Exhibit 10.7

EMPLOYMENT AGREEMENT

This Employment Agreement, effective as of June 30, 2006 (this “Agreement”), is
by and between American Home Mortgage Investment Corp., a Maryland corporation
having a place of business at 538 Broadhollow Road, Melville, NY 11747 (the
“Company”), and Thomas McDonagh, currently residing at [address omitted] (the
“Executive”).

Whereas the Company wishes to assure itself of the services of the Executive,
and the Executive desires to be employed by the Company, upon the terms and
conditions hereinafter set forth.

The Company and the Executive hereby agree as follows:

1. Employment. The Company agrees to employ the Executive, and the Executive
hereby accepts such employment by the Company during the term set forth in
Section 2 and on the other terms and conditions of this Agreement.

2. Term. The term of this Agreement shall commence on June 30, 2006, and shall
terminate on June 29, 2007 unless terminated earlier pursuant to section 6,
below.

3. Position, Duties and Responsibilities, Rights.

(a) During the term of this Agreement, the Executive shall serve as and hold the
office and title of Executive Vice President and Chief Investment Officer. The
Executive shall have all of the powers and duties usually incident to the office
described above, and shall at all times comply with all policies of the Company
relating to the Executive’s employment.

(b) During the term of this Agreement, the Executive agrees to devote
substantially all the Executive’s time, efforts and skills to the affairs of the
Company during the Company’s normal business hours, except for vacations,
illness and incapacity, but nothing in this Agreement shall preclude the
Executive from devoting reasonable periods to (i) manage the Executive’s
personal investments, (ii) participate in professional, educational, public
interest, charitable, civic or community activities, including activities
sponsored by trade organizations, (iii) serve as a director or member of an
advisory committee of any corporation not in competition with the Company or any
of its subsidiaries, or as an officer, trustee or director of any charitable,
educational, philanthropic, civic, social or industry organizations, or as a
speaker; provided, however, that the performance of the Executive’s duties or
responsibilities in any of such capacities does not materially interfere with
the regular performance of the Executive’s duties and responsibilities
hereunder.

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4. Place of Performance. In connection with the Executive’s employment by the
Company, the Executive shall be based in Melville, New York, and shall not be
required to be absent from there on travel status or otherwise for more than a
reasonable time each year as necessary or appropriate for the performance of the
Executive’s duties hereunder.

5. Compensation

(a) During the term of this Agreement, the Company shall pay the Executive, and
the Executive agrees to accept a base salary at the rate of not less than
$900,000.00 per year (the annual base salary as increased from time to time
during the term of this Agreement being hereinafter referred to as the “Base
Salary”). The Base Salary shall be paid in installments no less frequently than
monthly. Any increase in Base Salary or other compensation shall not limit or
reduce any other obligation of the Company hereunder, and once established at an
increased specified rate, the Executive’s Base Salary hereunder shall not
thereafter be reduced.

(b) The Executive shall be eligible to receive a bonus in an amount between
$750,000.00 and $900,000.00, subject to the terms of this section 5(b) (the
“Bonus”). The actual amount of the Bonus shall be determined by the Chief
Executive Officer of the Company (the “CEO”) based upon the CEO’s evaluation of
the Executive’s overall performance. The Bonus shall be payable no later than
the last day of March, 2007.

Notwithstanding anything to the contrary in this section 5(b) above, the
Executive shall not be entitled to receive the Bonus if the Executive is no
longer an employee of the Company on the bonus payment date; except the
Executive shall be entitled to payment of the Bonus if the Executive is no
longer an employee of the Company on the bonus payment date and the termination
of the Executive’s employment was by the Company without Cause, or by the
Executive for Good Reason. For purposes of this Agreement, a termination of the
Executive’s employment by the Company for any of the following reasons shall be
deemed a termination for Cause:

 

  (i) default or other breach by the Executive of the Executive’s obligations
hereunder; or

 

  (ii) failure by the Executive to diligently or competently perform the duties
assigned to the Executive hereunder; or

 

  (iii) misconduct, dishonesty, insubordination, or other act by the Executive
detrimental to the Company or its good will or damaging to its relationships
with any person or entity; or

 

  (iv) conviction of or plea of guilty or no contest to a felony or any crime
involving moral turpitude, dishonesty, or theft.

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The Executive may resign for Good Reason (i) if the Company reduces the
Executive’s rate of compensation; (ii) if the Company materially breaches the
terms of this Agreement; (iii) if the Company makes a material adverse change to
the Executive’s responsibilities hereunder; or (iv) if any person or entity,
other than the Board of Directors of the Company as constituted as of the date
of this Agreement either individually, collectively or through an entity created
for the following purpose, obtains control of twenty five percent (25%) or more
of the voting securities of the Company, and the Executive’s responsibilities
are diminished as a result thereof and the Executive consequently resigns.

(c) During the term of this Agreement, the Executive shall be entitled to fringe
benefits, in each case at least equal to and on the same terms and conditions as
those attached to the Executive’s office on the date hereof, as the same may be
amended or modified by the Company from time to time.

(d) The Executive shall be entitled to reimbursement, upon proper accounting, of
all reasonable expenses and disbursements incurred by the Executive in the
course of performing the Executive’s duties hereunder.

6. Employment At Will The Executive’s employment hereunder shall be at all times
“at will”. The Company may discharge the Executive and terminate this Agreement
at any time and for any reason, and the Executive may resign from the Company
for any reason. If the Executive terminates the Executive’s employment with the
Company, the Executive shall provide the Company with four weeks notice of such
termination pursuant to section 12 herein.

7. Confidential and Proprietary Information; Company Property For the purpose of
this section, Confidential Information shall mean all information and
intellectual property owned by and proprietary to the Company, including but not
limited to customer or client information, contracts or agreements, data,
records, financial information, software, product information, strategic
business plans, trade secrets, manuals, business methodology and processes, and
cost and pricing policies; except Confidential Information shall not include
information or intellectual property of the Company described above which the
Company reasonably deems non-material, and when the disclosure of such
information or intellectual property will not have an adverse effect on the
Company. All Confidential Information disclosed or provided to the Executive by
the Company, or developed or created by the Executive during the term of the
Executive’s employment with the Company, is, shall become, and shall at all
times remain, the sole and exclusive property of the Company. The Executive
agrees not to disclose the Confidential Information to any other party, except
to the extent that such disclosure is reasonably necessary in order for the
Executive to perform the Executive’s responsibilities as an executive of the
Company. The Executive also agrees that the Executive will not use the
Confidential Information for any purpose other than to fulfill the Executive’s
responsibilities as an executive of the Company.

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The Executive acknowledges, understands, and agrees that the Confidential
Information is of substantial value to the Company and that, in the event of the
use or disclosure of such Confidential Information in breach of this Agreement,
the resulting damages will be difficult, if not impossible, to determine and
that money damages will be inadequate. Therefore, without prejudice to the
rights and remedies otherwise available to the Company, and in addition to such
rights and remedies, the Company shall be entitled to equitable relief by way of
injunction if the Executive breaches or threatens to breach any of the
provisions of this Agreement relating to the Executive’s use or disclosure of
any of the Confidential Information.

The Executive further acknowledges that the Company may provide the Executive
with access to or use of equipment or other property owned or leased by the
Company (“Company Property”). The Executive agrees to abide by all agreements
and policies relating to the use of Company Property, as may be in effect or
modified from time to time at the sole discretion of the Company. The Executive
further agrees to promptly return in good working condition all Company Property
in the Executive’s possession upon termination of the Executive’s employment
with the Company for any reason, and shall be liable in damages, including but
not limited to replacement cost, for any financial loss to the Company if
Company Property is not returned in such manner.

The Executive agrees that this section shall survive the termination of this
Agreement, and that all of the obligations of the Executive set forth in this
section shall remain in full force and effect after this Agreement is
terminated. The Executive further agrees that, upon termination of this
Agreement, the Executive will return to the General Counsel all Confidential
Information (including all copies of Confidential Information) which is then in,
or which later comes into, the Executive’s possession or custody.

8. Non-Solicitation; Non-Disparagement The Executive agrees that: (a) during the
term of the Executive’s employment with the Company, and for a period of one
(1) year after termination of the Executive’s employment with the Company,
whether such termination is voluntary or involuntary, with or without cause, the
Executive shall not, directly or indirectly, influence or advise any other
person to employ or solicit for employment anyone who is an employee of the
Company; and (b) during the term of Executive’s employment with the Company, and
for a period of one (1) year after termination of the Executive’s employment
with the Company, whether such termination is voluntary or involuntary, with or
without cause, the Executive shall not, directly or indirectly, influence or
advise any person who is an employee of the Company, to leave the employment of
the Company, and shall not employ any person who is an employee of the Company.
The Executive expressly agrees that this section is fair and reasonable and that
Executive is being adequately compensated for agreeing to the terms of this
section. The Executive’s obligations as set forth in this section shall survive
the termination of this Agreement.

The Company and the Executive agree that neither will disparage the other, and
that their representatives will not disparage either party hereto.

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9. Non-Compete. The Executive agrees that, during the term of the Executive’s
employment with the Company, the Executive shall not, directly or indirectly,
engage, participate, make any financial investment in, or become employed by or
render advisory or other services to or for any person, firm, corporation or
other business enterprise which is, or is reasonably likely to become engaged,
directly or indirectly, in competition with the Company in any county in which
the Company is doing business at the time the Executive’s employment with the
Company terminates; except the Executive may make an investment, otherwise
prohibited by this section, in one percent (1%) or less of the outstanding stock
of a company publicly traded on the New York Stock Exchange, NASDAQ, or the
American Stock Exchange. The Executive expressly agrees that this section is
fair and reasonable and that the Executive is being adequately compensated for
agreeing to the terms of this section.

10. Entire Agreement; Amendment.

(a) This Agreement contains the entire understanding of the parties with respect
to the subject matter hereof and supersedes any and all other agreements between
the parties, their predecessors and affiliates.

(b) Any amendment of this Agreement shall not be binding unless in writing and
signed by both the CEO and the Executive.

11. Enforceability. If any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or enforceability shall not affect the validity or
enforceability of any other provision of this Agreement.

12. Notices. All notices which may be necessary or proper for either the Company
or the Executive to give to the other shall be in writing and shall be sent by
hand delivery, registered or certified mail, return receipt requested or
overnight courier, if to the Executive at [address omitted] and, if to the
Company, to it at its principal executive offices at 538 Broadhollow Road,
Melville, NY 11747, Attention: Human Resources Director, with a copy to the
Company’s General Counsel, and shall be deemed given when sent. Either party may
by like notice to the other party change the address at which it is to receive
notices hereunder.

13. Counterparts. This Agreement can be executed in any number of counterparts,
each of which shall be effective only upon delivery and thereafter shall be
deemed an original, and all of which shall be taken to be one and the same
instrument, for the same effect as if all parties hereto had signed the same
signature page.

14. Facsimile Signatures. A facsimile copy of either party’s signature shall be
deemed as legally binding as the original signature.

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15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE ENFORCEABLE IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date below.

 

    American Home Mortgage Investment Corp. Dated: 12/4/06       By:  

/s/ Michael Strauss

  Name:   Michael Strauss   Title:   Chief Executive Officer Dated: 12/4/06  

/s/ Thomas McDonagh

  Thomas McDonagh