing of a particular loan, does not exceed the lesser of the customary, competitive fee in the community where the loan is placed or up to 0.25% per annum of the unpaid principal balance of the loans at the end of each month. Service fees amounted to approximately $163,000 and $166,000 for the three months ended September 30, 2007 and 2006, respectively.

·
Acquisition and Origination Fees – The General Partner is entitled to receive and retain all acquisition and origination fees paid or payable by borrowers for services rendered in connection with the evaluation and consideration of potential investments of the Partnership (including any selection fee, mortgage placement fee, nonrecurring management fee, and any origination fee, loan fee, or points paid by borrowers). The acquisition and origination fees are paid by borrowers, and thus, are not an expense of the Partnership. Such fees earned by OFG amounted to approximately $1,451,000 and $756,000 on loans originated of approximately $36,885,000 and $24,480,000 for the three months ended September 30, 2007 and 2006, respectively.

 
·
Late Payment Charges – The General Partner is entitled to receive all late payment charges by borrowers on delinquent loans held by the Partnership (including additional interest and late payment fees).  The late payment charges are paid by borrowers and collected by the Partnership with regular monthly loan payments or at the time of loan payoff.  These are recorded as a liability (Due to General Partner) when collected and are not recognized as an expense of the Partnership. The amounts paid to or collected by OFG for such charges totaled approximately $153,000 and $659,000 for the three months ended September 30, 2007 and 2006, respectively.

20


 
·
Other Miscellaneous Fees - The Partnership remits other miscellaneous fees to the General Partner, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $15,000 and $23,000 for the three months ended September 30, 2007 and 2006, respectively.

 
·
Partnership Expenses– The General Partner is entitled to be reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations in the Partnership Agreement).  The amounts reimbursed to the General Partner by the Partnership were approximately $12,000 and $12,000 during the three months ended September 30, 2007 and 2006, respectively.

 
·
Carried Interest and Contributed Capital – The General Partner is required to contribute capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest; the General Partner has an interest equal to 1% of the limited partners’ capital accounts. This carried interest of the General Partner of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the General Partner’s capital account as additional compensation. As of September 30, 2007, the General Partner has made cash capital contributions of $1,491,000 to the Partnership. The General Partner is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance. The carried interest expense charged to the Partnership was $46,000 and $2,000 for the three months ended September 30, 2007 and 2006, respectively.

Results of Operations

Overview

The Partnership invests in mortgage loans on real property located in the United States that are primarily originated by the General Partner.

The Partnership’s primary objective is to generate monthly income from its investment in mortgage loans. The Partnership’s focus is on making mortgage loans to owners and developers of real property whose financing needs are often not met by traditional mortgage lenders. These include borrowers that traditional lenders may not normally consider because of perceived credit risks based on ratings or experience levels, and borrowers who require faster loan decisions. One of the Partnership’s competitive advantages is the ability to approve loan applications more quickly than traditional lenders.

The Partnership will originate loans secured by very diverse property types. In addition, the Partnership will occasionally lend to borrowers whom traditional lenders will not normally lend to because of a variety of factors including their credit ratings and/or experience. Due to these factors, the Partnership may make mortgage loans that are riskier than mortgage loans made by commercial banks and other institutional lenders. To compensate for those potential risks, the Partnership seeks to make loans at higher interest rates and with more protection from the underlying real property, such as with lower loan to value ratios.

The Partnership’s operating results are affected primarily by:

 
·
the amount of cash available to invest in mortgage loans;
 
·
the level of real estate lending activity in the markets serviced;
 
·
the ability to identify and lend to suitable borrowers;
 
·
the interest rates the Partnership is able to charge on loans;
 
·
the level of delinquencies on mortgage loans;
 
·
the level of foreclosures and related loan and real estate losses experienced; and

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·
the income or losses from foreclosed properties prior to the time of disposal.

By most indicators, the United States economy continues to perform well. The national unemployment rate increased slightly from 4.5% in December 2006 to 4.7% in September 2007. The California unemployment rate increased from 4.8% in December 2006 to 5.6% in September 2007. The growth of the Gross Domestic Product (GDP), which slowed to a 0.7% annual rate in the first quarter of 2007, increased to an estimated 3.9% annual rate in the third quarter of 2007. The Federal Reserve decreased the federal funds rate from 5.25% to 4.75% in September 2007 and then to 4.50% in October 2007 citing an expected slowdown in economic expansion in the near term as a result of the housing correction and recent increases in energy and commodity prices that may put renewed upward pressure on inflation. These rate declines have not had a substantial impact on the rates that the Partnership has charged on its loans. The weighted average interest rate on Partnership loans remained stable at 10.61% as of September 30, 2006 and September 30, 2007. Presently, the General Partner does not expect a substantial increase or decrease in the rates charged on Partnership loans.
 
In spite of strong economic indicators, loan delinquencies have been rising primarily in the “sub-prime” residential real estate market. The Partnership does not make sub-prime loans and does not make loans for the purchase or refinance of single-family residential properties (lend primarily in commercial markets). The Partnership has experienced increased loan delinquencies and foreclosures over the past nine months.  The General Partner believes that the increase is partially the result of the slowing housing market in California as three of the ten delinquent loans as of September 30, 2007 are either residential land or condominium projects in California. In addition, the Partnership foreclosed on three loans secured partially or fully by residential improved and unimproved land located in California during 2007. Although the General Partner believes that problems in the sub-prime residential mortgage industry will not directly impact the Partnership and its loan portfolio, it appears that there has been an indirect impact as market values on certain California residential real estate have decreased or stabilized.  The General Partner does not believe that any of the Partnership’s delinquent loans will result in loss to the Partnership because the underlying collateral values exceed the Partnership’s basis in the loans. If economic conditions for real estate worsen beyond 2007 or if the sub-prime mortgage problem were to spread into the commercial mortgage market, the Partnership could experience a further increase in loan defaults, which may reduce the liquidity of the Partnership.

For Partnership loans outstanding as of September 30, 2007, the Partnership had an average loan-to-value ratio of approximately 55%, computed on a weighted average basis based on appraised values and senior liens as of the date the loan was made. This percentage does not account for any increases or decreases in property values since the date the loan was made, nor does it include any reductions in principal or senior indebtedness through amortization of payments after the loan was made.  This low loan-to-value ratio will assist the Partnership in weathering additional loan delinquencies and foreclosures should they occur. Nevertheless, no assurance can be given that continuing increases in default rates and related foreclosures by the Partnership, accompanied by declines in real estate values, will not have a material adverse effect on the Partnership’s financial condition and operating results.

Historically, the General Partner has focused its operations on California and certain Western states. Because the General Partner has a significant degree of knowledge with respect to the real estate markets in such states, it is likely most of the Partnership’s loans will be concentrated in such states. As of September 30, 2007, 32.6% of loans were secured by real estate in Northern California, while 25.9%, 9.6%, 6.0%, 5.7% and 5.1% were secured by real estate in Southern California, Florida, Washington, Colorado and Arizona, respectively. Such geographical concentration creates greater risk that any downturn in such local real estate markets could have a significant adverse effect upon results of operations.


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Summary of Financial Results
 
 
  
Three Months Ended September 30,
  
Nine Months Ended September 30,
  
   
2007
  
2006
  
2007
  
2006
  
                           
Total revenues
  
$
8,336,584
  
$
7,901,763
  
$
23,679,579
  
$
25,332,267
  
Total expenses
    
1,464,648
    
2,307,406
    
6,661,028
    
9,188,097
  
                           
Net income from continuing operations
  
$
6,871,936
  
$
5,594,357
  
$
17,018,551
  
$
16,144,170
  
                           
Net loss from discontinued operations
    
—
    
(22,542
)
  
—
    
(238,908
)
                           
Net income
  
$
6,871,936
  
$
5,571,815
  
$
17,018,551
  
$
15,905,262
  
                           
Net income allocated to limited partners
  
$
6,804,413
  
$
5,516,628
  
$
16,850,386
  
$
15,747,740
  
                           
Net income allocated to limited partners per weighted average limited partnership unit
  
$
.02
  
$
.02
  
$
.06
  
$
.05
  
                           
Annualized rate of return to limited
partners (1)
    
9.2
%
  
7.7
%
  
7.7
%
  
7.3
%
                           
Distribution per partnership unit (yield) (2)
    
7.6
%
  
7.6
%
  
7.7
%
  
7.5
%
                           
Weighted average limited partnership units
    
296,528,000
    
286,936,000
    
290,624,000
    
286,691,000
  

 
(1)
The annualized rate of return to limited partners is calculated based upon the net income allocated to limited partners per weighted average limited partnership unit as of September 30, 2007 and 2006 divided by the number of months during the period and multiplied by twelve (12) months.
 
(2)
Distribution per partnership unit (yield) is the annualized average of the monthly yield paid to the partners for the periods indicated. The monthly yield is calculated by dividing the total monthly cash distribution to partners by the prior month’s ending partners’ capital balance.

Three and Nine Months Ended September 30, 2007 Compared to Three and Nine Months Ended September 30, 2006

Total Revenues

Interest income on loans secured by trust deeds decreased $265,000 (4.0%) and $2,488,000 (11.3%) during the three and nine months ended September 30, 2007, as compared to the same periods in 2006, primarily due to an increase in the number and amount of loans greater than ninety days delinquent in payments and the foreclosures experienced by the Partnership during the nine month period.  See “Financial Condition – Loan Portfolio” below.

Gain on sale of real estate increased $502,000 (166.2%) and $612,000 (161.7%) during the three and nine months ended September 30, 2007, respectively, as compared to the same periods in 2006, due primarily to the sale of the Gresham, Oregon land resulting in a gain of $773,000, the final three condominium units in Oregon Leisure Homes, LLC resulting in total gains of approximately $141,000 and the sales of two and one lot, respectively, in the manufactured  home parks located in Ione, California and within Dation, LLC resulting in gains of approximately $36,000 and $10,000, respectively, during 2007.  During the nine months ended September 30, 2006, four condominiums within Oregon Leisure Homes, LLC were sold resulting in total gain of approximately $297,000, one lot in the manufactured home park located in Ione, California was sold for gain of approximately $36,000 and four lots/houses in the manufactured home park in Dation were sold for gain of approximately $45,000 to the Partnership. See “Real Estate Properties Held for Sale and Investment” below.

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Other income increased $83,000 (28.1%) during the nine months ended September 30, 2007, as compared to the same period in 2006, due primarily to an increase in interest earned on money market investments. The Partnership had a slight increase in the amount of cash and equivalents available during the nine months ended September 30, 2007 (as compared to 2006) and there was an increase in the weighted average yield of the Partnership’s money market investments in 2007.  In addition, the Partnership collected $20,000 in non-refundable extension fees related to its sale of the undeveloped land located in Gresham, Oregon during the nine months ended September 30, 2007. See “Real Estate Properties Held for Sale and Investment” below.

Total Expenses

Management fees to the General Partner decreased $1,077,000 (86.7%) and $4,312,000 (83.4%) during the three and nine months ended September 30, 2007, respectively, as compared to the same periods in 2006, due primarily to the loss experienced upon the foreclosure of a Partnership loan in June 2007 and due to an increase in delinquent loans and foreclosures during the three and nine month periods.  The General Partner chose to decrease its management fee rather than decrease the yield paid to the limited partners in 2007.  There can be no assurance that the General Partner will continue to do this in the future.

If the maximum management fees had been paid to the General Partner during the three and nine months ended September 30, 2007, the management fees would have been $1,798,000 (increase of $1,632,000) and $5,820,000 (increase of $4,964,000), respectively, which would have reduced net income allocated to limited partners by approximately 23.8% and 29.2%, respectively, and would have reduced net income allocated to limited partners per weighted average limited partner unit by the same percentages to $.02 and $.04, respectively.

The maximum management fee permitted under the Partnership Agreement is 2.75% per year of the average unpaid balance of mortgage loans.  For the years 2004, 2005 and 2006 and the nine months ended September 30, 2007 (annualized), the management fees were 2.00%, 2.27%, 2.04% and 0.40% of the average unpaid balance of mortgage loans, respectively.

In determining the management fees and hence the yield to the partners, the General Partner may consider a number of factors, including current market yields, delinquency experience, uninvested cash and real estate activities. The General Partner expects that the management fees that it receives from the Partnership will vary in amount and percentage from period to period, and it is highly likely that the General Partner will again receive less than the maximum management fees in the future. However, if the General Partner chooses to take the maximum allowable management fees in the future, the yield paid to limited partners may be reduced.

Carried interest to general partner increased $44,000 (100%) during the three and nine months ended September 30, 2007 because the General Partner was required to contribute capital to the Partnership and receive the carried interest during those periods pursuant to the Partnership Agreement, as the Partnership accepted additional limited partner investments beginning in June 2007.

Legal and accounting expenses increased $89,000 (178.3%) and $145,000 (73.7%) during the three and nine months ended September 30, 2007, as compared to the same periods in 2006, primarily due to accounting and consulting expenses incurred in the effort to assess and document the Partnership’s internal controls pursuant to Rule 404 of the Sarbanes-Oxley Act during the three months ended September 30, 2007 and the higher cost of legal and accounting services required as part of the preparation of the Partnership’s various SEC filings.  The Partnership expects to incur further accounting and consulting related fees due to Rule 404 in 2007 and beyond.

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Interest expense decreased $38,000 (19.3%) and $31,000 (2.3%) during the three and nine months ended September 30, 2007, as compared to the same periods in 2006, due to decreased usage of the line of credit to invest in loans secured by trust deeds in the third quarter of 2007 as funds received from loan payoffs and limited partners as new capital contributions were used to pay down the line of credit.

The increase in the provision for loan losses of $1,670,000 during the nine months ended September 30, 2007 was the result of an analysis performed on the loan portfolio. In June 2007, the Partnership foreclosed on a $6,576,000 first mortgage loan and obtained the unimproved residential land located in Madera County, California in the trustee’s sale.  Based on an appraisal obtained at the time of foreclosure, it was determined that the property’s value was less than the book value of the loan resulting in a charge-off against the loan loss allowance of approximately $1,379,000.  The net increase in the general loan loss allowance of $366,000 (net of the charge-off discussed above) was primarily due to an increase in the number and amount of loans delinquent in payments greater than ninety days and an increase in the concentration of loans secured by residential land and condominium conversion projects.  The decrease in the provision for loan losses of $79,000 during the three months ended September 30, 2007 was the result of a reversal of a specific allowance in the amount of $2,530,000 on a loan that was foreclosed during the third quarter, net of an additional general allowance established in the amount of $2,451,000 due to an increase in loan delinquencies and in the concentration of loans secured by residential land and condominium conversion projects.

Net Income from Rental and Other Real Estate Properties

Net income from rental and other real estate properties decreased $35,000 (12.8%) and $119,000 (14.4%) during the three and nine months ended September 30, 2007, respectively, as compared to the same periods in 2006, due primarily to decreased rental revenue as a result of increased vacancies at the Partnership’s investment properties and the commercial retail center located in Greeley, Colorado in 720 University, LLC. There were also increased expenses incurred in Dation, LLC and 720 University, LLC during the nine months ended September 30, 2007. Approximately $302,000 of Dation’s net income during the nine months ended September 30, 2007 was generated from a FEMA hurricane relief contract (rental of vacant lots in the manufactured home park) that will expire at the end of February 2008.  Thus, unless Dation is able to secure new tenants on these lots or if the FEMA contract is not extended, this revenue stream will not continue past February 2008.

Net Loss from Discontinued Operations

Net loss from discontinued operations for the three and nine months ended September 30, 2006 is related to the Bayview Gardens, LLC assisted living facility located in Monterey, California, which was sold in June 2006.

Financial Condition

September 30, 2007 and December 31, 2006

Loan Portfolio

The number of Partnership mortgage investments decreased from 72 to 67, and the average loan balance increased from $3,474,000 to $3,666,000 between December 31, 2006 and September 30, 2007.

Approximately $24,115,000 (9.8%) and $18,835,000 (7.5%) of the loans invested in by the Partnership were considered impaired and more than ninety days delinquent in monthly payments as of September 30, 2007 and December 31, 2006, respectively. In addition, the Partnership’s investment in loans that were past maturity (delinquent in principal) but current in monthly payments was approximately $39,213,000 (16.0%) and $55,682,000 (22.3%) as of September 30, 2007 and December 31, 2006, respectively (combined total of $63,328,000 and $74,517,000, respectively). Of the impaired loans, approximately $11,800,000 (4.8%) and $0 (0%), respectively, were in the process of foreclosure, and approximately $1,600,000 (0.7%) and $8,176,000 (3.3%), respectively, involved loans to borrowers who were in bankruptcy. The Partnership foreclosed on three and four loans during the three and nine months ended September 30, 2007, respectively, with aggregate principal balances totaling $19,626,000 and $26,202,000, respectively, and obtained the properties via the trustee’s sales.

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Of the total past maturity loans as of September 30, 2007, two loans with a total principal balance of approximately $2,635,000 had the maturity dates extended subsequent to September 30, 2007. In October 2007 (subsequent to quarter end), the Partnership began foreclosure proceedings by filing a notice of default on an impaired loan with a principal balance of approximately $5,817,000 as of September 30, 2007.

Loans involving borrowers in bankruptcy as of December 31, 2006 consisted of two loans with an aggregate principal balance of $8,176,000.  One of the loans with a principal balance of $1,600,000 is still in bankruptcy as of September 30, 2007 and the other loan with a principal balance of $6,576,000 was foreclosed on by the Partnership and the property obtained via the trustee’s sale in June 2007.

As of September 30, 2007 and December 31, 2006, the Partnership held the following types of mortgages:

   
2007
    
2006
  
By Property Type:
            
Commercial
  
$
137,345,590
    
$
112,355,502
  
Condominiums
    
76,852,871
      
61,110,134
  
Apartments
    
5,273,893
      
11,416,257
  
Single family homes (1-4 units)
    
1,021,649
      
650,000
  
Improved and unimproved land
    
25,142,518
      
64,611,738
  
                 
   
$
245,636,521
    
$
250,143,631
  
                 
By Deed Order:
                
First mortgages
  
$
233,918,755
    
$
231,040,770
  
Second mortgages
    
11,717,766
      
19,102,861
  
                 
   
$
245,636,521
    
$
250,143,631
  

 
Changes in the allowance for loan losses for the nine months ended September 30, 2007 and 2006 were as follows:

   
2007
  
2006
  
Balance, beginning of period
  
$
4,225,000
  
$
4,150,000
  
Provision
    
1,744,515
    
75,000
  
Recovery of bad debts
    
—
    
—
  
Charge-off
    
(1,378,515
)
  
—
  
Balance, end of period
  
$
4,591,000
  
$
4,225,000
  

Real Estate Properties Held for Sale and Investment

As of September 30, 2007, the Partnership held title to twelve properties that were foreclosed on or purchased by the Partnership since 1997 in the amount of approximately $53,632,000 (including properties held in three limited liability companies), net of accumulated depreciation and amortization of $2,830,000. As of September 30, 2007, properties held for sale total $31,524,000 and properties held for investment total $22,108,000. When the Partnership acquires property by foreclosure, it typically earns less income on those properties than could be earned on mortgage loans and may not be able to sell the properties in a timely manner. Five of the Partnership’s twelve properties do not currently generate revenue.





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Changes in real estate held for sale and investment during the nine months ended September 30, 2007 and 2006 were as follows:

   
2007
  
2006
  
Balance, beginning of period
  
$
29,700,395
  
$
36,393,212
  
Real estate acquired through foreclosure
    
25,743,465
    
—
  
Investment in real estate properties
    
524,357
    
862,310
  
Sales of real estate properties
    
(2,172,145
)
  
(6,740,968
)
Recovery of losses on real estate held for sale
    
349,224
    
43,059
  
Depreciation and amortization
    
(513,289
)
  
(525,371
)
Balance, end of period
  
$
53,632,007
  
$
30,032,242
  

In June 2007, the Partnership foreclosed on a first mortgage loan secured by undeveloped residential land located in Madera County, California in the amount of approximately $6,576,000 and obtained the property via the trustee’s sale. In addition, certain advances made on the loan or incurred as a result of the foreclosure (such as legal and foreclosure fees and delinquent property taxes) in the total amount of approximately $253,000 were capitalized to the basis in the property (total of approximately $6,829,000).  At the time of foreclosure, an appraisal was obtained that valued the property at $5,450,000, thus, resulting in a charge-off against the allowance for loan losses of approximately $1,379,000.

In August 2007, the Partnership foreclosed on a $3,268,000 first mortgage loan secured by a mixed-use retail building in the process of rehabilitation located in Sacramento, California and unimproved land located in Marysville, California and obtained the properties via the trustee’s sale.  In August and September 2007, the Partnership foreclosed on two first mortgage loans in the total amount of approximately $16,358,000 secured by 75 improved, residential lots and a golf course located in Auburn, California and obtained the properties via the trustee’s sales.

During the quarter ended September 30, 2007, one lot located in the manufactured home subdivision development located in Ione, California (that was acquired by the Partnership through foreclosure in 1997) was sold for $40,000, resulting in a gain to the Partnership of approximately $24,000.

During the quarter ended September 30, 2007, the Partnership sold the undeveloped land located in Gresham, Oregon for net sales proceeds of approximately $2,397,000 resulting in gain on sale of approximately $773,000.

DarkHorse Golf Club, LLC (DarkHorse) is a California limited liability company formed in August 2007 for the purpose of operating the DarkHorse golf course located in Auburn California, which was acquired by the Partnership via foreclosure in August 2007 (see above). The golf course was placed into DarkHorse via a grant deed on the same day that the trustee’s sale was held. The Partnership is the sole member in DarkHorse. The assets, liabilities, income and expenses of DarkHorse have been consolidated into the accompanying consolidated balance sheets and income statements of the Partnership.  The golf course is being operated and managed by an unrelated company. The net loss to the Partnership from DarkHorse was approximately $4,000 for the three months ended September 30, 2007.  Continued operation of DarkHorse may result in additional losses to the Partnership and may require the Partnership to provide funds for operations and capital improvements.

27

Changes in the allowance for real estate losses for the nine months ended September 30, 2007 and 2006 were as follows:

   
2007
  
2006
  
Balance, beginning of period
  
$
405,388
  
$
660,000
  
Provision
    
—
    
—
  
Recovery of losses
    
(405,388
)
  
(254,612
)
Balance, end of period
  
$
—
  
$
405,388
  

The recovery of losses on real estate held for sale in 2007 relates to the sales of condominium units in OLH and the reversal of the $250,000 allowance for the undeveloped land located in Gresham, Oregon due to the expected recovery of the original cost of the property in the second quarter of 2007 pursuant to a firm sale contract (sale closed in July 2007).  Of the total recovery amount, $56,164 was included in gain on sale of real estate (for a condominium unit sold in Oregon Leisure Homes, LLC) and $349,224 was recorded as recovery of estimated losses on real estate properties held for sale in the accompanying consolidated statements of income.

Cash and Cash Equivalents

Cash and cash equivalents decreased from approximately $23,284,000 as of December 31, 2006 to approximately $14,484,000 as of September 30, 2007 (decrease of $8,800,000 or 37.8%) due primarily to loan originations, partner distributions and partner withdrawals net of loan payoffs, loan sales and partner capital contributions during the nine month period.

Interest and Other Receivables

Interest and other receivables increased from approximately $3,989,000 as of December 31, 2006 to $4,294,000 as of September 30, 2007 ($305,000 or 7.7%) due primarily to an increase in accrued interest on loans delinquent in monthly payments as of September 30, 2007.  The General Partner believes that such accrued interest is collectible based on the underlying collateral values of the delinquent loans.

Due to General Partner

Due to General Partner decreased from approximately $231,000 as of December 31, 2006 to approximately $9,000 as of September 30, 2007 ($222,000 or 96%) primarily due to decreased management fees owed to the General Partner, pursuant to the Partnership Agreement (see “Results of Operations” above).

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities increased from approximately $727,000 as of December 31, 2006 to approximately $939,000 as of September 30, 2007 ($212,000 or 29.2%) due primarily to an increase in property taxes payable on real estate owned (including those obtained via foreclosure during the quarter) and liabilities incurred within DarkHorse Golf Club, LLC (see “Real Estate Properties Held for Sale and Investment” above).

Asset Quality

A consequence of lending activities is that occasionally losses will be experienced and that the amount of such losses will vary from time to time, depending on the risk characteristics of the loan portfolio as affected by economic conditions and the financial experiences of borrowers.  Many of these factors are beyond the control of the General Partner. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on specific loans or on segments of the loan portfolio.

The conclusion that a Partnership loan may become uncollectible, in whole or in part, is a matter of judgment. Although institutional lenders are subject to regulations that, among other things, require them to perform ongoing analyses of their loan portfolios (including analyses of loan-to-value ratios, reserves, etc.), and to obtain current information regarding their

28

borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted these practices. Rather, management of the General Partner, in connection with the quarterly closing of the accounting records of the Partnership and the preparation of the financial statements, evaluates the Partnership’s mortgage loan portfolio. The allowance for loan losses is established through a provision for loan losses based on the General Partner’s evaluation of the risk inherent in the Partnership’s loan portfolio and current economic conditions. Such evaluation, which includes a review of all loans on which the General Partner determines that full collectibility may not be reasonably assured, considers among other matters:

·
prevailing economic conditions;
 
·
the Partnership’s historical loss experience;
 
·
the types and dollar amounts of loans in the portfolio;
 
·
borrowers’ financial condition and adverse situations that may affect the borrowers’ ability to pay;
 
·
evaluation of industry trends;
 
·
review and evaluation of loans identified as having loss potential; and
 
·
estimated net realizable value or fair value of the underlying collateral.
 
Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover probable losses of the Partnership. Additions to the allowance for loan losses are made by charges to the provision for loan losses. Loan losses deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for loan losses. As of September 30, 2007, management believes that the allowance for loan losses of $4,591,000 is adequate in amount. Because of the number of variables involved, the magnitude of the swings possible and the General Partner’s inability to control many of these factors, actual results may and do sometimes differ significantly from estimates made by the General Partner. As of September 30, 2007, ten loans totaling $24,115,000 were delinquent in monthly payments greater than ninety days. This included five matured loans totaling $15,485,000. In addition, thirteen loans totaling $39,213,000 were also past maturity but current in monthly payments as of September 30, 2007 (combined total of $63,328,000 in loans that are past maturity and/or delinquent in payments greater than ninety days).  The Partnership recorded a charge-off against the allowance for loan losses of approximately $1,379,000 for a foreclosed loan during the nine months ended September 30, 2007 and after the General Partner’s evaluation of the loan portfolio recorded an additional provision for loan losses of approximately $1,745,000 for estimated losses, which resulted in a net increase to the allowance of approximately $366,000.  The General Partner believes that the allowance for loan losses is sufficient given the estimated fair value of the underlying collateral of impaired and past maturity loans.

Construction Loans are determined by the General Partner to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multifamily properties.  The General Partner has approved the borrowers up to a maximum loan balance; however, disbursements are made in phases throughout the construction process.  As of September 30, 2007, the Partnership held four Construction Loans totaling approximately $12,419,000 and had commitments to disburse an additional $6,356,000 on Construction Loans.

The Partnership also makes loans, the proceeds of which are used to remodel, add to and/or rehabilitate an existing structure or dwelling, whether residential, commercial or multifamily properties, or are used to complete improvements to land.  The General Partner has determined that these are not Construction Loans.  Many of these loans are for cosmetic refurbishment of both interiors and exteriors of existing condominiums or conversion of apartments or other properties into condominiums.  The refurbished/converted units are then sold to new users, and the sales proceeds are used to repay the Partnership’s loans.  These loans may also include completion of tenant or other improvements on commercial properties.  These loans are referred to as Rehabilitation Loans. As of September 30, 2007, the Partnership held thirteen Rehabilitation Loans totaling approximately $41,964,000 and had commitments to disburse an additional $12,285,000 on Rehabilitation Loans.



29

Liquidity and Capital Resources

During the nine months ended September 30, 2007, Partnership cash decreased approximately $8,800,000.  During the nine month period, cash flows provided by operating activities approximated $16,700,000. Investing activities used approximately $19,088,000 of net cash during the nine month period, as approximately $126,668,000 was used for investing in loans, net of $104,974,000 received from the payoff or sale of loans. Approximately $6,412,000 was used in financing activities, as approximately $17,302,000 of cash was distributed to limited partners in the form of income distributions and capital withdrawals, net of proceeds from the sale of Partnership units of approximately $10,890,000.

Sales of Units to limited partners, reinvestment of limited partner distributions, portfolio loan payoffs, and to a lesser degree advances on the Partnership’s line of credit provide the capital for new mortgage investments. If general market interest rates were to rise substantially, investors might turn to interest-yielding investments other than Partnership Units, which would reduce the liquidity of the Partnership and its ability to make additional mortgage investments to take advantage of the generally higher interest rates. In addition, a significant decrease in the dollar amount of loan payoffs or a significant increase in loan delinquencies would also reduce the liquidity of the Partnership.  In contrast, a significant increase in the dollar amount of loan payoffs and additional limited partner investments without the origination of new loans of the same amount would increase the liquidity of the Partnership. This increase in liquidity could result in a decrease in the yield paid to limited partners as the Partnership would be required to invest the additional funds in lower yielding, short term investments.

Limited partner capital increased by approximately $10,489,000 during the nine months ended September 30, 2007. With the exception of the reinvestment of distributions, the Partnership had been closed to most new limited partner investments since September 2001, because there were not enough suitable mortgage investments to allow the Partnership to remain fully invested in loans for a sustained period of time. However, beginning in June 2007, the Partnership reopened to new contributions from existing investors only on a limited basis.  The Partnership received new limited partner contributions of $10,797,000 for the nine months ended September 30, 2007 as compared to $121,000 for the nine months ended September 30, 2006.  Reinvested distributions from limited partners electing to reinvest were $11,689,000 and $11,335,000 for the nine months ended September 30, 2007 and 2006, respectively. Limited partner withdrawals were $12,138,000 for the nine months ended September 30, 2007 as compared to $9,665,000 for the nine months ended September 30, 2006. Limited partner withdrawal percentages have been 3.32%, 4.42%, 4.47%, 4.29% 4.70% and 5.6% (annualized) for the years ended December 31, 2002, 2003, 2004, 2005, 2006 and the nine months ended September 30, 2007, respectively. These percentages are the annual average of the limited partners’ capital withdrawals in each calendar quarter divided by the total limited partner capital as of the end of each quarter.

The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per Unit within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others:

·
No withdrawal of Units can be requested or made until at least one year from the date of purchase of those Units, other than Units received under the Partnership’s Reinvested Distribution Plan.

·
Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period.

·
A maximum of $100,000 per partner may be withdrawn during any calendar quarter.

·
The General Partner is not required to establish a reserve fund for the purpose of funding such payments.

·
No more than 10% of the total outstanding limited partnership interests may be withdrawn during any calendar year except upon a plan of dissolution of the Partnership.

The Partnership to a lesser degree relies upon its line of credit to fund loans.  The Partnership may incur indebtedness for the purpose of investing in mortgage loans, among other things. The total amount of indebtedness incurred by the Partnership cannot exceed the sum of 50% of the aggregate fair market value of all Partnership loans. The Partnership has

30

executed a line of credit agreement with a group of banks, which provides interim financing on mortgage loans invested in by the Partnership. The amount of credit available under this line of credit as of September 30, 2007 was $40,000,000. There was no balance outstanding on the line of credit as of September 30, 2007. The Partnership also has a note payable with an unrelated bank through its investment in 720 University, LLC with a balance of $10,500,000 as of September 30, 2007. Generally, the Partnership’s loans are fixed rate, whereas the credit line is a variable rate loan. In the event of a significant increase in overall interest rates, the credit line rate could increase to a rate above the average portfolio rate of interest.  Should such an event occur, the General Partner would desire to pay off the line of credit and would generally not use it to fund loans. This could reduce the overall liquidity of the Partnership.

As of September 30, 2007, the Partnership has commitments to advance additional funds to borrowers of Construction and Rehabilitation Loans in the total amount of approximately $18,641,000. The Partnership expects these amounts to be advanced to borrowers by December 31, 2008. The source of funds to fulfill these commitments will be payoffs on existing mortgage loans, sales of Units to investors or advances on the Partnership’s line of credit.

Contingency Reserves

The Partnership maintains cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of 2% of the limited partners’ capital accounts to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. Although the General Partner believes that contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments to cover such contingencies on terms which might not be favorable to the Partnership.


































31


The following table contains information about the Partnership’s interest earning assets and interest bearing liabilities as of September 30, 2007. The presentation for each category aggregates the assets and liabilities by their maturity dates for maturities occurring in each of the years 2008 through 2012 and aggregates the information for all maturities arising after 2012. The carrying values of the assets and liabilities approximate their fair values as of September 30, 2007.

Interest Earning Assets and Interest Bearing Liabilities
Aggregated by Maturity Date
Twelve Months Ended September 30,

 
2008
2009
2010
2011
2012
Thereafter
Total
Interest earning assets:
                            
Money market accounts
  
$13,932,769
  
—
  
—
  
—
  
—
  
—
  
$13,932,769
Average interest rate
  
4.5%
  
—
  
—
  
—
  
—
  
—
  
4.5%
Loans secured by trust deeds
  
$194,121,806
  
$22,630,093
  
$6,140,823
  
—
  
—
  
$22,743,799
  
$245,636,521
Average interest rate
  
10.6%
  
10.6%
  
11.7%
  
—
  
—
  
10.1%
  
10.6%
                             
Interest bearing liabilities:
                            
Note payable to bank
  
—
  
—
  
$75,515
  
$156,883
  
$165,024
  
$10,102,578
  
$10,500,000
Average interest rate
  
—
  
—
  
5.1%
  
5.1%
  
5.1%
  
5.1%
  
5.1%
Line of credit payable
  
—
  
—
  
—
  
—
  
—
  
—
  
—
Average interest rate
  
—
  
—
  
—
  
—
  
—
  
—
  
—

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, equity prices and real estate values. The Partnership does not have any assets or liabilities denominated in foreign currencies. The Partnership does not hedge or otherwise seek to manage interest rate risk. The Partnership does not enter into risk sensitive instruments for trading purposes.

The Partnership’s primary market risk in terms of its profitability is the exposure to fluctuations in earnings resulting from fluctuations in general interest rates.  The majority of the Partnership’s mortgage loans (90.4% as of September 30, 2007) earn interest at fixed rates. All of the mortgage loans are held for investment purposes and are held until maturity. Changes in interest rates may affect the value of the Partnership’s investment in mortgage loans and the rates at which the Partnership reinvests funds obtained from loan repayments and new capital contributions from limited partners. If interest rates increase, the interest rates the Partnership obtains from reinvested funds will generally increase, but the value of the Partnership’s existing loans at fixed rates will generally tend to decrease. This risk is mitigated to the extent that the Partnership does not intend to sell its loan portfolio, rather such loans are held until they are paid off. If interest rates decrease, the amounts becoming available to the Partnership for investment due to repayment of Partnership loans may be invested at lower rates than the Partnership had been able to obtain in prior investments, or than the rates on the repaid loans.  In addition, interest rate decreases may encourage borrowers to refinance loans with the Partnership at a time when the Partnership is unable to reinvest in loans of comparable value.

The Partnership’s note payable bears interest at a fixed rate of 5.07%. The Partnership’s line of credit payable ($0 at September 30, 2007) bears interest at a variable rate, tied to the bank’s prime rate. As a result, the Partnership’s primary market risk exposure is to changes in interest rates, which will affect the interest cost of outstanding amounts on the note and line of credit payable.

32

 
 

The General Partner of the Partnership carried out an evaluation, under the supervision and with the participation of the General Partner’s management, including the General Partner’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the General Partner concluded that, as of September 30, 2007, which is the end of the period covered by this quarterly report on Form 10-Q, the Partnership’s disclosure controls and procedures are effective for the purposes set forth in Rule 13a-15.

There have been no significant changes in the Partnership’s internal control over financial reporting in the fiscal quarter ending September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal controls over financial reporting.

PART II. OTHER INFORMATION
 
 

There have been no material changes or developments to the legal proceeding previously disclosed in the Partnership’s Form 10-K as of and for the year ended December 31, 2006.
 
 

There have been no material changes in the Partnership’s risk factors as previously disclosed in the Partnership’s Form 10-K as of and for the year ended December 31, 2006.
 
 

(a)Exhibits
 
31.1Section 302 Certification of William C. Owens
 
31.2Section 302 Certification of Bryan H. Draper
 
32Certifications Pursuant to U.S.C. 18 Section 1350


33


SIGNATURES

Pursuant to the requirements 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.


Dated:                      November 14, 2007
  
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
     
   
By:
OWENS FINANCIAL GROUP, INC., GENERAL PARTNER
       
Dated:                      November 14, 2007
  
By: 
 
/s/ William C. Owens
     
William C. Owens, President
       
Dated:                      November 14, 2007
  
By: 
 
/s/ Bryan H. Draper
     
Bryan H. Draper, Chief Financial Officer
       
Dated:                      November 14, 2007
  
By: 
 
/s/ Melina A. Platt
     
Melina A. Platt, Controller


34

 EX-31.1 2 exhibit31-1.htm EXHIBIT 31.1 exhibit31-1.htm


EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION


I, William C. Owens, Chief Executive Officer and President of Owens Financial Group, Inc., the sole General Partner of Owens Mortgage Investment Fund, a California Limited Partnership, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Owens Mortgage Investment Fund, a California Limited Partnership (the “Registrant”);
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
 
4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
 
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 


Dated:  November 14, 2007

/s/ William C. Owens
William C. Owens
Chief Executive Officer and President
Owens Financial Group, Inc., General Partner





 
 
 

 EX-31.2 3 exhibit31-2.htm EXHIBIT 31.2 exhibit31-2.htm

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION


I, Bryan H. Draper, Chief Financial Officer and Secretary of Owens Financial Group, Inc., the sole General Partner of Owens Mortgage Investment Fund, a California Limited Partnership, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Owens Mortgage Investment Fund, a California Limited Partnership (the “Registrant”);
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
 
4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
 
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 


Dated:  November 14, 2007

/s/ Bryan H. Draper
Bryan H. Draper
Chief Financial Officer and Secretary
Owens Financial Group, Inc., General Partner



 
 
 

 EX-32 4 exhibit32.htm EXHIBIT 32 exhibit32.htm

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350


William C. Owens as Chief Executive Officer and President of Owens Financial Group, Inc., the General Partner of Owens Mortgage Investment Fund, a California Limited Partnership (the “Registrant”), and Bryan H. Draper, as Chief Financial Officer and Secretary of Owens Financial Group, Inc., hereby certify, pursuant to 18 U.S.C. § 1350, that:
(1)            the Registrant’s Report on Form 10-Q for the period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the applicable requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)           the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant.


/s/ William C. Owens
William C. Owens
Chief Executive Officer and President of Owens Financial Group, Inc., General Partner
November 14, 2007


/s/ Bryan H. Draper
Bryan H. Draper
Chief Financial Officer and Secretary of Owens Financial Group, Inc., General Partner
November 14, 2007



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