Clayton Holdings Reports Net Income of $3.1 Million and a 12.8% Increase in Revenue for Third Quarter of 2006.

SHELTON, Conn. -- Clayton Holdings, Inc. (NASDAQ:CLAY), a provider of information-based analytics, consulting and outsourced services for capital markets firms, lending institutions, fixed income investors and loan servicers, today announced net income of $3.1 million on revenues of $61.0 million for the quarter ended September 30, 2006.

Clayton's third quarter 2006 results include:

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"Clayton's strong third quarter results affirm our efforts to build and diversify the company's revenue base, which grew nearly 13% from the third quarter of 2005, even though mortgage securitization volume declined 14% over the same period," said Frank Filipps, Chairman and Chief Executive Officer of Clayton. "This growth was fueled by year-over-year increases in surveillance, conduit support, and special servicing revenues, and our improved margins reflect our continued focus on productivity and expense control."

Other Third Quarter Highlights

-Revenue from due diligence and conduit support services was 6.5% higher than last year. Services were performed on approximately 263,000 loans in the third quarter of 2006, as compared to 234,000 loans in the third quarter of 2005. Please refer to the supplementary information on the following pages for further detail.

-As of September 30, 2006, our credit risk management and surveillance business was monitoring $387 billion in assets, primarily for investment banks and for institutional investors in mortgage-related securities. This represents an increase of $137 billion, or 54.5%, since September 30, 2005.

-Gross margin improved to 37.4%, as compared to 33.6% in the second quarter of 2006, as a result of successful implementation of productivity initiatives during the quarter.

-Cash flow from operations for the third quarter of 2006 was approximately $13.6 million as compared to approximately $7.5 million in the third quarter of 2005.

Management will hold a conference call today at 9:00 a.m. EST. A live webcast of the conference call will be available online at http://www.clayton.com. Web participants are encouraged to go to Clayton's website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. Listening to the webcast requires speakers and RealPlayer[TM] software, downloadable without charge at http://www.real.com. Those without Web access can access the call by phone and should plan to dial in approximately 10 minutes prior to the call . The dial-in numbers are [phone] for domestic callers and [phone] for international callers. The participant passcode for both is 89181786.

A recording of the conference call will remain available until February 7, 2007, on Clayton's website and via telephonic replay. The replay dial-in number is [phone] for domestic callers and [phone] for international callers. The participant passcode for both is 32479629.

About Clayton Holdings, Inc.

Clayton Holdings, Inc., headquartered in Shelton, Connecticut, is an information and analytics company serving leading capital markets firms, lending institutions, fixed income investors and loan servicers with a full suite of information-based analytics, specialty consulting and outsourced services. Clayton's services include due diligence analytics, conduit support services, professional staffing, compliance products and services, credit risk management and surveillance and specialized loan servicing services. Additional information is available at www.clayton.com.

Safe Harbor Statement

Certain items in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Clayton can give no assurance that expectations will be attained. Factors that could cause actual results to differ materially from Clayton's expectations include, but are not limited to, adverse changes in the mortgage-backed securities market, the mortgage lending industry or the housing market; the level of competition for its services; the loss of one or more of its largest clients; Clayton's ability to maintain its professional reputation; management's ability to execute Clayton's business strategy; Clayton's ability to recruit and retain additional qualified independent loan review specialists; and other risks detailed in Clayton's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 14, 2006, and other reports filed with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date of this press release. Clayton expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Clayton's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.

Reconciliation of Non-GAAP Measures

This earnings release contains non-GAAP financial measures. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, the Company has provided a reconciliation of the adjusted (non-GAAP) financial measures to the most directly comparable GAAP financial measures.

Adjusted net income and adjusted earnings per share are discussed in this earnings release because management uses this information in evaluating the results of the continuing operations of the business and believes that this information provides the users of the financial statements a valuable insight into the operating results. Additionally, management believes that it is in the best interest of its investors to provide financial information that will facilitate comparison of both historical and future results and allows greater transparency to supplemental information used by management in its financial and operational decision making. Management encourages investors to review the reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures that are provided within the financial information attached to this release.

Clayton is providing its current quarter GAAP results as well as financial results that have been adjusted for the impact of acquisition-related amortization and a loss from extinguishment of debt. The Company believes that these non-GAAP measures supplement its consolidated GAAP financial statements as they provide a consistent basis for comparison between reporting periods that are not influenced by certain non-cash or non-recurring items and are, therefore, useful to investors in helping them to better understand the Company's operating results.

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