Item
2. Management's Discussion and Analysis of Financial Condition and Results
of
Operations
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains certain forward-looking statements.
Forward looking statements are those which are not historical in nature.
They
can often be identified by their inclusion of words such as “will,”
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar
expressions. Any projection of revenues, earnings or losses, capital
expenditures, distributions, capital structure or other financial terms is
a
forward-looking statement. Certain statements regarding the following
particularly are forward-looking in nature:
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future
performance, developments, market forecasts or projected
dividends;
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projected
acquisitions or joint ventures; and
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projected
capital expenditures.
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It
is
important to note that the description of our business in general and our
investment in mortgage loans and mortgage-backed securities holdings in
particular, is a statement about our operations as of a specific point in
time
and is not meant to be construed as an investment policy. The types of
assets we hold, the amount of leverage we use or the liabilities we incur
and
other characteristics of our assets and liabilities disclosed in this report
as
of a specified period of time are subject to reevaluation and change without
notice.
Our
forward-looking statements are based upon our management's beliefs, assumptions
and expectations of our future operations and economic performance, taking
into
account the information currently available to us. Forward-looking statements
involve risks and uncertainties, some of which are not currently known to
us and
many of which are beyond our control and that might cause our actual results,
performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express
or
imply in any forward-looking statements. Some of the important factors that
could cause our actual results, performance or financial condition to differ
materially from expectations are:
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our
proposed portfolio strategy may be changed or modified by our management
without advance notice to stockholders and we may suffer losses
as a
result of such modifications or
changes;
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market
changes in the terms and availability of repurchase agreements
used to
finance our investment portfolio activities;
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reduced
demand for our securities in the mortgage securitization and secondary
markets;
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interest
rate mismatches between our mortgage-backed securities and our
borrowings
used to fund such purchases;
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changes
in interest rates and mortgage prepayment
rates;
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effects
of interest rate caps on our adjustable-rate mortgage-backed
securities;
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the
degree to which our hedging strategies may or may not protect us
from
interest rate volatility;
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potential
impacts of our leveraging policies on our net income and cash available
for distribution;
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our
board's ability to change our operating policies and strategies
without
notice to you or stockholder
approval;
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our
ability to manage, minimize or eliminate liabilities stemming from
the
discontinued operations including, among other things, litigation,
repurchase obligations on the sales of mortgage loans and property
leases;
and
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the
other important factors identified, or incorporated by reference
into this
report, including, but not limited to those under the captions
“Management's Discussion and Analysis of Financial Condition and
Results
of Operations” and “Quantitative and Qualitative Disclosures about Market
Risk”, and those described under the caption “Part I. Item 1A. Risk
Factors” in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on April 2,
2007.
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We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the events described
by
our forward-looking events might not occur. We qualify any and all of our
forward-looking statements by these cautionary factors. In addition, you
should
carefully review the risk factors described in other documents we file from
time
to time with the Securities and Exchange Commission.
This
Quarterly Report on Form 10-Q contains market data, industry statistics and
other data that have been obtained from, or compiled from, information made
available by third parties. We have not independently verified their
data.
General
Overview
New
York
Mortgage Trust, Inc. (“we,” “us,” “our,” “NYMT” or the “Company”) is a
self-advised real estate investment trust ("REIT") that invests in and
manages a
portfolio of mortgage-backed securities and mortgage loans.
Our
investment portfolio consists primarily of Agency mortgage-backed securities
("MBS") and, to a lesser extent, high quality adjustable rate mortgage
(“ARM”)
securities primarily rated in the highest rating categories by at least
one of
the Rating Agencies. Our principal business objective is to generate net
income
for distribution to our stockholders resulting from the spread between
the
interest and other income we earn on our investments in purchased residential
mortgage-backed securities collateralized mortgage obligations, ARM loans
and
securitized loans, and the interest expense we pay on the borrowings that
we use
to finance these investments and our operating costs.
The
Company is organized and conducts its operations to qualify as a REIT for
federal income tax purposes. As such, the Company will generally not be
subject
to federal income tax on that portion of its income that is distributed
to
stockholders if it distributes at least 90% of its REIT taxable income
to its
stockholders by the due date of its federal income tax return and complies
with
various other requirements.
Discontinued
Operation
Until
March 31, 2007, the company operated a mortgage lending business through
its
wholly-owned, taxable REIT subsidiary, Hypotheca Capital, LLC (formerly
known as
The New York Mortgage Company, LLC) (“HC” or our “TRS”).
On
March
31, 2007, we completed the sale of substantially all of the operating assets
related to HC's retail mortgage lending platform to IndyMac Bank, F.S.B.
(“Indymac”), a wholly-owned subsidiary of Indymac Bancorp, Inc. On February 22,
2007, we completed the sale of substantially all of the operating assets related
to HC's wholesale mortgage lending platform to Tribeca Lending Corp.
(“Tribeca Lending”), a wholly-owned subsidiary of Franklin Credit Management
Corporation.
While
the
Company sold substantially all of the assets of its wholesale and retail
mortgage lending platforms and exited the mortgage lending business as
of March
31, 2007, it retains certain liabilities associated with that former line
of
business. Among these liabilities are the costs associated with the disposal
of
the mortgage loans held for sale, potential repurchase and
indemnification obligations (including early payment defaults) on
previously sold mortgage loans and remaining lease payment obligations
on real
and personal property.
Strategy
The
Company invests in high-quality MBS, including agency and non-agency ARM
securities and residential mortgage loans. Our investment portfolio,
consisting primarily of residential mortgage-backed securities and mortgage
loans held in securitization trusts, generates a substantial portion of
our
earnings. In managing our investment in a mortgage portfolio, we:
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invest
in high-credit quality Agency and non-Agency MBS including ARM
securities, collateralized mortgage obligation floaters (“CMO Floaters”)
and high-credit quality mortgage loans;
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finance
our portfolio by entering into repurchase agreements, or issue
collateral
debt obligations relating to our securitizations;
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generally
operate as a long-term portfolio investor;
and
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generate
earnings from the return on our mortgage securities and spread
income from
our mortgage loan portfolio.
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We
have
acquired and increasingly seek to acquire additional assets that will produce
competitive returns, taking into consideration the amount and nature of
the
anticipated returns from the investment, our ability to pledge the investment
for secured, collateralized borrowings and the costs associated with obtaining,
financing, managing, securitizing and reserving for these
investments.
Investment
Portfolio Credit Quality.
We
retain in our portfolio primarily high-credit quality loans that we
originated or acquired from third parties. In the future, we expect to
obtain
mortgage loans in bulk purchases exclusively from third party originators.
Retaining high credit quality mortgage loans generally leads
to improved portfolio liquidity and generally provides for financing
opportunities that are available on favorable terms. At September 30, 2007,
the Company had $9.0 million in delinquent loans held in securitization
trusts,
against which it had a $1.0 million credit reserve.
In
addition, 99% of the mortgage backed securities portfolio is either Agency
or
“AAA” rated. Our portfolio is comprised of: $326.4 million Agency
securities; $32.0 million non-Agency “AAA” rated; and $1.5 million NYMT residual
retained securities.
Securitizations
.
The
portion of our investment portfolio categorized as mortgage loans held
in
securitization trusts consists of securitized prime adjustable-rate mortgage
loans that we either originated or acquired from third parties. We aggregate
high credit quality, adjustable-rate mortgage loans until we have a pool
of
loans of sufficient size to securitize. Historically, we obtained the loans
we
securitize from either our TRS or from third parties. In the future we
will
obtain mortgage loans in bulk purchases from third party originators. Our
first securitization occurred on February 25, 2005 and we completed our
second
and third loan securitizations on July 28, 2005 and December 20, 2005,
respectively. These securitization transactions, through which we financed
the
adjustable-rate and hybrid mortgage loans that we retained, were structured
as
financings for both tax and financial accounting purposes. Therefore, we
do not
expect to generate a gain or loss on sales from these activities, and,
following
the securitizations, the loans are classified on our consolidated balance
sheet
as mortgage loans held in securitization trusts. From each of our
securitizations, we issued investment grade securities to third parties
and
recorded the securitization debt as a liability. On March 30, 2006 we completed
our fourth securitization, New York Mortgage Trust 2006-1. This securitization
was structured as a sale for accounting purposes.
Funding
Diversification
.
We
strive to maintain and achieve a balanced and diverse funding mix to finance
our
investment portfolio and assets. We rely primarily on repurchase agreements
and
collateralized debt obligations (“CDOs”) in order to finance our investment
portfolio of mortgage-backed securities and residential loans. As
of
September 30, 2007, we had repurchase agreements outstanding with four
different
counterparties totaling $327.9 million, including approximately $102.2
million
maturing on February 22, 2008.
During
the nine months ended September 30, 2007, we sold approximately $339.0
million
of previously retained securitizations resulting in the issuance of non-recourse
debt and eliminating any risk of counterparty financing changes, such as
increased margins due to declines in the market value of our
securities or reduced availability of liquidity. This CDO issuance
replaced short-term repurchase agreements freeing up approximately $17.5
million
in capital needed for repurchase agreement margin. As of September 30,
2007 we
had $444.2 million of outstanding CDOs.
In
2005,
we further diversified our sources of financing with the issuance of $45.0
million of trust preferred securities classified as subordinated debentures.
See
“Liquidity and Capital Resources” for further discussion on our financing
activities.
Interest
Rate Risk Management
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A
significant risk to our operations, relating to our portfolio management,
is the
risk that interest rates on our assets will not adjust at the same times
or
amounts that rates on our liabilities adjust. Even though we retain and
invest
in ARM securities, many of the underlying hybrid ARM loans in our securities
portfolio have fixed rates of interest for a period of time ranging from
two to
seven years. Our funding costs are variable and the maturities are short
term in
nature. We use hedging instruments to reduce our risk associated with
changes in interest rates that could affect our investment portfolio of
mortgage
loans and securities. Typically, we utilized interest rate swaps to extend
the
maturity of our short borrowings to better match the interest rate sensitivity
to the underlying assets being financed. We hedge our financing costs in
an
attempt to maintain a net duration gap of less than one year; as of September
30, 2007, our net duration gap was approximately 3 months.
As
we
acquire mortgage-backed securities or loans, we seek to hedge interest
rate risk
in order to stabilize net asset values and earnings during periods of rising
interest rates. To do so, we use hedging instruments in conjunction with
our
borrowings to approximate the re-pricing characteristics of such assets.
The
Company utilizes a model based risk analysis system to assist in projecting
portfolio performances over a scenario of different interest rates and
market
stresses. The model incorporates shifts in interest rates, changes in
prepayments and other factors impacting the valuations of our financial
securities, including mortgage-backed securities, repurchase agreements,
interest rate swaps and interest rate caps. However, given the prepayment
uncertainties on our mortgage assets, it is not possible to definitively
lock-in
a spread between the earnings yield on our investment portfolio and the
related
cost of borrowings. Nonetheless, through active management and the use
of
evaluative stress scenarios of the portfolio, we believe that we can mitigate
a
significant amount of both value and earnings volatility. See further discussion
of interest rate risk at the “Quantitative And Qualitative Disclosures About
Market Risk - Interest Rate Risk” section of this document.
Other
Risk Considerations
.
Our
business is affected by a variety of economic and industry factors. Management
periodically reviews and assesses these factors and their potential impact
on
our business. The most significant risk factors management considers while
managing the business and which could have a material adverse effect on
our
financial condition and results of operations are:
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a
decline in the market value of our assets due to rising interest
rates;
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increasing
or decreasing levels of prepayments on the mortgages underlying
our
mortgage-backed securities;
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our
ability to dispose of the remaining loans held for sale at levels
for
which we have currently reserved;
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the
overall leverage of our portfolio and the ability to obtain financing
to
leverage our equity, including the availability of repurchase
agreements
to finance our investment portfolio
activities;
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the
concentration of our mortgage loans in specific geographic
regions;
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our
ability to use hedging instruments to mitigate our interest rate
and
prepayment risks;
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declining
real estate values;
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reduced
demand in the secondary markets for our securities created by
our
securitizations,
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if
our assets are insufficient to meet the collateral requirements
of our
lenders, we might be compelled to liquidate particular assets
at
inopportune times and at disadvantageous prices;
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if
we are disqualified as a REIT, we will be subject to tax as a
regular
corporation and face substantial tax liability;
and
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compliance
with REIT requirements might cause us to forgo otherwise attractive
opportunities.
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Known
Material Trends and Commentary
Liquidity
.
We
depend on the capital markets to finance our investments in mortgage-backed
securities and mortgage loans. To finiance our investment portfolio,
we entered into repurchase agreements for short term financing. Commercial
and
investment banks have historically provided significant liquidity to finance
our
operations. Recent market events have caused providers of liquidity to
increase their credit review standards and decrease the amount of fair
value
against they will lend, resulting in a decrease in overall market
liquidity. While these events have not adversely affected our liquidity
currently, management cannot predict the future availability of these sources
of
liquidity. We have issued collateralized debt obligations to finance our
mortgage loans held in securitization trusts.
Although
we are not a participant in the sub-prime mortgage sector and exited the
mortgage lending business at the end of the first quarter of 2007, the
current
default trends in the sub-prime mortgage sector, and the resulting weakness
in
the broader mortgage market, could adversely affect one or more of the
Company's
lenders and could cause one or more of the Company's lenders to be unwilling
or
unable to provide it with additional financing. This could potentially
increase
the Company's financing costs and reduce liquidity. If one or more major
market
participants failed, it could negatively impact the marketability of all
fixed
income securities, including Agency MBS, and this could negatively impact
the
value of the securities in the Company's portfolio, thus reducing its net
book
value. In the event the Company's lenders are unwilling or unable to provide
it
with additional financing, we could be forced to sell our investment securities
at an inopportune time on unfavorable terms. However, because the Company's
investment portfolio is comprised of 91% Agency and 8% “AAA” rated mortgage
backed securities, the Company believes that it is better positioned to
convert
its investment securities to cash or to negotiate an extended financing
term
should it lenders reduce the amount of the liquidity available to it. See
"Liquidity and Capital Resources" below for further discussion.
Subsequent
to its exit from the mortgage origination business, the Company has continued
the process of exploring strategic alternatives while continuing its
passive
REIT strategy. There can be no assurances that the Company will be successful
in
entering into a strategic alternative. Should the Company be unsuccessful
in
doing so, it will operate at a higher expense ratio relative to its peers,
and
will have to reevaluate its long term viability.
EPDs
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The
occurrence of early payment defaults (“EPD”), which generally are mortgage loans
for which a borrower has missed one of his/her first three payments when
due,
has greatly affected the mortgage lending industry. As the incidence of
EPDs on
loans originated in the second half of 2006 and the first quarter of 2007
increased dramatically, the frequency of loans we were requested to repurchase
increased. These EPDs pertain only to loans originated in our discontinued
mortgage lending operation. These repurchases are predominately made with
cash
and the reacquired loans are held on the balance sheet until they are re-sold.
EPD loans are typically re-sold at a loss and result in a reduction
of our working capital.
The
majority of our EPDs to date are associated with borrowers whose loans were
underwritten to loan programs where the borrower was not required to provide
full income and or asset verification in order to qualify for the loan.
These
alternative documentation programs, also known as “Alternative-A” or “Alt-A”
programs, offered to many investors for whom we once originated loans,
combined with reduced amounts of required down payments, made it easier
for many
borrowers to obtain mortgage financing.
The
increased incidence of EPDs has made many loan buyers and investors cautious
when it comes to the purchase of mortgage loans. This has affected our
ability
to sell these mortgage loans held for sale in that loan purchasers are
more
cautious in their approach to loan review. The increased number of EPDs
also
caused these investors to change their underwriting guidelines resulting in
further difficulty in selling the loans underwritten to the prior guidelines.
During the three months ended September 30, 2007, no mortgage loans
held for sale were sold. The Company continues to review and assess its
portfolio of mortgage loans held for sale to find the best execution on
their
sale.
During
the three months ended September 30, 2007, we did not repurchase any
mortgage
loans. For the nine months ended September 30, 2007, we repurchased a
total of
$6.5 million of mortgage loans. All mortgage loans repurchased to date
were
originated in either 2005 or 2006 and the majority of the repurchase
requests
were due to EPDs. Of the repurchased mortgage loans originated in 2006,
the
majority were Alt-A. As of June 30, 2007, we had $25.2 million of repurchase
requests pending, against which the Company had taken a reserve of $4.9
million.
During
the three months ended September 30, 2007, we received $1.0 million of
new
repurchase requests and had $0.5 million existing repurchase requests
rescinded.
Also during the three months ended September 30, 2007, we eliminated
$18.4
million in repurchase requests by entering into settlement and release
agreements with the parties requesting the repurchases. The settlements
provided
for a payment of a negotiated amount taking into account the loss incurred
or
otherwise borne by the loan purchaser in return for the elimination of
the
repurchase request, and in a majority of the cases, a release from all
future
claims due to EPDs, quality control issues
,
and
indemnification obligations (discussed below)
.
As of
September 30, 2007, we had $7.3 million in outstanding repurchase requests
and a
reserve of $0.6 million.
From
time
to time, as an alternative to repurchasing loans, we sign indemnification
agreements with loan investors. Generally these agreements specify that
if a
loan goes delinquent and the investor realizes a loss as a result of
foreclosure, the Company will reimburse the investor for their loss.
As
of
June 30, 2007, we had outstanding indemnification agreements on $7.4
million of
mortgage loans, against which the Company had taken a reserve of $0.4
million
.
During
the three months ended September 30, 2007, we entered into no new
indemnification agreements and eliminated $5.3 million in existing
indemnification obligations by entering into settlement and release agreements
with the parties pertaining to repurchase requests. As of September 30,
2007, we
had outstanding indemnification agreements on $2.1 million of mortgage
loans,
against which the Company maintained a reserve of $0.4 million.
All
reserves taken by the Company reflect management's expectations based
on current
market conditions. If future market conditions deteriorate further, these
reserves may be insufficient to cover current identified
obligations.
Loan
Sale Environment
.
The
current environment for loans sales has become significantly more challenging
as
loan purchasers have become increasingly reluctant to purchase loans.
This
reluctance stems from concerns about increasing mortgage loan delinquencies,
decreasing access to liquidity to fund such loans purchases and unfavorable
changes in securitization structuring and support requirements by rating
agencies. All of these factors have negatively impacted mortgage loan
sale
prices and decreased or eliminated certain loan purchasers' demand for
mortgage
loans. As of September 30, 2007, the Company had reserves of $1.6 million
to
cover the disposition of the mortgage loans held for sale. If these market
conditions do not improve, there could be a further depression in the
prices at
which we can sell our mortgage loans held for sale. Such conditions could
have a
material adverse effect on our liquidity and overall financial condition.
Until
the
Company disposes of all the mortgage loans held for sale and the repurchase
periods set forth in the loan sale agreements expire, the Company may
continue
to incur losses on these loans beyond what reserves have been made against
such
loans.
Presentation
Format
In
connection with the sale of substantially all of our wholesale and retail
mortgage lending platform assets during the first quarter of 2007, we classified
certain assets and liabilities related to our mortgage lending segment as
a
discontinued operation in accordance with the provisions of Statement of
Financial Accounting Standards No. 144. As a result, we have reported revenues
and expenses related to the segment as a discontinued operation and the related
assets and liabilities as assets and liabilities related to a discontinued
operation for all periods presented in the accompanying consolidated financial
statements. Our continuing operations are primarily comprised of what had
been
our portfolio management operations. In addition, certain assets such as
the
deferred tax asset, and certain liabilities, such as subordinated debt and
liabilities related to leased facilities not assigned to Indymac, will become
part of the ongoing operations of NYMT and accordingly, we have not classified
as a discontinued operation in accordance with the provisions of Statement
of
Financial Accounting Standards No. 144.
The
Board
of Directors declared a one for five reverse stock split of our common
stock, providing shareholders of record as of October 9, 2007, with one
share of
common stock for each five shares owned of record as of October 9, 2007
(the
"Reverse Stock Split"). The reduction in shares resulting from the reverse
stock
split was effective on October 9, 2007, decreasing the number of common
shares
outstanding to approximately 3.6 million. Prior year share amounts and
earnings
per share disclosures have been restated to reflect the reverse stock
split.
Significance
of Estimates and Critical Accounting Policies
We
prepare our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, or GAAP, many
of
which require the use of estimates, judgments and assumptions that affect
reported amounts. These estimates are based, in part, on our judgment and
assumptions regarding various economic conditions that we believe are reasonable
based on facts and circumstances existing at the time of reporting. The results
of these estimates affect reported amounts of assets, liabilities and
accumulated other comprehensive income at the date of the consolidated financial
statements and the reported amounts of income, expenses and other comprehensive
income during the periods presented.
Changes
in the estimates and assumptions could have a material effect on these financial
statements. Accounting policies and estimates related to specific components
of
our consolidated financial statements are disclosed in the notes to our
consolidated financial statements. In accordance with SEC guidance, those
material accounting policies and estimates that we believe are most critical
to
an investor's understanding of our financial results and condition and which
require complex management judgment are discussed below.
Revenue
Recognition
.
Interest income on our residential mortgage loans and mortgage-backed securities
is a combination of the interest earned based on the outstanding principal
balance of the underlying loan/security, the contractual terms of the assets
and
the amortization of yield adjustments, principally premiums and discounts,
using
generally accepted interest methods. The net GAAP cost over the par balance
of
self-originated mortgage loans held for investment and the premium and discount
associated with the purchase of mortgage-backed securities and loans are
amortized into interest income over the lives of the underlying assets using
the
effective yield method as adjusted for the effects of estimated prepayments.
Estimating prepayments and the remaining term of our interest yield investments
require management judgment, which involves, among other things, consideration
of possible future interest rate environments and an estimate of how borrowers
will react to those environments, historical trends and performance of those
interest yield investments. The actual prepayment speed and actual lives
could
be more or less than the amount estimated by management at the time of
origination or purchase of the assets or at each financial reporting
period.
Fair
Value
.
Generally, the financial instruments we utilize are widely traded and there
is a
ready and liquid market in which these financial instruments are traded.
The
fair values for such financial instruments are generally based on market
prices
provided by five to seven dealers who make markets in these financial
instruments. If the fair value of a financial instrument is not reasonably
available from a dealer, management estimates the fair value based on
characteristics of the security that the Company receives from the issuer
and on
available market information.
Impairment
of and Basis Adjustments on Investment Securities
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As
previously described herein, we regularly securitize our mortgage loans and
retain the beneficial interests created. Such assets are evaluated for
impairment on a quarterly basis or, if events or changes in circumstances
indicate that these assets or the underlying collateral may be impaired,
on a
more frequent basis. We evaluate whether these assets are considered impaired,
whether the impairment is other-than-temporary and, if the impairment is
other-than-temporary, recognize an impairment loss equal to the difference
between the asset's amortized cost basis and its fair value. These evaluations
require management to make estimates and judgments based on changes in market
interest rates, credit ratings, credit and delinquency data and other
information to determine whether unrealized losses are reflective of credit
deterioration and our ability and intent to hold the investment to maturity
or
recovery. This other-than-temporary impairment analysis requires significant
management judgment and we deem this to be a critical accounting
estimate.
The
Company sold approximately $246.9 million of non-Agency ARM securities,
including $225.4 million of lower yielding non-Agency ARM securities previously
designated as impaired, with a reserve of $3.8 million. The Company incurred
an
additional net loss of $1.0 million in the sale of the incremental $21.5
million
in securities.
At
September 30, 2007, we have gross unrealized losses of $7.7 million on the
remaining securities in our portfolio. As of September 30, 2007, we do not
consider this impairment to be other-than-temporary.
Securitizations
.
We
create securitization entities as a means of either:
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creating
securities backed by mortgage loans which we will continue to hold
and
finance that will be more liquid than holding whole loan assets;
or
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securing
long-term collateralized financing for our residential mortgage
loan
portfolio and matching the income earned on residential mortgage
loans
with the cost of related liabilities, otherwise referred to a match
funding our balance sheet.
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Residential
mortgage loans are transferred to a separate bankruptcy-remote legal entity
from
which private-label multi-class mortgage-backed notes are issued. On a
consolidated basis, securitizations are accounted for as secured financings
as
defined by SFAS No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities” (“SFAS No. 140”), and, therefore, no
gain or loss is recorded in connection with the securitizations. Each
securitization entity is evaluated in accordance with Financial Accounting
Standards Board Interpretation (“FIN”) 46(R), “Consolidation of Variable
Interest Entities”, and we have determined that we are the primary beneficiary
of the securitization entities. As such, the securitization entities are
consolidated into our consolidated balance sheet subsequent to securitization.
Residential mortgage loans transferred to securitization entities collateralize
the mortgage-backed notes issued, and, as a result, those investments are
not
available to us, our creditors or stockholders. All discussions relating
to
securitizations are on a consolidated basis and do not necessarily reflect
the
separate legal ownership of the loans by the related bankruptcy-remote legal
entity.
