RESTATED INVESTMENT OBJECTIVES AND POLICIES OF UNITED MORTGAGE TRUST
As amended on January 24, 2007

PRINCIPAL INVESTMENT OBJECTIVES

Our principal investment objectives are to invest proceeds from our dividend
reinvestment plan, financing proceeds, capital transaction proceeds and retained
earnings in six types of investments:

(i) first lien secured interim mortgage loans with initial terms of 12 months or
less for the acquisition and renovation of single family homes, which we refer
to as “Interim Loans”;
(ii) first lien secured construction loans for the acquisition of lots and
construction of single-family homes, which we refer to as “Construction Loans”;
(iii) lines of credit and secured loans for the acquisition and development of
single-family home lots, referred to as “Land Development Loans”;
(iv) lines of credit and loans secured by developed single-family lots, referred
to as “Finished Lot Loans”;
(v) lines of credit and loans secured by completed model homes, referred to as
“Model Home Loans”; and,
(vi) first lien, fixed rate mortgages secured by single-family residential
property, which we refer to as “Residential Mortgages”.

We collectively refer the above listed loans as “Mortgage Investments”.

In addition, we intend to generate fee income by providing credit enhancements
associated with residential real estate financing transactions in the various
forms as recommended from time-to-time by our Advisor and approved by our Board
of Trustees, including but not limited to, guarantees, pledges of cash deposits,
letters of credit and tri-party inter-creditor agreements, all of which we refer
to as “Credit Enhancements”. Mortgage Investments and Credit Enhancements are
expected to:

(1) produce net interest income and fees;
(2) provide monthly distributions from, among other things, interest on Mortgage
Investments and fees from credit enhancements; and
(3) permit reinvestment of payments of principal and proceeds of prepayments,
sales and insurance net of expenses.

There is no assurance that these objectives will be attained.

INVESTMENT POLICY

Most of our Mortgage Investments to date are geographically concentrated in the
Texas, Tennessee, Arizona, Ohio, Missouri, Illinois, Georgia, North Carolina,
Indiana and Colorado markets. We anticipate that the concentration will continue
in the near future, but it is our intention to expand our geographic presence
through the purchase of Mortgage Investments in other geographic areas of the
United States. In making the decision to invest in other areas, we consider the
market conditions prevailing at the time we invest.

As of September 30, 2006, our portfolio was comprised of:

Category
Percentage of portfolio
Interim Loans secured by conventionally built homes
27.40%
Land Development Loans
24.40%
Interim Loans secured by modular and manufactured homes
17.30%
Construction Loans
15.00%
Recourse Obligations of Affiliates
8.40%
Residential Mortgages
4.10%
Cash and other assets
3.40%

We no longer purchase Interim Loans that are secured by modular and manufactured
homes or Residential Mortgages, and we are phasing out of investing in
Construction Loans. We plan to continue to invest in Land Development Loans,
Finished Lot Loans, Model Home Loans and Interim Loans secured by conventionally
built houses because, 1) Land Development Loans and Finished Lot Loans have
provided us with suitable collateral positions, well capitalized borrowers and
attractive yields; 2) Interim Loans have provided us with suitable collateral
positions, full recourse from our borrowers and attractive yields; and, 3) Model
Home Loans are expected to provide us with suitable collateral positions, well
capitalized borrowers and attractive yields. In addition, blended yields for
Land Development Loans and Interim Loans have produced higher returns than those
of Residential Mortgages. Model Home Loans are expected to produce higher yields
commensurate with Land Development Loans, Finished Lot Loans and Interim Loans.
As we phase out of Interim Loans secured by modular and manufactured homes and
Construction Loans, we will increase the percentage of our portfolio invested in
Land Development Loans, Finished Lot Loans, Interim Loans secured by
conventionally built homes and Model Home Loans, until market conditions
indicate the need for an adjustment of the portfolio mix.

UNDERWRITING CRITERIA

We will not originate loans, except to facilitate the resale of a foreclosed
property. Funds awaiting investment in Mortgage Investments will be invested in
government securities, money market accounts or other assets that are permitted
investments for REITs. See “Temporary Investments” below.

The underwriting criteria for Mortgage Investments are as follows:

(1)  
Priority of Lien.

·  
Interim Loans purchased must be secured by a first lien that is insured by a
title insurance company. We will not purchase second liens or other subordinate
or junior liens, Interim Loans.

·  
Land Development Loans and Finished Lot Loans must be secured by a first lien,
second lien or a pledge of partnership interest that is insured by a title
company. Second liens are subject to the Loan-to-Value (“LTV”) limitations set
forth below.

·  
Model Home Loans will be secured by a subordinate lien that is insured by a
title insurance company.

·  
Credit Enhancements must be secured by first or second liens or pledges of
partnership interests.

(2)  
Rate and Fees.

 
Our advisor, UMTH General Services, L.P. (“UMTHGS” or our “Advisor”) seeks to
acquire Mortgage Investments that will provide us with a satisfactory net yield.
Net yield is determined by the yield realized after payment of note servicing
fees, if any, and administrative costs (estimated to be 1% of our average
invested assets). Rates will be either adjustable or fixed. No loans will be
purchased at a premium above the outstanding principal balance. Our investment
policy allows for acquisition of loans at various rates. Fees charged for Credit
Enhancements will be determined by the degree of risk as determined and
recommended by our Advisor. Credit Enhancement are expected to range between
0.5% and 3% per annum.

(3)  
Term and Amortization.

·  
There is no minimum term for the loans we acquire.

·  
Land Development Loans, Finished Lot Loans and Model Home Loans will generally
have terms from 24 to 48 months.

·  
Interim Loans will generally have terms of 12 months or less.

·  
Construction Loans will generally have terms of 9 to 12 months.

·  
Generally, Land Development Loans, Finished Lot Loans, Model Home Loans and
Interim Loans do not amortize. They are interest only loans with the principal
paid in full when the loans mature.

·  
Credit Enhancements will range from 12 to 48 months.

(4)  
LTV, Investment-to-Value Ratio (“ITV”), Combined LTV Ratio (“CLTV”).

·  
Land Development Loans and Finished Lot Loans: Except as set forth below, loans
purchased may not exceed an 85% ITV. Except as set forth below, Land Development
Loans and Finished Lot Loans will not exceed 85% of the value of the collateral
securing the indebtedness (the LTV of the loan). The purchase of, or investment
in, subordinate liens secured loans or partnership interests securing loans will
not exceed a CLTV of 85%, (subject to the exceptions listed below). CLTV shall
mean the sum of all indebtedness senior to us plus the sum of our investment or
loan.

·  
Model Home Loans: LTV may not exceed 93% each loan, will be a part of a pool of
model home collateral and will also be cross-collateralized. All expenses
associated with the model home are borne by the home builder.

·  
Interim Loans: Loans will not exceed a 70% LTV without approval by our Board of
Trustees.

The aggregate debt on any loan in our portfolio, other than cited above, shall
not exceed an amount equal to 85% of the appraised value of the property unless
substantial justification exists. Such justification may include, a pledge of
partnership equity interest, cross-collateralization by the pledge of other
properties from the same borrower, by the assignment of rents, royalties or
other cash flow, and other sound security, including consideration of the net
worth of the borrower or guarantor, the credit rating of the borrower or
guarantor, and/or historical financial performance of the borrower or guarantor.

(5)  
Seasoning.

 

·  
None of the types of loans we currently purchase, or intend to purchase, are
subject to seasoning requirements.

(6) Borrower, Loan and Property Information.

·  
Land Development Loans, Finished Lot Loans, Model Homes Loans and Credit
Enhancements: Borrower, loan and property information will be in accordance with
guidelines set forth by the originating entities, United Development Funding and
UMTH Land Development, L. P., including economic feasibility studies,
engineering due diligence reports, exit strategy analysis, and construction
oversight requirements. UMTH General Services, L.P. (“UMTHGS” or our “Advisor”),
our Advisor will periodically monitor compliance and changes to underwriting
guidelines.

·  
Interim Loans: Loans shall be underwritten in accordance with the guidelines
established by the originating company, UMTH Lending Company, L.P., including
borrower and property information. Our Advisor will periodically monitor
compliance and changes to underwriting guidelines.

(7) Appraisals.

·  
Land Development Loans, Finished Lot Loans and Model Home Loans: Appraisal must
demonstrate that the LTV or ITV is in compliance with the above referenced LTV,
ITV and CLTV standards. Loans exceeding LTV, ITV and CLTV guidelines must note
the criteria on which the exception was based.

·  
Interim Loans: Appraisal must demonstrate that the LTV or ITV of not more than
70% (subject to the exceptions set forth in 4 above).

·  
The appraisals must be performed by appraisers approved by our Advisor.

(8) Credit.

·  
Interim Loans: Minimum credit scores and corresponding down payment requirements
will be in accordance with the guidelines set by the originating company
(currently UMTH Lending Company, L.P.). UMTHGS will periodically monitor
compliance and changes to underwriting guidelines.

·  
Land Development Loans, Finished Lot Loans, Model Home Loans and Credit
Enhancements: Extensions of credit to borrowers will be determined in accordance
with net worth and down payment requirements prescribed by the originating
companies (currently United Development Funding and UMTH Land Development,
L.P.). UMTHGS as Advisor to UMT shall periodically monitor compliance and
changes to underwriting guidelines.

(9) Hazard Insurance.
 

·  
Loans that are secured by a residence must have an effective, prepaid hazard
insurance policy with a mortgagee's endorsement for our benefit in an amount not
less than the outstanding principal balance on the loan. We reserve the right to
review the credit rating of the insurance issuer and, if deemed unsatisfactory,
request replacement of the policy by an acceptable issuer.

(10) Geographical Boundaries.

·  
We may purchase Mortgage Investments and provide Credit Enhancements for real
estate projects in any of the 48 contiguous United States.

(11) Mortgagees' Title Insurance.

·  
Each Mortgage Investment purchased must have a valid mortgagees' title insurance
policy insuring our lien position in an amount not less than the outstanding
principal balance of the loan.

(12) Guarantees, Recourse Agreements, and Mortgage Insurance.

·  
Interim Loans purchased shall contain personal guarantees of the borrower or
principal of the borrower.

·  
Interim Loans shall afford full recourse to the originating company.

·  
Land Development Loans, Finished Lot Loans, Model Home Loans and Credit
Enhancements shall have guarantees and collateral arrangements as determined by
the originating companies (United Development Funding and UMTH Land Development,
L.P). Our Advisor shall review guarantees and recourse obligations.

 
(13) Pricing.
 

·  
Mortgage Investments will be purchased at no minimum percentage of the principal
balance, but in no event in excess of the outstanding principal balance.

·  
Yields on our loan portfolio and fees charged for Credit Enhancements will vary
with perceived risk, interest rate, credit, LTV ratios, down payments,
guarantees or recourse agreements among other factors. Our objectives will be
accomplished through purchase of high rate loans, reinvestment of principal
payments and other short-term investment of cash reserves and, if utilized,
leverage of capital to purchase additional Mortgages Investments.

The principal amounts of Mortgage Investments and the number of Mortgage
Investments in which we invest will be affected by market availability and also
depends upon the amount of capital available to us from proceeds of our dividend
reinvestment plan, retained earnings, repayment of our loans and borrowings.
There is no way to predict the future composition of our portfolio since it will
depend in part on the loans available at the time of investment.

TEMPORARY INVESTMENTS

We intend to use proceeds from our dividend reinvestment plan, retained
earnings, proceeds from the repayment of our loans and bank borrowings to
acquire Mortgage Investments. There can be no assurance as to when we will be
able to invest the full amount of capital available to us in Mortgage
Investments, although we will use our best efforts to invest or commit for
investment all capital within 60 days of receipt. We will temporarily invest any
excess cash balances not immediately invested in Mortgage Investments or for the
other purposes described above, in certain short-term investments appropriate
for a trust account or investments which yield "qualified temporary investment
income" within the meaning of Section 856(c)(6)(D) of the Code or other
investments which invest directly or indirectly in any of the foregoing (such as
repurchase agreements collateralized by any of the foregoing types of
securities) and/or such investments necessary for us to maintain our REIT
qualification or in short-term highly liquid investments such as in investments
with banks having assets of at least $50,000,000, savings accounts, bank money
market accounts, certificates of deposit, bankers' acceptances or commercial
paper rated A-1 or better by Moody's Investors Service, Inc., or securities
issued, insured or guaranteed by the United States government or government
agencies, or in money market funds having assets in excess of $50,000,000 which
invest directly or indirectly in any of the foregoing.

OTHER POLICIES

We will not: (a) issue senior securities; (b) invest in the securities of other
issuers for the purpose of exercising control; (c) invest in securities of other
issuers, other than in temporary investments as described under "Investment
Objectives and Policies - Temporary Investments"; (d) underwrite the securities
of other issuers; or (e) offer securities in exchange for property.

We may borrow funds to make distributions to our shareholders or to acquire
additional Mortgage Investments. Our ability to borrow funds is subject to
certain limitations set forth in the Declaration of Trust, specifically, the
Trust may not incur indebtedness in excess of 50% of the Net Asset Value of the
Trust

Other than in connection with the purchase of Mortgage Investments or issuance
of Credit Enhancements, which may be deemed to be a loan from us to the
borrower, we do not intend to loan funds to any person or entity. Our ability to
lend funds to the Advisor, a Trustee or Affiliates thereof is subject to certain
restrictions as described in "Summary of Declaration of Trust - Restrictions on
Transactions with Affiliates.”

We will not sell property to our Advisor, a Trustee or Affiliates thereof at
terms less favorable than could be obtained from a non-affiliated party.

Although we do not intend to invest in real property, to the extent we do, a
majority of the Trustees shall determine the consideration paid for such real
property, based on the fair market value of the property. If a majority of the
Independent Trustees so determine, or if the real property is acquired from the
Advisor, as Trustee or Affiliates thereof, a qualified independent real estate
appraiser shall determine such fair market value selected by the Independent
Trustees.

We will use our best efforts to conduct our operations so as not to be required
to register as an investment company under the Investment Company Act of 1940
and so as not to be deemed a "dealer" in mortgages for federal income tax
purposes. See "Federal Income Tax Considerations.”

We will not engage in any transaction which would result in the receipt by the
Advisor or its Affiliates of any undisclosed "rebate" or "give-up" or in any
reciprocal business arrangement which results in the circumvention of the
restrictions contained in the Declaration of Trust and in applicable state
securities laws and regulations upon dealings between us and the Advisor and its
Affiliates.

The Advisor and its Affiliates, including companies, other partnerships and
entities controlled or managed by such Affiliates, may engage in transactions
described in our prospectus, including acting as Advisor, receiving
distributions and compensation from us and others, the purchasing, warehousing,
servicing and reselling of mortgage notes, property and investments and engaging
in other businesses or ventures that may be in competition with us.

CHANGES IN INVESTMENT OBJECTIVES AND POLICIES

The investment restrictions contained in the Declaration of Trust may only be
changed by amending the Declaration of Trust with the approval of the
shareholders. However, subject to those investment restrictions, the methods for
implementing our investment policies may vary as new investment techniques are
developed. The Board of Trustees shall periodically, no less than annually
restate our investment objectives and publish same in a public filing and direct
mail communication to our shareholders.