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Adamas Trust, Inc. filed this 10-Q on May 15, 2007

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ADAMAS TRUST, INC. - 10-Q - 20070515 - FINANCIAL_STATEMENTS

Investment Securities - Available for Sale . Our securities portfolio consists of agency securities or AAA-rated residential mortgage-backed securities. At March 31, 2007 and December 31, 2006, we had no investment securities in a single issuer or entity (other than a government sponsored agency of the U.S. Government) that had an aggregate book value in excess of 10% of our total assets. The following tables set forth the credit characteristics of our securities portfolio as of March 31, 2007 and December 31, 2006:

Characteristics of Our Investment Securities (dollar amounts in thousands):

March 31, 2007	Sponsor or Rating		Par Value		Carrying Value		% of Portfolio			Coupon			Yield
Credit
Agency REMIC CMO Floating Rate		FNMA/FHLMC/GNMA	$	149,669	$	150,045		34	%		6.70	%		6.58	%
Private Label Floating Rate		AAA		13,985		13,971		3	%		6.11	%		6.18	%
Private Label ARMs		AAA		264,893		263,134		59	%		4.80	%		5.74	%
NYMT Retained Securities		AAA-BBB		18,038		17,942		3	%		5.75	%		6.18	%
NYMT Retained Securities		Below Investment Grade		2,764		1,971		1	%		5.68	%		15.96	%
Total/Weighted Average			$	449,349	$	447,063		100	%		5.51	%		6.11	%

Characteristics of Our Investment Securities (dollar amounts in thousands):

December 31, 2006	Rating		Par Value		Carrying Value		% of Portfolio			Coupon			Yield
Credit
Agency REMIC CMO Floating Rate		FNMA/FHLMC/GNMA	$	163,121	$	163,898		34	%		6.72	%		6.40	%
Private Label Floating Rate		AAA		22,392		22,284		5	%		6.12	%		6.46	%
Private Label Arms		AAA		287,018		284,874		58	%		4.82	%		5.71	%
NYMT Retained Securities		AAA-BBB		15,996		15,894		3	%		5.67	%		6.02	%
NYMT Retained Securities		Below Inv Grade		2,767		2,012		0	%		5.67	%		18.35	%
Total/Weighted Average			$	491,294	$	488,962		100	%		5.54	%		6.06	%

The following table sets forth the stated reset periods and weighted average yields of our investment securities at March 31, 2007 and December 31, 2006 (dollar amounts in thousands):

	Less than 6 Months					More than 6 Months To 24 Months					More than 24 Months To 60 Months					Total
March 31, 2007	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield

Agency REMIC CMO Floating Rate	$	150,045		6.58	%	$	—		—		$	—		—		$	150,045		6.58	%
Private Label Floating Rate		13,971		6.18	%		—		—			—		—			13,971		6.18	%
Private Label ARMs		33,726		6.15	%		56,255		5.71	%		173,153		5.65	%		263,134		5.73	%
NYMT Retained Securities		—		—			2,596		6.98	%		17,317		7.55	%		19,913		7.48	%
Total	$	197,742		6.48	%	$	58,851		5.77	%	$	190,470		5.83	%	$	447,063		6.11	%

	Less than 6 Months					More than 6 Months To 24 Months					More than 24 Months To 60 Months					Total
December 31, 2006	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield

Agency REMIC CMO Floating Rate	$	163,898		6.40	%	$	—		—		$	—		—		$	163,898		6.40	%
Private Label Floating Rate		22,284		6.46	%		—		—			—		—			22,284		6.46	%
Private Label ARMs		16,673		5.60	%		78,565		5.80	%		183,612		5.64	%		278,850		5.68	%
NYMT Retained Securities		6,024		7.12	%		—		—			17,906		7.83	%		23,930		7.66	%
Total	$	208,879		6.37	%	$	78,565		5.80	%	$	201,518		5.84	%	$	488,962		6.06	%

Investment Portfolio Related Assets

Mortgage Loans Held in Securitization Trusts . Included in our portfolio are adjustable-rate mortgage loans that we originated or purchased in bulk from third parties that meet our investment criteria and portfolio requirements. These loans are classified as “mortgage loans held for investment” during a period of aggregation and until the portfolio reaches a size sufficient for us to securitize such loans. If the securitization qualifies as a financing for SFAS No. 140 purposes the loans are classified as “mortgage loans held in securitization trusts.”

The NYMT 2006-1 securitization qualifies as a sale under SFAS No. 140, which resulted in the recording of residual assets and mortgage servicing rights. The residual assets total $2.0 million and are included in investment securities available for sale (see note 2 in our consolidated financial statements).

At March 31, 2007, mortgage loans held in securitization trusts totaled $544.0 million, or 47% of total assets. Of this mortgage loan investment portfolio 100% are traditional or hybrid ARMs and 76.0% are ARM loans that are interest only. On our hybrid ARMs, interest rate reset periods are predominately seven years or less and the interest-only/amortization period is typically 10 years, which mitigates the “payment shock” at the time of interest rate reset. No loans in our investment portfolio of mortgage loans are option-ARMs or ARMs with negative amortization.

Characteristics of Our Mortgage Loans Held in Securitization Trusts and Retained Interest in Securitization:

The following table sets forth the composition of our mortgage loans held in securitization trusts and retained interest in securitization as of March 31, 2007 (dollar amounts in thousands):

	# of Loans		Par Value		Carrying Value
Loan Characteristics:
Mortgage loans held in securitization trusts		1,178	$	540,549	$	544,046
Retained interest in securitization (included in Investment securities available for sale)		431		231,437		19,913
Total Loans Held		1,609	$	771,986	$	563,959

	Average			High			Low
General Loan Characteristics:
Original Loan Balance	$	498		$	3,500		$	40
Coupon Rate		5.68	%		8.13	%		3.88	%
Gross Margin		2.36	%		6.50	%		1.13	%
Lifetime Cap		11.15	%		13.75	%		9.00	%
Original Term (Months)		360			360			360
Remaining Term (Months)		338			348			304

The following table sets forth the composition of our mortgage loans held in securitization trusts and retained interest in securitization as of December 31, 2006:

	# of Loans		Par Value		Carrying Value
Loan Characteristics:
Mortgage loans held in securitization trusts		1,259	$	584,358	$	588,160
Retained interest in securitization (included in Investment securities available for sale)		458		249,627		23,930
Total Loans Held		1,717	$	833,985	$	612,090

	Average			High			Low
General Loan Characteristics:
Original Loan Balance	$	501		$	3,500		$	25
Coupon Rate		5.67	%		8.13	%		3.88	%
Gross Margin		2.36	%		6.50	%		1.13	%
Lifetime Cap		11.14	%		13.75	%		9.00	%
Original Term (Months)		360			360			360
Remaining Term (Months)		341			351			307

The following tables provide additional characteristics of the mortgage loans held in securitization trusts and retained interest in securitization as of March 31, 2007 and December 31, 2006:

	March 31, 2007 Percentage			December 31, 2006 Percentage
Arm Loan Type
Traditional ARMs		2.3	%		2.9	%
2/1 Hybrid ARMs		3.4	%		3.8	%
3/1 Hybrid ARMs		15.7	%		16.8	%
5/1 Hybrid ARMs		76.5	%		74.5	%
7/1 Hybrid ARMs		2.1	%		2.0	%
Total		100.0	%		100.0	%
Percent of ARM loans that are Interest Only		76.0	%		75.9	%
Weighted average length of interest only period		8.1 years			8.0 years

	March 31, 2007 Percentage			December 31, 2006 Percentage
Traditional ARMs - Periodic Caps
None		72.6	%		61.9	%
1%		6.6	%		8.8	%
Over 1%		20.8	%		29.3	%
Total		100.0	%		100.0	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
Hybrid ARMs - Initial Cap
3.00% or less		13.4	%		14.8	%
3.01%-4.00%		7.3	%		7.5	%
4.01%-5.00%		78.2	%		76.6	%
5.01%-6.00%		1.1	%		1.1	%
Total		100.0	%		100.0	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
FICO Scores
650 or less		3.8	%		3.8	%
651 to 700		17.2	%		16.9	%
701 to 750		34.0	%		34.0	%
751 to 800		41.1	%		41.5	%
801 and over		3.9	%		3.8	%
Total		100.0	%		100.0	%
Average FICO Score		737			737

	March 31, 2007 Percentage			December 31, 2006 Percentage
Loan to Value (LTV)
50% or less		9.6	%		9.8	%
50.01% - 60.00%		8.6	%		8.8	%
60.01% - 70.00%		28.0	%		28.1	%
70.01% - 80.00%		51.5	%		51.1	%
80.01% and over		2.3	%		2.2	%
Total		100.0	%		100.0	%
Average LTV		69.6	%		69.4	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
Property Type
Single Family		52.0	%		52.3	%
Condominium		22.7	%		22.9	%
Cooperative		9.2	%		8.8	%
Planned Unit Development		13.1	%		13.0	%
Two to Four Family		3.0	%		3.0	%
Total		100.0	%		100.0	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
Occupancy Status
Primary		84.8	%		85.3	%
Secondary		11.2	%		10.7	%
Investor		4.0	%		4.0	%
Total		100.0	%		100.0	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
Documentation Type
Full Documentation		70.9	%		70.1	%
Stated Income		20.9	%		21.3	%
Stated Income/ Stated Assets		6.8	%		7.2	%
No Documentation		0.9	%		0.9	%
No Ratio		0.5	%		0.5	%
Total		100.0	%		100.0	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
Loan Purpose
Purchase		56.9	%		57.3	%
Cash out refinance		16.9	%		26.1	%
Rate and term refinance		26.2	%		16.6	%
Total		100.0	%		100.0	%

	March 31, 2007 Percentage			December 31, 2006 Percentage
Geographic Distribution: 5% or more in any one state
NY		26.6	%		26.2	%
MA		14.7	%		14.4	%
CA		5.9	%		6.8	%
Other (less than 5% individually)		52.8	%		52.6	%
Total		100.0	%		100.0	%

Delinquency Status. As of March 31, 2007, we had ten delinquent loans totaling $9.3 million categorized as mortgage loans held in securitization trusts. The table below shows delinquencies in our loan portfolio as of March 31, 2007 (dollar amounts in thousands):

Days Late	Number of Delinquent Loans		Total Dollar Amount		% of Loan Portfolio

30-60		2	$	955		0.18	%
61-90		1		1,346		0.25	%
90+		6		6,377		1.18	%
Real estate owned		1	$	625		0.12	%

As of December 31, 2006, we had seven delinquent loans totaling $6.8 million categorized as mortgage loans held in securitization trusts. The table below shows delinquencies in our loan portfolio as of December 31, 2006 (dollar amounts in thousands):

Days Late	Number of Delinquent Loans		Total Dollar Amount		% of Loan Portfolio

30-60		1	$	166		0.03	%
61-90		1		193		0.03	%
90+		4		5,819		0.99	%
Real estate owned		1	$	625		0.11	%

Interest is recognized as revenue when earned according to the terms of the mortgage loans and when, in the opinion of management, it is collectible. The accrual of interest on loans is discontinued when, in management’s opinion, the interest is not collectible in the normal course of business, but in no case beyond when payment on a loan becomes 90 days delinquent. Interest collected on loans for which accrual has been discontinued is recognized as income upon receipt.

Non-Loan or Investment Assets

Cash and cash equivalents. We had unrestricted cash and cash equivalents of $1.7 million at March 31, 2007 versus $1.0 million at December 31, 2006.

Restricted cash. Restricted cash is held by counter parties as colleral for hedging instruments and two letters of credit related to the Company's lease of office space, including its corporate headquarters.

Accounts and accrued interest receivable . Accounts and accrued interest receivable includes $13.5 million related to the sale of the retail mortgage lending segment to Indymac. On April 2, 2007, Indymac paid the Company $11.2 million in cash and established a $2.3 million escrow account to support warranties and indemnifications related to the sale. In addition, accrued interest receivable for investment securities and mortgage loans held in securitization trusts are also included.

Prepaid and other assets . Prepaid and other assets totaled $20.5 million as of March 31, 2007. Prepaid and other assets consist primarily of a deferred tax benefit of $18.4 million and loans held by us which are pending remedial action (such as updating loan documentation) or which do not currently meet third-party investor criteria.

Balance She et Analysis - Asset Quality — Discontinued Operations

Mortgage Lending Related Assets

The balances of the following mortgage lending related assets have declined as of March 31, 2007 as compared to December 31, 2006 primarily due to the exit of the morgage lending business:

Mortgage Loans Held for Sale . Mortgage loans that we have originated but do not intend to hold for investment and are held pending sale to investors are classified as “mortgage loans held for sale.” We had mortgage loans held for sale of $59.7 million at March 31, 2007 as compared to $106.9 million at December 31, 2006. Primarily, we use warehouse facilities to finance our mortgage loans held for sale. Alternatively, we may use cash on a short-term basis to finance our mortgage loans held for sale.

Due from Purchasers . We had amounts due from loan purchasers totaling $61.4 million at March 31, 2007 as compared to $88.4 million at December 31, 2006. Amounts due from loan purchasers are a receivable for the principal and premium due to us for loans that have been shipped to permanent investors but for which payment has not yet been received at period end.

Escrow Deposits - Pending Loan Closings . We had escrow deposits pending loan closing of $0.5 million at March 31, 2007 as compared to $3.8 million at December 31, 2006. Escrow deposits pending loan closing are advance cash fundings by us to escrow agents to be used to close loans within the next one to three business days.

Non-Loan Assets

Property and Equipment, Net. Property and equipment totaled $0.5 million as of March 31, 2007 and $6.5 million as of December 31, 2006 and have estimated lives ranging from three to ten years, and are stated at cost less accumulated depreciation and amortization. Depreciation is determined in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives using the straight-line method. Leasehold improvements are amortized over the lesser of the life of the lease or service lives of the improvements using the straight-line method.

Balance Sheet Analysis - Financing Arrangements — Continuing Operations

Financing Arrangements, Portfolio Investments . We have arrangements to enter into repurchase agreements with 22 different financial institutions having a total line capacity of $4.6 billion. As of March 31, 2007 and December 31, 2006, there were $0.4 billion and $0.8 billion, respectively, of repurchase borrowings outstanding. Our repurchase agreements have terms of 30 days. The weighted average borrowing rate on these financing facilities was 5.34% and 5.37% as of March 31, 2007 and December 31, 2006, respectively.

Collateralized Debt Obligations . There were no new securitization transactions accounted for as a financing during the three months ended March 31, 2007 or during the year ended December 31, 2006. We had $501.9 million and $197.4 million of CDO outstanding as of March 31, 2007 and December 31, 2006, respectively. The weighted average borrowing rate on these CDOs was 5.65% and 5.72% as of March 31, 2007 and December 31, 2006, respectively. The increase in the amount of CDOs outstanding between December 31, 2006 and March 31, 2007 is due to the sale of $164.9 million of NYMT 2005-2 securities on February 26, 2007 and $148.0 million of NYMT 2005-1 securities on March 26, 2007. The sales were treated as financings in accordance with SFAS No. 140.

Subordinated Debentures . As of March 31, 2007, we have trust preferred securities outstanding of $45.0 million. The securities are fully guaranteed by the Company with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities are classified as subordinated debentures in the liability section of the Company’s consolidated balance sheet.

$25.0 million of our subordinated debentures have a floating interest rate equal to three-month LIBOR plus 3.75%, resetting quarterly (9.10% at March 31, 2007 and 9.12% at December 31, 2006). These securities mature on March 15, 2035 and may be called at par by the Company any time after March 15, 2010. NYMC entered into an interest rate cap agreement to limit the maximum interest rate cost of the trust preferred securities to 7.5%. The term of the interest rate cap agreement is five years and resets quarterly in conjunction with the reset periods of the trust preferred securities.

$20 million of our subordinated debentures have a fixed interest rate equal to 8.35% up to and including July 30, 2010, at which point the interest rate is converted to a floating rate equal to one-month LIBOR plus 3.95% until maturity. The securities mature on October 30, 2035 and may be called at par by the Company any time after October 30, 2010.

Derivative Assets and Liabilities . We generally hedge only the risk related to changes in the benchmark interest rate used in the variable rate index, usually a London Interbank Offered Rate, known as LIBOR, or a U.S. Treasury rate.

In order to reduce these risks, we enter into interest rate swap agreements whereby we receive floating rate payments in exchange for fixed rate payments, effectively converting the borrowing to a fixed rate. We also enter into interest rate cap agreements whereby, in exchange for a fee, we are reimbursed for interest paid in excess of a contractually specified capped rate.

Derivative financial instruments contain credit risk to the extent that the institutional counterparties may be unable to meet the terms of the agreements. We minimize this risk by using multiple counterparties and limiting our counterparties to major financial institutions with good credit ratings. In addition, we regularly monitor the potential risk of loss with any one party resulting from this type of credit risk. Accordingly, we do not expect any material losses as a result of default by other parties.

We enter into derivative transactions solely for risk management purposes. The decision of whether or not a given transaction (or portion thereof) is hedged is made on a case-by-case basis, based on the risks involved and other factors as determined by senior management, including the financial impact on income and asset valuation and the restrictions imposed on REIT hedging activities by the Internal Revenue Code, among others. In determining whether to hedge a risk, we may consider whether other assets, liabilities, firm commitments and anticipated transactions already offset or reduce the risk. All transactions undertaken as a hedge are entered into with a view towards minimizing the potential for economic losses that could be incurred by us. Generally, all derivatives entered into are intended to qualify as hedges in accordance with GAAP, unless specifically precluded under SFAS No. 133. To this end, terms of the hedges are matched closely to the terms of hedged items.

Balance Sheet Analysis - Financing Arrangements — Discontinued Operations

Financing Arrangements, Mortgage Loans Held for Sale . We had debt outstanding on our financing facilities which finance our mortgage loans held for sale of $98.6 million at March 31, 2007 as compared to $173.0 million at December 31, 2006. The weighted average borrowing rate on these financing facilities was 6.36% and 6.22% as of March 31, 2007 and December 31, 2006, respectively. The decrease in outstanding balances in mortgage loans held for sale and short-term borrowings is due to the Company's exit from the retail mortgage lending business. The Company will utilize the CSFB warehouse facility to dispose of all the remaining mortgage loans held for sale, which is expected to occur in the second quarter of 2007.

In the normal course of our mortgage loan origination business we entered into contractual IRLCs to extend credit to finance residential mortgages. These commitments, which contained fixed expiration dates, became effective when eligible borrowers locked-in a specified interest rate within time frames established by our origination, credit and underwriting practices. Interest rate risk arises if interest rates change between the time of the lock-in of the rate by the borrower and the sale of the loan.

To mitigate the effect of the interest rate risk inherent in issuing an IRLC from the lock-in date to the funding date of a loan, we generally entered into FSLCs. Once a loan has been funded, our risk management objective for our mortgage loans held for sale was to protect earnings from an unexpected charge due to a decline in value of such mortgage loans. Our strategy was to engage in a risk management program involving the designation of FSLCs (the same FSLCs entered into at the time of the IRLC) to hedge most of our mortgage loans held for sale.

The following table summarizes the estimated fair value of derivative assets and liabilities as of March 31, 2007 and December 31, 2006 (dollar amounts in thousands):

	March 31, 2007			December 31, 2006

Derivative Assets:
Continuing Operations:
Interest rate caps	$	1,300		$	2,011
Interest rate swaps		—			621
Total derivative assets, continuing operations		1,300			2,632
Discontinued Operation:
Forward loan sale contracts - loan commitments		1			48
Forward loan sale contracts - mortgage loans held for sale		—			39
Forward loan sale contracts - TBA securities		—			84
Interest rate lock commitments - loan commitments		37			—
Total derivative assets, discontinued operation		38			171
Total derivative assets	$	1,338		$	2,803
Derivative liabilities:
Continuing Operations:
Interest rate swaps	$	(183	)	$	—
Discontinued Operation:
Forward loan sale contracts - mortgage loans held for sale		(11	)		—
Forward loan sale contracts - TBA securities		—			—
Interest rate lock commitments - loan commitments		(7	)		(118	)
Interest rate lock commitments - mortgage loans held for sale		—			(98	)
Total derivative liabilities, discontinued operation		(18	)		(216	)
Total derivative liabilities	$	(201	)	$	(216	)

Balance Sheet Analysis - Stockholders’ Equity

Stockholders’ equity at March 31, 2007 was $65.1 million and included $5.5 million of net unrealized losses on available for sale securities and cash flow hedges presented as accumulated other comprehensive income.

Securitizations — Continuing Operations

During the three month period ended March 31, 2007, we did not complete a securitization transaction.

NYMT 2006-1 . March 29, 2006 - securitization of approximately $277.4 million of high-credit quality, first-lien, adjustable rate mortgage and hybrid adjustable rate mortgages. We accounted for this securitization as a non-recourse sale in accordance with SFAS No. 140.

The amount of each class of notes, together with the interest rate and credit ratings for each class are set forth below (dollar amounts in thousands):

Class	Approximate Principal Amount		Interest Rate (%)		Moody’s/Fitch Rating

1-A-1	$	6,726		5.648		Aaa/AAA
2-A-1		148,906		5.673		Aaa/AAA
2-A-2		20,143		5.673		Aaa/AAA
2-A-3		65,756		5.673		Aaa/AAA
2-A-4		9,275		5.673		Aa1/AAA
3-A-1		16,055		5.855		Aaa/AAA
B-1		3,746		5.683		Aa2/AA
B-2		2,497		5.683		A2/A
B-3		1,525		5.683		Baa2/BBB
B-4		1,387		5.683		NR/BB
B-5		694		5.683		NR/B
B-6	$	693		5.683		NR

NR-such rating agency has not been asked to rate these certificates.

Prior to 2006, we completed three securitizations and accrued for them as secured borrowings under SFAS No. 140.

NYMT 2005-1 . February 25, 2005 - securitization of approximately $419.0 million of high-credit quality, first-lien, adjustable rate mortgage and hybrid adjustable rate mortgages. The amount of each class of notes, together with the interest rate and credit ratings for each class as rated by S&P, are set forth below (dollar amounts in thousands):

Class	Approximate Principal Amount		Interest Rate		S&P Rating

A	$	391,761		LIBOR + 27bps		AAA
M-1	$	18,854		LIBOR + 50bps		AA
M-2	$	6,075		LIBOR + 85bps		A

At the time of securitization, the weighted average loan-to-value of the mortgage loans in the trust was approximately 68.8% and the weighted average FICO score was approximately 729. The weighted average current loan rate of the pool of mortgage loans is approximately 5.36% and the weighted average maximum loan rate (after periodic rate resets) is 10.62%, and weighted average months to roll of 17 months with 64% rolling in 6 months.

NYMT 2005-2. July 29, 2005 - securitization of approximately $242.9 million of high-credit quality, first-lien, adjustable rate mortgage and hybrid adjustable rate mortgages. The amount of each class of notes, together with the interest rate and credit ratings for each class as rated by S&P, are set forth below (dollar amounts in thousands):

Class	Approximate Principal Amount		Interest Rate		S&P Rating

A	$	217,126		LIBOR + 33bps		AAA
M-1	$	16,029		LIBOR + 60bps		AA
M-2	$	6,314		LIBOR + 100bps		A

At the time of securitization, the weighted average loan-to-value of the mortgage loans in the trust was approximately 69.8% and the weighted average FICO score was approximately 736. The weighted average current loan rate of the pool of mortgage loans is approximately 5.46% and the weighted average maximum loan rate (after periodic rate resets) is 11.22%.

NYMT 2005-3. December 20, 2005 - securitization of approximately $235.0 million of high-credit quality, first-lien, adjustable rate mortgage and hybrid adjustable rate mortgages. The amount of each class of notes, together with the interest rate and credit ratings for each class as rated by S&P and Moody’s, are set forth below (dollar amounts in thousands):

Class	Approximate Principal Amount		Interest Rate		S&P/Moody’s Rating

A-1	$	70,000		LIBOR + 24bps		AAA / Aaa
A-2	$	98,267		LIBOR + 23bps		AAA / Aaa
A-3	$	10,920		LIBOR + 32bps		AAA / Aaa
M-1	$	25,380		LIBOR + 45bps		AA+ / Aa2
M-2	$	24,088		LIBOR + 68bps		AA / A2

At the time of securitization, the weighted average loan-to-value of the mortgage loans in the Trust was approximately 69.5% and the weighted average FICO score was approximately 732. The weighted average current loan rate of the pool of mortgage loans is approximately 5.79% and the weighted average maximum loan rate (after periodic rate resets) is 11.58%.

Prepayment Experience — Continuing Operations

The cumulative prepayment rate (“CPR”) on our mortgage loan portfolio averaged approximately 19% during the three month period ended March 31, 2007 as compared to 18% for the three month period ended March 31, 2006. CPRs on our purchased portfolio of investment securities averaged approximately 12% while the CPRs on loans held for investment or held in our securitization trusts averaged approximately 25% during the three month period ended March 31, 2007. When prepayment expectations over the remaining life of assets increase, we have to amortize premiums over a shorter time period resulting in a reduced yield to maturity on our investment assets. Conversely, if prepayment expectations decrease, the premium would be amortized over a longer period resulting in a higher yield to maturity. We monitor our prepayment experience on a monthly basis and adjust the amortization of our net premiums accordingly.

Results of Operations — Continuing Operations

Our results of operations for our mortgage portfolio during a given period typically reflect the net interest spread earned on our investment portfolio of residential mortgage loans and mortgage-backed securities. The net interest spread is impacted by factors such as our cost of financing, the interest rate our investments are earning and our interest hedging strategies. Furthermore, the amount of premium or discount paid on purchased portfolio investments and the prepayment rates on portfolio investments will impact the net interest spread as such factors will be amortized over the expected term of such investments.

Results of Operations — Discontinued Operations

Our results of operations for our now discontinued mortgage lending segment during a given period typically reflect the total volume of loans originated and closed by us during that period. The volume of closed loan originations generated by us in any period is impacted by a variety of factors. These factors include:

The demand for new mortgage loans . Reduced demand for mortgage loans causes closed loan origination volume to decline. Demand for new mortgage loans is directly impacted by current interest rate trends and other economic conditions. Rising interest rates tend to reduce demand for new mortgage loans, particularly loan refinancings, and falling interest rates tend to increase demand for new mortgage loans, particularly loan refinancings.

Loan refinancing and home purchase trends . As discussed above, the volume of loan refinancings tends to increase following declines in interest rates and to decrease when interest rates rise. The volume of home purchases is also affected by interest rates, although to a lesser extent than refinancing volume. Home purchase trends are also affected by other economic changes such as inflation, improvements in the stock market, unemployment rates and other similar factors.

Seasonality . Historically, according to the MBA, loan originations during late November, December, January and February of each year are typically lower than during other months in the year due, in part, to inclement weather, fewer business days (due to holidays and the short month of February), and the fact that home buyers tend to purchase homes during the warmer months of the year. As a result, loan volumes tend to be lower in the first and fourth quarters of a year than in the second and third quarters.

Occasional spikes in volume resulting from isolated events . Mortgage lenders may experience spikes in loan origination volume from time to time due to non-recurring events or transactions, such as a large mass closing of a condominium project for which a bulk end-loan commitment was negotiated.

The cost of our production is also critical to our financial results as it is a significant factor in the gains we recognize. In addition, the type of loan production is an important factor in recognizing gain on sale premiums. Beginning near the end of the first quarter of 2004, our volume of FHA loans increased. Generally, FHA loans have lower average balances and FICO scores which are reflected in the statistics above. All FHA loans are currently and will be in the future sold or brokered to third parties. The following table summarizes our loan production for the quarter ended March 31, 2007 and each quarter of 2006.

	Number of		Aggregate Principal Balance		Percentage of Total			Weighted Average Interest			Average Principal		Weighted Average
	Loans		($ in millions)		Principal			Rate			Balance		LTV		FICO

2007:
First Quarter
ARM		419	$	166.2		38.1	%		6.93	%	$	396,660		71.0		711
Fixed-rate		1,089		259.6		59.6	%		6.96	%		238,319		75.4		717
Subtotal-non-FHA		1,508		425.8		97.7	%		6.95	%		282,314		73.7		715
FHA - ARM		—		—		—			—			—		—		—
FHA - fixed-rate		68		9.9		2.3	%		6.21	%		146,015		96.1		691
Subtotal - FHA		68		9.9		2.3	%		6.21	%		146,015		96.1		691
Total ARM		419		166.2		38.1	%		6.93	%		396,660		71.0		711
Total fixed-rate		1,157		269.5		61.9	%		6.94	%		232,894		76.2		716
Total Originations		1,576	$	435.7		100.0	%		6.94	%	$	276,433		74.2		714

Purchase mortgages		904	$	241.4		55.4	%		6.91	%	$	267,027		78.7		726
Refinancings		604		184.4		42.3	%		7.01	%		305,193		67.1		700
Subtotal-non-FHA		1,508		425.8		97.7	%		6.95	%		282,314		73.7		715
FHA - purchase		67		9.8		2.3	%		6.21	%		146,256		96.1		691
FHA - refinancings		1		0.1		0.0	%		6.50	%		129,920		94.8		652
Subtotal - FHA		68		9.9		2.3	%		6.21	%		146,015		96.1		691
Total purchase		971		251.2		57.7	%		6.88	%		258,694		79.4		725
Total refinancings		605		184.5		42.3	%		7.01	%		304,904		67.1		700
Total Originations		1,576	$	435.7		100.0	%		6.94	%	$	276,433		74.2		714

2006:
Fourth Quarter
ARM	647	$	218.2	37.3	%	7.10	%	$	337,270	73.5	699
Fixed-rate	1,609		353.7	60.4	%	7.14	%		219,835	75.8	712
Subtotal-non-FHA	2,256		571.9	97.7	%	7.13	%		253,514	74.9	707
FHA - ARM	—		—	—		—			—	—	—
FHA - fixed-rate	83		13.7	2.3	%	6.42	%		164,723	94.6	650
Subtotal - FHA	83		13.7	2.3	%	6.42	%		164,723	94.6	650
Total ARM	647		218.2	37.3	%	7.10	%		337,270	73.5	699
Total fixed-rate	1,692		367.4	62.7	%	7.11	%		217,132	76.5	709
Total Originations	2,339	$	585.6	100.0	%	7.11	%	$	250,364	75.4	706

	Number of		Aggregate Principal Balance		Percentage of Total			Weighted Average Interest			Average Principal		Weighted Average
	Loans		($ in millions)		Principal			Rate			Balance		LTV		FICO

Purchase mortgages		1,350	$	306.0		52.3	%		7.22	%	$	226,633		80.2		720
Refinancings		906		265.9		45.4	%		7.02	%		293,570		68.8		693
Subtotal-non-FHA		2,256		571.9		97.7	%		7.13	%		253,514		74.9		707

FHA - purchase		71		11.3		1.9	%		6.35	%		159,550		96.9		661
FHA - refinancings		12		2.4		0.4	%		6.74	%		195,333		83.4		597
Subtotal - FHA		83		13.7		2.3	%		6.42	%		164,723		94.6		650
Total purchase		1,421		317.3		54.2	%		7.19	%		223,281		80.8		717
Total refinancings		918		268.3		45.8	%		7.02	%		292,286		69.0		692
Total Originations		2,339	$	585.6		100.0	%		7.11	%	$	250,364		75.4		706

Third Quarter
ARM		794	$	237.6		39.4	%		7.27	%	$	299,209		72.8		704
Fixed-rate		1,709		351.1		58.2	%		7.48	%		205,433		75.6		711
Subtotal-non-FHA		2,503		588.7		97.6	%		7.39	%		235,180		74.5		708
FHA - ARM		3		1.2		0.2	%		6.06	%		423,701		96.1		681
FHA - fixed-rate		82		12.9		2.2	%		6.61	%		157,096		96.1		652
Subtotal - FHA		85		14.1		2.4	%		6.56	%		166,506		95.7		654
Total ARM		797		238.8		39.6	%		7.27	%		299,678		72.9		704
Total fixed-rate		1,791		364.0		60.4	%		7.45	%		203,220		76.4		709
Total Originations		2,588	$	602.8		100.0	%		7.38	%	$	232,925		75.0		707

Purchase mortgages		1,594	$	352.6		58.5			7.47	%	$	221,215		79.0		718
Refinancings		909		236.1		39.1			7.28	%		259,670		67.8		693
Subtotal-non-FHA		2,503		588.7		97.6	%		7.39	%		235,180		74.5		708
FHA - purchase		70		11.9		2.0			6.50	%		170,453		96.5		664
FHA - refinancings		15		2.2		0.4			6.84	%		148,087		91.4		604
Subtotal - FHA		85		14.1		2.4			6.56	%		166,506		95.7		654
Total purchase		1,664		364.5		60.5			7.44	%		219,079		79.5		716
Total refinancings		924		238.3		39.5			7.27	%		257,858		68.0		692
Total Originations		2,588	$	602.8		100.0	%		7.38	%	$	232,925		75.0		707

Second Quarter
ARM		1,021	$	352.4		47.5	%		6.83	%	$	345,116		72.2		711
Fixed-rate		1,687		358.8		48.4	%		7.21	%		212,710		75.1		713
Subtotal-non-FHA		2,708		711.2		95.9	%		7.02	%		262,631		73.7		712
FHA - ARM		7		1.7		0.2	%		5.60	%		242,250		95.8		608
FHA - fixed-rate		170		28.9		3.9	%		6.32	%		169,950		93.3		662
Subtotal - FHA		177		30.6		4.1	%		6.28	%		172,809		93.4		659
Total ARM		1,028		354.1		47.7	%		6.82	%		344,415		72.3		711
Total fixed-rate		1,857		387.7		52.3	%		7.14	%		208,795		76.5		709
Total Originations		2,885	$	741.8		100.0	%		6.99	%	$	257,120		74.5		710

	Number of		Aggregate Principal Balance		Percentage of Total			Weighted Average Interest			Average Principal		Weighted Average
	Loans		($ in millions)		Principal			Rate			Balance		LTV		FICO

Purchase mortgages		1,792	$	434.7		58.6	%		7.10	%	$	242,591		78.7		720
Refinancings		916		276.5		37.3	%		6.89	%		301,836		65.8		698
Subtotal-non-FHA		2,708		711.2		95.9	%		7.02	%		262,631		73.7		712
FHA - purchase		108		19.2		2.6	%		6.23	%		178,164		96.6		669
FHA - refinancings		69		11.4		1.5	%		6.38	%		164,429		88.0		642
Subtotal - FHA		177		30.6		4.1	%		6.28	%		172,809		93.4		659
Total purchase		1,900		453.9		61.2	%		7.07	%		238,929		79.4		718
Total refinancings		985		287.9		38.8	%		6.87	%		292,210		66.7		696
Total Originations		2,885	$	741.8		100.0	%		6.99	%	$	257,120		74.5		710

First Quarter
ARM		924	$	290.6		47.3	%		6.71	%	$	314,555		71.6		705
Fixed-rate		1,442		299.2		48.8	%		7.06	%		207,519		73.3		712
Subtotal-non-FHA		2,366		589.8		96.1	%		6.89	%		249,320		72.5		709
FHA - ARM		2		0.5		0.1	%		5.57	%		228,253		93.0		646
FHA - fixed-rate		142		23.5		3.8	%		6.13	%		165,161		92.7		650
Subtotal - FHA		144		24.0		3.9	%		6.12	%		166,037		92.7		650
Total ARM		926		291.1		47.4	%		6.71	%		314,369		71.7		705
Total fixed-rate		1,584		322.7		52.6	%		6.99	%		203,722		74.7		708
Total Originations		2,510	$	613.8		100.0	%		6.86	%	$	244,542		73.2		706

Purchase mortgages		1,430	$	335.5		54.7	%		6.94	%	$	234,600		77.2		722
Refinancings		936		254.3		41.4	%		6.81	%		271,809		66.2		692
Subtotal-non-FHA		2,366		589.8		96.1	%		6.89	%		249,320		72.5		709
FHA - purchase		70		12.7		2.1	%		6.07	%		181,325		96.4		655
FHA - refinancings		74		11.3		1.8	%		6.17	%		151,576		88.6		645
Subtotal - FHA		144		24.0		3.9	%		6.12	%		166,037		92.7		650
Total purchase		1,500		348.2		56.7	%		6.91	%		232,144		77.9		719
Total refinancings		1,010		265.6		43.3	%		6.78	%		263,000		67.1		690
Total Originations		2,510	$	613.8		100.0	%		6.86	%	$	244,542		73.2		706

Any change in loan origination volume and other operational and financial performance results was primarily dependent on the number of offices and our level of staffing these offices. Our personnel costs are largely variable in that loan origination personnel are paid commissions on loan production volume and the related operations personnel are somewhat variable in terms of have flexibility to scale operations based on volume levels. Our staffing levels also have a high correlation to levels of expense for marketing and promotion, office supplies, data processing, and travel and entertainment expenses. Likewise, the number of offices and branches which we operate has a high correlation to occupancy and equipment expense.

Other Operational Information

	March 31,
	2007						2006		% change
	Continuing(1)		Discontinued(2)		Total		Total

Loan officers		—		280		280		372		(24.7	)%
Other employees		35		147		182		380		(52.1	)%
Total employees		35		427		462		752		(38.6	)%
Number of sales locations		—		41		41		53		(22.6	)%

(1) Once the Company completes its transition from an active REIT (one that originates mortgages) to a passive REIT (one that invests solely in closed loans), which the Company expects will be in the third quarter of 2007, the longterm employee head count will be approximately 8-10 people.

(2) In connection with the sale of our wholesale mortgage lending platform assets on February 22, 2007 and the sale of our retail mortgage lending platform assets to Indymac on March 31, 2007, the Company exited the mortgage lending business and significantly reduced its staffing needs. As of March 31, 2007, the Company does not employ any loan officers and does not maintain any sales locations.

Results of Operations - Comparison of Three Months Ended March 31, 2007 and March 31, 2006

Net Income - Consolidated Overview

Comparative Net Income

	As of March 31,
	2007			2006			% Change
	(dollar amounts, except per share amounts, in thousands)

Net loss	$	(4,741	)	$	(1,796	)		(164.0	)%
EPS (Basic)	$	(0.26	)	$	(0.10	)		(160.0	)%
EPS (Diluted)	$	(0.26	)	$	(0.10	)		(160.0	)%

For the three months ended March 31, 2007, we reported net loss of $4.7 million, as compared to net loss of $1.8 million for the three months ended March 31, 2006. The increase in net loss is attributable to a reduction in gain on sale income from the mortgage lending segment as well as a reduction in net interest income from the investment portfolio. Included in the net loss is a gain of $5.2 million from the sale of the mortgage lending platform to Indymac.

Comparative Net Interest Income

	As of March 31,
	2007			2006		% Change
	(dollar amounts in thousands)
Interest income	$	13,713		$	17,584		(22.0	)%
Interest expense		13,966			14,964		(6.7	)%
Net interest (expense) income	$	(253	)	$	2,620		(109.7	)%

For the three months ended March 31, 2007, we reported net interest expense of $0.3 million as compared to net interest income of $2.6 million for the same period in 2006. Net interest income decreased by $2.9 million for the three months ended March 31, 2007 from the same period in 2006. The change was primarily due to an increase interest expense without the corresponding increase in interest income on the portfolio assets. In addition, the average amount invested in the investment securities portfolio and mortgage loans held in securitization trust decreased by approximately $455.9 million as compared to March 31, 2006.

Net Interest Income . The following table summarizes the changes in net interest income for the three months ended March 31, 2007 and 2006:

Yields Earned on Mortgage Loans and Securities and Rates on Financial Arrangements

	2007								2006
	Average Balance		Amount			Yield/ Rate			Average Balance		Amount			Yield/ Rate
	($ Millions)								($ Millions)

Interest income:
Investment securities and loans held in the securitization trusts	$	1,017.9	$	14,214			5.59	%	$	1,472.8	$	17,941			4.85	%
Loans held for sale	$	143.0	$	2,683			7.50	%	$	258.3	$	5,042			6.86	%
Amortization of net premium	$	4.8	$	(501	)		(0.23	)%	$	5.8	$	(357	)		(0.10	)%
Interest income	$	1,165.7	$	16,396			5.63	%	$	1,736.9	$	22,626			5.23	%

Interest expense:
Investment securities and loans held in the securitization trusts	$	980.3	$	13,084			5.34	%	$	1,393.8	$	14,079			4.04	%
Loans held for sale	$	135.0	$	2,087			6.40	%	$	252.0	$	3,315			5.42	%
Subordinated debentures	$	45.0	$	882			7.84	%	$	45.0	$	885			7.87	%
Interest expense	$	1,160.3	$	16,053			5.53	%	$	1,690.8	$	18,279			4.32	%
Net interest income	$	5.4	$	343			0.10	%	$	46.1	$	4,347			0.91	%

Continuing Operations

For our portfolio investments of investment securities, mortgage loans held for investments and loans held in securitization trusts, our net interest spread for each quarter since we began our portfolio investment activities follows:

As of the Quarter Ended	Average Interest Earning Assets ($ millions)		Weighted Average Coupon			Weighted Average Yield on Interest Earning Assets			Cost of Funds			Net Interest Spread

March 31, 2007	$	1,022.7		5.59	%		5.36	%		5.34	%		0.02	%
December 31, 2006	$	1,111.0		5.53	%		5.35	%		5.26	%		0.09	%
September 30, 2006	$	1,287.6		5.50	%		5.28	%		5.12	%		0.16	%
June 30, 2006	$	1,217.9		5.29	%		5.08	%		4.30	%		0.78	%
March 31, 2006	$	1,478.6		4.85	%		4.75	%		4.04	%		0.71	%
December 31, 2005	$	1,499.0		4.84	%		4.43	%		3.81	%		0.62	%
September 30, 2005	$	1,494.0		4.69	%		4.08	%		3.38	%		0.70	%
June 30, 2005	$	1,590.0		4.50	%		4.06	%		3.06	%		1.00	%
March 31, 2005	$	1,447.9		4.39	%		4.01	%		2.86	%		1.15	%
December 31, 2004	$	1,325.7		4.29	%		3.84	%		2.58	%		1.26	%
September 30, 2004	$	776.5		4.04	%		3.86	%		2.45	%		1.41	%

Comparative Expenses

	For the Three Months Ended March 31,
	2007		2006		% Change

Salaries, commissions and benefits	$	345	$	250		38.0	%
Professional fees		100		94		6.4	%
Depreciation and amortization		68		67		1.5	%
Other	$	74	$	87		(14.9	)%

The 38% increase in salaries for the three months ended March 31, 2007 from the same period in 2006 was due to an accelerated vesting of restricted stock due to the departure of senior executives related to the Indymac asset sale.

It should be noted that certain expenses are shared by the Company and are included as a discontinued operation for this presentation.

In connection with the sale of the Company’s wholesale mortgage origination platform assets on February 22, 2007 and the sale of its retail mortgage lending platform assets on March 31, 2007, we are required to classify our mortgage lending segment as a discontinued operation in accordance with SFAS No. 144 (see note 11 in the notes to our consolidated financial statements).

Discontinued Operation

Net loss

	For the Three Months Ended March 31,
	2007			2006			% Change
	(dollar amounts in thousands)

Loss from discontinued operation-net of tax	$	(3,841	)	$	(5,801	)		33.8	%
Income tax benefit		—			2,916			(100.0	)%
Net loss	$	(3,841	)	$	(2,885	)		(33.1	)%

The 33.8% decrease in loss before income tax benefit, equivalent to $2.0 million, is primarily due to the $5.2 million gain recognized from the sale of the retail mortgage lending platform to Indymac offset by the $ 3.2 million in loan losses. The increase in net loss is due to the Company’s decision to no longer increase the value of the deferred tax asset.

The following is selected financial data detail that is included in income (loss) from the discontinued operation for the three months ended March 31, 2007 and 2006:

	For the Three Months Ended March 31,
	2007			2006		% Change
	(dollar amounts in thousands)

Net interest income	$	596		$	1,727		(65.5	)%
Gain on sale of mortgage loans		2,337			4,070		(42.6	)%
Loan losses		(3,161	)		—		—
Gain on sale of retail lending segment		5,160			—		—
Net brokered fees	$	412		$	609		(32.3	)%

Net interest income. For the three months ended March 31, 2007, net interest income decreased by 65.5% as compared to the same period in the previous year. This is mainly due to a decline in the average balance of the mortgage loans held for sale during the three months ended March 31, 2007 and lower net interest spread.

Gain on sale of mortgage loans . The 42.6% decrease in the gain on sales of mortgage loans was due to unfavorable market conditions suffered by the entire industry as well as an overall decrease in banked loan volume. The following table details the period over period banked loan volume:

Banked Loan Volume

	For the Three Months Ended March 31,
	2007		2006		% Change
	(dollar amounts in thousands)

Total banked loan volume	$	300,863	$	422,247		(28.7	)%
Total banked loan volume - units		1,210		1,895		(36.1	)%
Banked originations retained in portfolio	$	—	$	69,739		(100.0	)%
Banked originations retained in portfolio - units		—		134		(100.0	)%
Net banked loan volume	$	300,863	$	352,508		(14.7	)%
Net banked loan volume - units		1,210		1,761		(31.3	)%
Gain on sales of mortgage loans	$	2,337	$	4,070		(42.6	)%

Loan losses. The Company incurred an additional $3.2 million in loan losses during the three months ended March 31, 2007 primarily due to an increase in Alt-A loans with early payment defaults and the resulting lower prices obtained in selling those loans.

Gain on sale of retail lending segment. The Company received an $8 million premium over book for the sale of the retail lending segment to Indymac. This premium was reduced for loan officer retention, employee severance and other cost associated with the disposal of the segment resulting in a net gain of $5.2 million.

Net brokered fees. The 32.3% decrease in net brokered fees is due primarily to decrease in brokered loan volume and in part to the sale of wholesale mortgage lending platform on February 22, 2007. The following table summarizes brokered loan volume, fees and related expenses for the three months ended March 31, 2007, and 2006:

Brokered Loan Fees and Brokered Loan Expense

	For the Three Months Ended March 31,
	2007		2006		% Change
	(dollar amounts in thousands)

Total brokered loan volume	$	134,795	$	183,368		(26.5	)%
Total brokered loan volume - units		366		612		(40.2	)%
Brokered loan fees	$	2,135	$	2,777		(23.1	)%
Brokered loan expenses	$	1,723	$	2,168		(20.5	)%
Net brokered fees	$	412	$	609		(32.3	)%

Expenses

Most of our expenses are directly correlated to our staffing levels and our number of offices:

		For the Three Months Ended March 31,
		2007		2006	% Change

Loan officers		280		372	(24.7	)%
Other employees		185		380	(51.3	)%
Total employees		465		752	(38.2	)%
Number of sales locations		41		53	(22.6	)%
Salaries and benefits	$	5,006	$	6,091	(17.8	)%
Occupancy and equipment		1,312		1,325	(1.0	)%
Marketing and promotion		221		779	(71.6	)%
Data processing and communications		504		605	(16.7	)%
Office supplies and expenses		430		591	(27.2	)%
Professional fees		892		1,187	(24.9	)%
Depreciation and amortization	$	421	$	498	(15.5	)%

Included in the expenses in the table above are amounts that were allocated for shared services that will remain part of continuing operations.

Off-Balance Sheet Arrangements — General

Since inception, we have not maintained any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. Accordingly, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships.

Liquidity and Capital Resources — Continuing Operations

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs. We recognize the need to have funds available for our operating businesses and our investment portfolio. We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds.

We believe our existing cash balances and funds available under our warehouse facility and cash flows from operations will be sufficient for our liquidity requirements for at least the next 12 months. Unused borrowing capacity will vary as the market values of our securities vary. Our investments and assets will also generate liquidity on an ongoing basis through mortgage principal and interest payments, pre-payments and net earnings held prior to payment of dividends. Should our liquidity needs ever exceed the on-going or immediate sources of liquidity discussed above, we believe that our securities could be sold to raise additional cash. At March 31, 2007, we had no commitments for any additional financings, however we cannot ensure that we will be able to obtain any future additional financing if and when required and on terms and conditions acceptable to us.

To finance our investment portfolio, we generally seek to borrow between eight and 12 times the amount of our equity. At March 31, 2007, our leverage ratio, defined as total financing facilities outstanding divided by total stockholders’ equity was 16 to 1. We, and the providers of our finance facilities, generally view our $45.0 million of subordinated trust preferred debentures outstanding at March 31, 2007 as a form of equity which would result in an adjusted leverage ratio of 9 to1.

We have arrangements to enter into repurchase agreements, a form of collateralized short-term borrowing, with 22 different financial institutions with total borrowing capacity of $4.6 billion; as of March 31, 2007 we had $0.4 billion outstanding from six of these firms. These agreements are secured by our mortgage-backed securities and bear interest rates that have historically moved in close relationship to LIBOR. Under these repurchase agreements the financial institutions lend money versus the market value of our mortgage-backed securities portfolio, and, accordingly, an increase in interest rates can have a negative impact on the valuation of these securities, resulting in a potential margin call from the financial institution. We monitor the market valuation fluctuation as well as other liquidity needs to ensure there is adequate collateral available to meet any additional margin calls or liquidity requirements.

Our borrowings are secured by portfolio investments, the value of which may move inversely with changes in interest rates. A decline in the market value of our portfolio investments or mortgage loans investments in the future may limit our ability to borrow under these facilities or result in lenders requiring additional collateral or initiating margin calls under our borrowing facilities. As a result, we could be required to sell some of our investments under adverse market conditions in order to maintain liquidity. If such sales are made at prices lower than the amortized costs of such investments, we will incur losses.

We enter into interest rate swap agreements to extend the maturity of our repurchase agreements as a mechanism to reduce the interest rate risk of the securities portfolio. At March 31, 2007 we had $285.0 million in interest rate swaps outstanding with two different financial institutions. The weighted average maturity of the swaps was 602 days at March 31, 2007. The impact of the interest swaps extends the maturity of the repurchase agreements to eight months.

We intend to make distributions to our stockholders to comply with the various requirements to maintain our REIT status and to minimize or avoid corporate income tax and the nondeductible excise tax. However, differences in timing between the recognition of REIT taxable income and the actual receipt of cash could require us to sell assets or to borrow funds on a short-term basis to meet the REIT distribution requirements and to avoid corporate income tax and the nondeductible excise tax.

Certain of our assets may generate substantial mismatches between REIT taxable income and available cash. These assets could include mortgage-backed securities we hold that have been issued at a discount and require the accrual of taxable income in advance of the receipt of cash. As a result, our REIT taxable income may exceed our cash available for distribution and the requirement to distribute a substantial portion of our net taxable income could cause us to:

sell assets in adverse market conditions;

borrow on unfavorable terms; or

distribute amounts that would otherwise be invested in assets or repayment of debt, in order to comply with the REIT distribution requirements.

Liquidity and Capital Resources - Discontinued Operations

As of March 31, 2007 we maintained a warehouse facility with Credit Suisse First Boston Mortgage Capital, LLC, or CSFB, in the amount of $120.0 million. This facility is secured by the mortgage loans owned by the Company. Advances under this facility bear interest at a floating rate initially equal to LIBOR plus a spread (starting at .75%) that varies depending on the types of mortgage loans securing the facility. Additionally advance rates and terms may vary depending on the ratio of our liabilities to our tangible net worth. As of March 31, 2007, the aggregate outstanding balance under this facility was $98.6 million and the aggregate maximum amount available for additional borrowings was $21.4 million. An amendment pertaining to this facility was entered into between us and the counterparty on March 23, 2007 that limited the facility to $120 million, and specified a termination date of June 29, 2007, at which time we expect to have all loans currently financed with this facility to be sold, or reduced to an amount that would enable us to pay the loans off of the facility.

The documents governing this facility contain a number of compensating balance requirements and restrictive financial and other covenants that, among other things, require us to maintain a maximum ratio of total liabilities to tangible net worth of 20 to 1, as well as to comply with applicable regulatory and investor requirements. These facilities also contain various covenants pertaining to, among other things, the maintenance of certain periodic income thresholds and working capital, and maintenance of certain amounts of net worth. As of March 31, 2007, the Company was in compliance with all covenants with the exception of the net income and stockholder’s equity covenants. Waivers have been obtained from this institution for these matters.

We expect that the CSFB facility will be sufficient to meet our capital and financing needs as we no longer operate a mortgage lending business as of March 31, 2007. The Company will continue to utilize the facility until all of the loans are sold, which we expect will occur during the second quarter of 2007.

Current market conditions relative to early payment defaults (“EPD”) on mortgage loans have made EPDs an important factor affecting our liquidity. As more fully described in section Loan Loss Reserves on Mortgage Loans, we are generally required to repurchase loans where the borrowers have not timely made some or all of their first three mortgage payments. As the incidence of EPDs has recently increased dramatically, the frequency of loans we are requested to repurchase has increased. These repurchases are predominately made with cash and the loans are held on the balance sheet until they can be sold. EPD loans are sold at a discount to the current balance of the loan, thus reducing our cash position.

Our ability to sell the mortgage loans we own at cost or for a premium in the secondary market so that we may generate cash proceeds to repay borrowings under our repurchase facilities, depends on a number of factors, including:

the program parameters under which the loan was originated under and the continuation of that program by the investor;

the loan’s conformity with the ultimate investors’ underwriting standards;

the credit quality of the loans; and

our compliance with laws and regulations as it relates to lending practices;

As it relates to loans sold previously under certain loan sale agreements, and in the event of a breach of a representation, warranty or covenant under such agreement, or in the event of an EPD, we may be required to repurchase some of those loan or indemnify the loan purchaser for damages caused by that breach.

Inflation

For the periods presented herein, inflation has been relatively low and we believe that inflation has not had a material effect on our results of operations. The impact of inflation is primarily reflected in the increased costs of our operations. Virtually all our assets and liabilities are financial in nature. Our consolidated financial statements and corresponding notes thereto have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. As a result, interest rates and other factors influence our performance far more than inflation. Inflation affects our operations primarily through its effect on interest rates, since interest rates typically increase during periods of high inflation and decrease during periods of low inflation. During periods of increasing interest rates, demand for mortgages and a borrower’s ability to qualify for mortgage financing in a purchase transaction may be adversely affected. During periods of decreasing interest rates, borrowers may prepay their mortgages, which in turn may adversely affect our yield and subsequently the value of our portfolio of mortgage assets.