**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-K**
  (Mark
        One)
 x
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF**
                **THE
                  SECURITIES EXCHANGE ACT OF
                  1934**
  For
        the
        fiscal year ended April 30, 2005
 
 or
 o
                **TRANSITION
                    REPORT PURSUANT TO SECTION 13
                    OR 15(d) OF THE**
                  **SECURITIES
                    EXCHANGE ACT OF
                    1934**
  For
        transition period from __________ to __________
 
 Commission
        File Number 001-14127
 
 **UNITED
        FINANCIAL MORTGAGE CORP.**
 (Exact
        name of registrant as specified in its charter)
 
 **Illinois**
              
              **36-3440533**(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)**815
                  Commerce Drive, Suite 100, Oak Brook, Illinois**
              
              **60523**(Address
                  of principal executive offices)
              
              (Zip
                  Code)**(630)
                  571-7222**(Registrant’s
                  telephone number including area
                  code)
 
 Securities
        to be registered under Section 12(b) of the Act:
 
 None
 Securities
        to be registered under Section 12(g) of the Act:
 
 **Title
        of each class: Common Stock, no par value per share**
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the Registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. x Yes     
        No o
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K ( 229.405 of this chapter) is not contained herein, and will
        not
        be contained, to the best of the registrant’s knowledge, in definitive proxy or
        information statements incorporated by reference in Part III of this Form
        10-K
        or any amendment to this form 10-K.  ̈
 
 
 Indicate
        by check mark whether the Registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act).  ̈ Yes x No.
 
 State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the price at which the common equity
        was
        last sold, or the average bid and asked price of such
        common equity, as of the last business day of the registrant’s most recently
        completed second fiscal quarter .
  $15,415,698
 
 20,000,000
        shares of Common Stock, no par value, were authorized, and 6,206,343 shares
        of
        Common Stock were issued and outstanding, as of July 29, 2005.
 
 
 Documents
        Incorporated by Reference: Portions of the Proxy Statement for the 2005 Annual
        Meeting of Shareholders, which will be filed within 120 days of the fiscal
        year
        ended April 30, 2005, are incorporated by reference in Part III hereof, to
        the
        extent indicated herein.




**UNITED
        FINANCIAL MORTGAGE CORP.**
 
 Form
        10-K
        Annual Report
 
 Table
        of
        Contents


PART
                  I
              5ITEM
                  1.
              Business.
              5ITEM
                  2.
              Properties.
              16ITEM
                  3.
              Legal
                  Proceedings.
              16ITEM
                  4.
              Submission
                  of Matters to a Vote of Security Holders.
              16PART
                  II
              17ITEM
                  5.
              Market
                  for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities.
              17ITEM
                  6.
              Selected
                  Financial Data.
              18ITEM
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations.
              20ITEM
                  7a.
              Quantitative
                and
                Qualitative Disclosures About Market Risk.
              30ITEM
                  8.
              Financial
                  Statements and Supplementary Data.
              32ITEM
                  9.
              Changes
                  in and Disagreements With Accountants on Accounting and Financial
                  Disclosure
              58ITEM
                  9A.
              Controls
                and
                Procedures
              58ITEM
                  9B.
              Other
                Information
              58PART
                  III
              59ITEM
                  10.
              Directors
                and Executive
                Officers of the Registrant
              59ITEM
                  11.
              Executive
                Compensation
              59ITEM
                  12.
              Security
                Ownership of
                Certain Beneficial Owners and Management and Related Stockholder
                Matters.
              59ITEM
                  13.
              Certain
                Relationships
                and Related Transactions
              60SIGNATURES
              63






3


**CAUTIONARY
      STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**





This
      document contains, and future oral and written statements may contain,
      forward-looking statements within the meaning of such term in the Private
      Securities Litigation Reform Act of 1995 with respect to our business, financial
      condition, results of operations, plans, objectives and future performance.
      Forward-looking statements, which may be based upon beliefs, expectations and
      assumptions of our management and on information currently available to
      management, are generally identifiable by the use of words such as "believe,"
      "expect," "anticipate," "plan," "intend," "estimate," "may," "will," "would,"
      "could," "should" or other similar expressions. Additionally, all statements
      in
      this document, including forward-looking statements, speak only as of the date
      they are made, and we undertake no obligation to update any statement in light
      of new information or future events. Statements regarding the following subjects
      are forward-looking by their nature:





·
            our
                business strategy, including the completion and integration of
                acquisitions;


·
            statements
                regarding interest rates and yield
                spreads;


·
            our
                understanding of our competition;


·
            market
                trends;


·
            assumptions
                regarding our retained mortgage servicing rights;
                and


·
            projected
                sources and uses of funds from
                operations.





These
      forward-looking statements are subject to various risks and uncertainties,
      including those related to:


·
              changes
                  in demand for mortgage loans due to fluctuations in the real estate
                  market, interest rates or the market in which we sell our mortgage
                  loans;
 ·
              our
                  access to funding sources and our ability to renew, replace or
                  add to our
                  existing credit facilities on terms comparable to the current
                  terms;
 ·
              assumptions
                  underlying the value of our retained mortgage servicing
                  rights;
 ·
              the
                  negative impact of economic slowdowns or
                  recessions;
 ·
              management's
                  ability to manage our growth and planned
                  expansion;
 ·
                unexpected
                    difficulties in integrating or operating newly acquired
                    businesses;
 ·
                the effect of the competitive pressures from
                  other
                  lenders or suppliers of credit in our
                  market;
 ·
                changes in government regulations that affect
                  our
                  business;
 ·
                our ability to expand origination volume while
                  reducing
                  overhead;
 ·
                the impact of new state or federal legislation
                  or court
                  decisions restricting the activities of lenders or suppliers of
                  credit in
                  our market; and
 ·
                our inability to manage the risks associated
                  with the
                  foregoing as well as anticipated.


These
      risks and uncertainties should be considered in evaluating forward-looking
      statements and undue reliance should not be placed on such statements.
      Additional information concerning our company and its business, including other
      factors that could materially affect our financial results, is included in
      our
      filings with the Securities and Exchange Commission.





4


**PART
      I**





**ITEM
      1.**  **Business.**





We
      were
      incorporated in the State of Illinois in April of 1986 for the purpose of
      engaging in the business of mortgage banking and, to a limited extent, mortgage
      brokering. We are currently authorized to engage in the mortgage banking
      business in 37 states and we have 491 employees, of which 488 are full-time.
      Our
      mortgage banking business has primarily focused on the origination of mortgage
      loans secured by residential real estate (single family residences and
      one-to-four family residential properties). We originate these mortgage loans
      through our Wholesale Origination Division, our Retail Origination Division
      and
      our relationships with Internet web sites. Virtually all of the mortgage loans
      that we originate are mortgage loans secured by residential real estate. In
      addition to the origination of mortgage loans, we also service mortgage loans
      for others through our Mortgage Loan Servicing Division.





We
      also
      engage in the origination of mortgage loans on commercial real estate, including
      shopping centers, office properties and other commercial loans. We either broker
      (i.e., arrange for loan funding from third-party lenders) or fund and service
      these commercial loans. Commercial loans that we originate may be brokered
      to
      other financial institutions, in which case, we receive a negotiated fee. If
      we
      originate and service a commercial loan, then revenues are earned based upon
      the
      difference between the interest rate paid to the issuer of the credit line
      and
      the interest rate paid by the borrower.





Our
      mortgage loan origination business primarily generates revenue through (i)
      origination fees and gains on the sale of mortgage loans, and (ii) interest
      on
      mortgage loans held, or “warehoused,” from their origination or purchase until
      their sale. Our Mortgage Loan Servicing Division
      produces income from loan servicing fees paid by the parties for whom we service
      the mortgage loans.





The
      vast
      majority of the loans that we originate and expect to service are first
      mortgages secured by single-family residences (one to four units). In addition
      we may originate, sell, and service loans secured by first mortgages on
      multi-family residential properties (more than four units).





**Industry
      Overview**





The
      residential mortgage market is the largest consumer finance market in the United
      States. Mortgage
      banking generally involves the origination or purchase of single-family mortgage
      loans for sale in the secondary mortgage market. The secondary mortgage market
      and its evolution have been significantly influenced by two government-sponsored
      enterprises, Federal National Mortgage Association (commonly referred to as
      "Fannie Mae") and Federal Home Loan Mortgage Corporation (commonly referred
      to
      as "Freddie Mac"), and one government agency, Government National Mortgage
      Association (commonly referred to as "Ginnie Mae").





Mortgage
      lenders typically sell their mortgage loans directly to Fannie Mae and Freddie
      Mac either as whole loans or, more typically, as pools of loans used to
      collateralize mortgage-backed securities issued or guaranteed by these entities.
      Similarly, lenders can issue mortgage-backed securities collateralized by pools
      of loans that are guaranteed by Ginnie Mae. In order to arrange these sales
      or
      obtain these guarantees, the lender must underwrite its mortgage loans to
      conform to standards established by Fannie Mae and Freddie Mac or by the Federal
      Housing Administration (commonly referred to as the “FHA”) in the case of Ginnie
      Mae. Loans with principal balances exceeding agency guidelines, currently those
      in excess of $359,700 for single-family mortgage loans ( *i.e.,* "jumbo"
      or "nonconforming loans") or those that have other characteristics that do
      not
      meet those agency’s guidelines, are sold to private buyers.





5


**Mortgage
      Loan Origination Channels and Market Area**





We
      originate mortgage loans primarily through our Wholesale Origination Division
      and our Retail Origination Division.




*The
      Wholesale Origination Division.* Wholesale loan origination involves the funding of mortgage loans submitted
      by
      non-affiliated mortgage brokers. We realize revenues from the sale of these
      mortgage loans in the secondary market to buyers for a price greater than the
      amount that we paid to the mortgage broker as well as fee income if we choose
      to
      keep any of the mortgage servicing rights for our servicing portfolio. Our
      Wholesale Origination Division acquires mortgage loans from a network of
      mortgage brokers and other financial intermediaries, including banks.





As
      of
      April 30, 2005, we
      have
      established more than 1,000 active relationships .
      Mortgage brokers qualify to participate in the Wholesale Origination Division
      after a review of their reputation, mortgage lending experience and financial
      condition, including a review of references and, if deemed necessary, financial
      statements. No single correspondent mortgage broker accounts for a significant
      portion of the Wholesale Origination Division’s mortgage loan production. Our
      mortgage brokers work directly with the borrower and submit a fully processed
      loan application to us for an underwriting determination. We apply our customary
      underwriting standards to each wholesale-originated mortgage loan, issue a
      written approval and, upon satisfaction of all the lending conditions, close
      the
      mortgage loan. In addition, we offer mortgage brokers direct access to Fannie
      Mae’s Desktop Underwriter® and Freddie Mac’s Loan Prospector® which enables them
      to give their clients immediate loan approvals.





During
      the years ended April 30, 2005 and 2004, the Wholesale Origination Division
      accounted for approximately 63.6% and 73.2%, respectively, of our mortgage
      loan
      origination volume. As of the date of this filing, the Wholesale
      Origination Division had eight branch office locations in six states as follows:
      Oak Brook, Illinois; Charlotte, North Carolina; Oklahoma City, Oklahoma;
      Portland, Oregon; Midvale, Utah; and, Fair Oaks, Canoga Park, and Irvine,
      California.





*The
      Retail Origination Division.* Retail
      loan origination involves the direct solicitation of realtors, builders,
      prospective borrowers and others for the origination of mortgage loans. We
      derive revenues from the premium that we receive from the purchaser of the
      mortgage loan and any points or fees paid by the borrower over the cost to
      fund
      the mortgage loan as well as fee income if we choose to keep any of the mortgage
      servicing rights for our servicing portfolio. Generally, we share the premium
      and/or points and fees on a negotiated basis with loan officers and others
      who
      procure the mortgage loan and assist in the loan origination
      process.




During
      the years ended April 30, 2005 and 2004 the Retail Origination Division
      accounted for approximately 26.0% and 24.2%, respectively, of our mortgage
      loan
      origination volume. As of the date of this filing, the Retail Origination
      Division had 50 branch office locations in 14 states as follows: Chicago (4),
      Oak Brook, Schaumburg, Bensenville, Elmhurst, East St. Louis, Des Plaines,
      Park
      Ridge, Brighton Park, West Lawn, Batavia, Rockford, Naperville, St. Charles,
      Carpentersville, Barrington, Sycamore, Poplar Grove and Cicero, Illinois;
      Carlsbad, Corona, San Diego, San Clemente, Irvine (2), Newport Beach, and Los
      Angeles (2), California; Little Rock, Arkansas; Jacksonville, Florida; Peachtree
      City, Georgia; Baton Rouge, Louisiana; Jackson, Mississippi; Las Vegas and
      Reno,
      Nevada; Rochester, New York; Cary and Wilmington, North Carolina; Clackamas
      and
      Lake Oswego, Oregon; Brentwood, Memphis and Nashville, Tennessee; Norfolk and
      Richmond, Virginia; and Longview, Vancouver, University Place and Tacoma,
      Washington.





6




**Information
      Technology**





We
      have
      invested a great deal in technology over the past few years to consolidate
      and
      streamline many of our core processes and we will continue to invest significant
      resources in an effort to increase our efficiency and enhance management
      controls. We use an interfaced combination of Calyx’s Point, Del Mar Database’s
      Data Trac and a variety of closing documentation solutions to support our loan
      processing, automated underwriting, closing document preparation, adherence
      to
      product guidelines, point of sale originations, interest rate locking process,
      loan disbursement process and loan-level accounting functions. We intend to
      continue to invest in technology to improve efficiency and streamline our
      operations.





Our
      website, www.ufmc.com ,
      is also
      a valuable tool for sales and services to both our new and existing mortgage
      customers. The website provides potential customers with the ability to
      pre-qualify for a mortgage loan, review loan products and submit loan
      applications online. Current customers can obtain account balances, check the
      status of their payment or make a payment online. Calculators and other tools
      help prospective borrowers determine a maximum affordable home price, loan
      amount and monthly payments. Other resources include educational content for
      homebuyers.





**Mortgage
      Loan Products**





We
      offer
      a broad and competitive range of mortgage products that seek to meet the
      mortgage needs of all types of borrowers. Primarily, we originate residential
      mortgage loans that are principally prime credit quality first-lien mortgage
      loans secured by single-(one to four) family residences. These mortgage loans
      consist of conventional mortgage loans, FHA-insured mortgage loans and
      VA-guaranteed mortgage loans. The majority of our conventional loan originations
      are conforming mortgage loans, qualifying for inclusion in guaranteed mortgage
      securities backed by Fannie Mae or Freddie Mac. The balance of the conventional
      mortgage loans are non-conforming mortgage loans or mortgage loans that do
      not
      otherwise meet Fannie Mae or Freddie Mac guidelines. We make conventional
      non-conforming mortgage loans with original balances up to $6
      million.





The
      following table sets forth the number and dollar amount of our mortgage loan
      production by loan type for the periods indicated:




7


**For
                  the Fiscal Year Ended April 30,****2005**
              
              **2004**
              
              **2003**(Dollars
                  in thousands)**Conventional
                  Conforming Loans**Number
                  of Loans
              
              
              8,779
              
              
              10,866
              
              
              8,632Volume
                  of Loans
              
              $
              1,678,353
              
              $
              2,011,218
              
              $
              1,548,985Percent
                  of Total Dollar Volume
              
              
              62.7
              %
              
              73.5
              %
              
              78.9
              %**Conventional
                  Non-conforming Loans**Number
                  of Loans
              
              
              1,052
              
              
              529
              
              
              680Volume
                  of Loans
              
              $
              409,836
              
              $
              122,434
              
              $
              182,784Percent
                  of Total Dollar Volume
              
              
              15.3
              %
              
              4.5
              %
              
              9.3
              %**FHA/VA
                  Loans**Number
                  of Loans
              
              
              846
              
              
              1,322
              
              
              1,077Volume
                  of Loans
              
              $
              127,497
              
              $
              199,355
              
              $
              170,118Percent
                  of Total Dollar Volume
              
              
              4.8
              %
              
              7.3
              %
              
              8.7
              %**Other
                  Loans**Number
                  of Loans
              
              
              3,446
              
              
              2,755
              
              
              761Volume
                  of Loans
              
              $
              460,478
              
              $
              401,569
              
              $
              61,914Percent
                  of Total Dollar Volume
              
              
              17.2
              %
              
              14.7
              %
              
              3.1
              %**Total
                  Loans**Number
                  of Loans
              
              
              14,123
              
              
              15,472
              
              
              11,150Volume
                  of Loans
              
              $
              2,676,164
              
              $
              2,734,576
              
              $
              1,963,801Average
                  Loan Amount
              
              $
              189,490
              
              $
              176,756
              
              $
              176,126






8


The
      following table sets forth the geographic distribution of our mortgage loan
      production for the periods indicated:


**For
                  the fiscal years ended April 30,****2005**
              
              **2004****Number**
                **of
                  Loans**
              
              **Principal**
                **Amount**
              
              **Number**
                **of
                  Loans**
              
              **Principal**
                **Amount**(Dollars
                  in thousands)California
              
              
              5,712
              
              $
              1,438,370
              
              
              6,656
              
              $
              1,394,012Illinois
              
              
              3,249
              
              
              551,863
              
              
              3,397
              
              
              591,779Oregon
              
              
              967
              
              
              150,344
              
              
              1,881
              
              
              291,673Utah
              
              
              644
              
              
              94,543
              
              
              1,395
              
              
              205,523Nevada
              
              
              333
              
              
              70,559
              
              
              233
              
              
              39,175Washington
              
              
              451
              
              
              65,833
              
              
              329
              
              
              45,396Others
                  (1)
              
              
              2,767
              
              
              304,652
              
              
              1,581
              
              
              167,018









**Loan
        Processing and Underwriting**
 
 In
        general, loan applications are prepared by our loan officers and verified
        by
        personnel in our Retail Origination Division. Verification procedures may
        include, among other things, obtaining: (i) written confirmations of the
        applicant's income and bank deposits; (ii) a formal credit report on the
        applicant from an unaffiliated credit reporting agency; (iii) a preliminary
        title report; and (iv) a real estate appraisal. Appraisals for conventional
        and
        FHA loans are prepared by third-party, unaffiliated appraisers who are
        pre-approved based upon their experience, education and reputation. Completed
        loan applications, including loan applications prepared and verified by the
        staff of our approved mortgage brokers from our Wholesale Origination Division,
        are then transmitted to our Underwriting Department or to underwriting
        sub-contracting companies who provide underwriting services to us. Our
        Underwriting Department and its sub-contractors contain experienced staff
        that
        verify the completeness and accuracy of application information and determine
        its compliance with our underwriting criteria and those of applicable government
        agencies or other investors.
 
 Underwriting
        criteria include loan-to-value ratios, borrower income qualifications, investor
        requirements, insurance and property appraisal requirements. Our underwriting
        guidelines for Freddie Mac, Fannie Mae, the FHA, and the Department of Veteran’s
        Affairs (commonly referred to as the “VA”) loans comply with the written
        underwriting guidelines of the relevant agency. "Non-Conforming" loans generally
        include loan products that do not comply with the underwriting guidelines
        of Freddie
        Mac, Fannie Mae, the FHA
        or the VA. Non-conforming loans generally are underwritten by us in accordance
        with the underwriting guidelines of the applicable investor who purchases
        the
        loans.
 
 **Quality
        Control of Mortgage Origination**
 
 Underwriting
        functions independently of our loan origination personnel and do not report
        to
        any individual directly involved in the loan origination process. Our internal
        Quality Control Department reviews our origination activities in order to
        enhance the ongoing evaluation of the loan processing function, including
        employees, credit reporting agencies and independent appraisers. In conducting
        the reviews, the Quality Control Department reviews the loan applications
        for
        compliance with federal and state lending standards, which may involve a
        second
        verification of employment prior to loan closing, reconfirmation of banking
        information and obtaining separate credit reports and property appraisals.
        The
        Quality Control Department submits all review results directly to our President
        and Chief Executive Officer.
 
 9
 In
        order
        to ensure that we originate high quality mortgage loans, we also have, since
        1995, retained the services of a quality control company to conduct audits
        of
        our loan origination activities on a monthly basis. The quality control company
        audits, pursuant to contractual specifications, a sample of wholesale and
        retail
        loans that we originate. The audit process includes verification of mortgage
        information, including employment status, wages/salaries, credit standing,
        property appraisal, confirmation of the borrower’s savings and other asset and
        compliance with other applicable underwriting guidelines. The quality control
        company selects mortgage loan files on a random basis and provides a quality
        control management report at the conclusion of each monthly audit.
 
 During
        the fiscal year ended April 30, 2005, we sold approximately $2.7 billion
        in
        single-family mortgage loans into the secondary market, of which a statistically
        insignificant amount were repurchased by us or gave rise to indemnification
        obligations from us. We view loan repurchases as an inherent risk of originating
        and purchasing loans for ultimate resale in the secondary market notwithstanding
        the ongoing reviews by the Quality Control Department.
 
 **Secondary
        Market Activities**
 
 We
        sell
        substantially all of the mortgage loans that we originate or purchase through
        our mortgage banking operations while retaining the mortgage servicing rights
        to
        certain of our mortgage loans. During the years ended April 30, 2005, 2004
        and
        2003, we originated or purchased $2.7 billion, $2.7 billion and $2.0 billion
        of
        mortgage loans, respectively, and sold $2.7 billion, $2.7 billion, and $1.9
        billion of mortgage loans, respectively, in the secondary market. Generally,
        mortgage loans are aggregated into pools and sold, or are sold as individual
        mortgage loans, to institutional buyers at prices established at the time
        of
        sale or pursuant to forward sales commitments. Conforming conventional mortgage
        loans are generally pooled and exchanged pursuant to the purchase and guarantee
        programs sponsored by Fannie Mae, Freddie Mac and Ginnie Mae, or for Fannie
        Mae,
        Freddie Mac or Ginnie Mae mortgage-backed securities, which are generally
        sold
        to investment banking firms. A limited number of mortgage loans are sold
        to
        other institutional and non-institutional buyers. For the years ended April
        30,
        2005, 2004 and 2003, approximately 25%, 61% and 77%, respectively, of the
        total
        originated mortgage loans were exchanged for cash or Fannie Mae and Freddie
        Mac
        mortgage-backed securities, which securities were then sold to investment
        banking firms for cash. For the years ended April 30, 2005, 2004 and 2003,
        respectively, 42%, 20% and 10% were sold to one large institutional investor
        and
        the remainder was sold to other institutional and private buyers representing
        less than 10% of sales individually.
 
 10
 We
        exchange and sell mortgage loans on a non-recourse basis. In connection with
        loan exchanges and sales, we make representations and warranties customary
        in
        the industry relating to, among other things, compliance with laws, regulations
        and program standards, and to accuracy of information. If a breach of
        representations and warranties we made occurs, we typically correct the flaws.
        If the flaws cannot be corrected, we may be required to take additional actions
        including the repurchase of mortgage loans that are the subject of the breach.
        In cases where mortgage loans are acquired from a mortgage broker and there
        have
        been material misrepresentations made to us, we generally have the right
        to
        resell the flawed mortgage loan back to the mortgage broker pursuant to our
        agreement with the broker or correspondent. Otherwise, the mortgage broker
        indemnifies us against loss on these flawed mortgage loans by the broker.
        We
        also rely upon contract underwriters for a portion of our loan production,
        and
        these underwriters must indemnify us against loss for mortgage loans that
        are
        eventually determined not to have met buyer guidelines.
 
 **Mortgage
        Loan Servicing Activities**
 
 We
        derive
        a portion of our revenues from the servicing of mortgage loans for others.
        For
        the years ended April 30, 2005, 2004 and 2003, we realized servicing fee
        income,
        net of sub-servicing fees, from our mortgage loan servicing operations
        of
        $3.5 million, $2.4 million and $.4 million, respectively. Mortgage servicing
        rights arise in connection with mortgage loans originated or purchased and
        then
        sold in the secondary market with mortgage servicing rights retained.
 
 Mortgage
        loan servicing includes collecting payments of principal and interest from
        borrowers, remitting aggregate mortgage loan payments to buyers, accounting
        for
        principal and interest payments, holding escrow funds for payment of
        mortgage-related expenses such as taxes and insurance, making advances to
        cover
        delinquent payments, inspecting the mortgaged premises as required, contacting
        delinquent mortgagors, supervising foreclosures and property dispositions
        if
        there are unremedied defaults, and performing other miscellaneous duties
        related
        to loan administration. We collect servicing fees from mortgage payments
        generally ranging from 0.25% ( *i.e.* ,
        25
        basis points) per year to 0.75% ( *i.e.* ,
        75
        basis points) per year of the declining principal balances of the mortgage
        loans
        per annum. We also engage a sub-servicer for servicing these mortgage
        loans.
 
 The
        geographic distribution of our servicing portfolio reflects the broad geographic
        scope of our loan originations. The four largest states in which we service
        loans, California, Illinois, Oregon and Utah accounted in aggregate for
        approximately 92.0%, 93.8% and 94.2%, respectively, of the total number of
        mortgage loans serviced and 93.4%, 94.8% and 95.0%, respectively, of the
        dollar
        value of the mortgage loans serviced for the fiscal years ended April 30,
        2005 ,
        2004 and 2003. The largest volume by state was California for the fiscal
        years
        ended April 30, 2005, 2004 and 2003, which accounted for approximately 41.9%,
        45.2% and 49.3%, respectively, and 46.8%, 49.3% and 53.5% of the mortgage
        loans
        serviced by us in terms of number and value, respectively.
 
 The
        prepayment risk related to the value of our mortgage servicing rights increases
        in a declining interest rate environment that provides borrowers with
        refinancing opportunities. At April 30, 2005 and 2004, the total value of
        the
        mortgage servicing rights asset recorded by us was $21.3 million and $16.4
        million, respectively.
 
  11
  Our
        mortgage loan servicing portfolio includes servicing for fixed rate fully
        amortizing, adjustable rate and fixed rate balloon payment loans as listed
        in
        the following table:
 **As
                            of April 30,****Percentage
                            of Portfolio**
                        
                        **Weighted
                            Average**
                          **Coupon
                            Rate****2005**
                        
                        **2004**
                        
                        **2005**
                        
                        **2004**Fixed
                            Rate Fully Amortizing Loans
                        
                        
                        95.1
                        %
                        
                        93.8
                        %
                        
                        5.4
                        %
                        
                        5.4
                        %Adjustable
                            Rate Loans
                        
                        
                        3.6
                        
                        
                        4.3
                        
                        
                        4.6
                        
                        
                        4.5Fixed
                            Rate Balloons
                        
                        
                        1.3
                        
                        
                        1.9
                        
                        
                        4.3
                        
                        
                        4.3Total
                            Portfolio
                        
                        
                        100.0
                        %
                        
                        100.0
                        %
                        
                        5.4
                        %
                        
                        5.4
                        %
 The
              following table contains information, as of April 30, 2005 and 2004,
              on the
              percentage of fixed rate, single-family mortgage loans serviced for
              others by
              us, by interest rate category:
 
  **As
                        of April 30,****Coupon
                        Range**
                    
                    **2005**
                    
                    **2004**6.00%
                        or under
                    
                    
                    94.9
                    %
                    
                    93.5
                    %6.01
                        - 7.00%
                    
                    
                    4.9
                    %
                    
                    6.2
                    %7.01
                        - 8.00%
                    
                    
                    0.2
                    %
                    
                    0.3
                    %8.01
                        - 9.00%
                    
                    
                    -
                    
                    
                    -Total
                    
                    
                    100.0
                    %
                    
                    100.0
                    %


At
      April
      30, 2005 and 2004 we serviced approximately 9,730 and 7,900 mortgage loans
      with
      an aggregate unpaid principal balance of $1.7 billion and $1.4 billion,
      respectively. Of these loans, 1.9% and 0.4% were delinquent at April 30, 2005
      and 2004, respectively. In addition, at April 30, 2005 three loans were in
      foreclosure and at April 30, 2004 one loan was in foreclosure.





**Seasonality**





The
      mortgage banking industry is generally subject to seasonal trends. These trends
      reflect the general national pattern of sales and resales of homes, although
      refinancings tend to be less seasonal and more closely related to changes in
      mortgage interest rates. Sales and resales of homes typically peak during the
      spring and summer seasons and decline to lower levels from mid-November through
      February. In addition, mortgage delinquency rates typically rise temporarily
      in
      the winter months. The mortgage loan servicing business is generally not subject
      to seasonal trends.





**Competition**





The
      mortgage banking industry is highly competitive. We compete with other financial
      institutions, such as mortgage banks, mortgage brokers state and national banks,
      savings and loan associations, savings banks, credit unions, insurance companies
      and other finance companies and Internet-based lending companies, many of which
      are larger and have greater financial, technical and marketing resources.
      Competition in the mortgage banking industry is based on many factors, including
      convenience in obtaining a loan, customer service, marketing and distribution
      channels, amount and term of the loan and interest rates. We compete principally
      by offering mortgage loans with competitive features, by emphasizing the quality
      of our service and by pricing our products at competitive rates.




12


During
      the fiscal years ended April 30, 2004 and 2003, the mortgage market experienced
      a dramatic increase in refinance volume as mortgage rates reached historic
      lows.
      These market conditions became less favorable toward the end of calendar 2004.
      As a result, the overall pace of refinance activity has slowed and we expect
      this trend to continue through calendar 2005. Accordingly, competitive pressures
      are expected to increase as a greater emphasis is placed on purchase money
      mortgages.





In
      recent
      years, the level of complexity in the mortgage lending business has increased
      significantly due to several factors:


·
              The
                  continuing evolution of the secondary mortgage market has resulted
                  in a
                  proliferation of mortgage products;
 ·
              The
                  indexes which drive the lending business cost of funds have not
                  moved in
                  correlation with mortgage interest rates causing the interest spread
                  to
                  decline;
 ·
                Greater
                    regulation imposed on the industry has resulted in increased
                    costs and the
                    need for higher levels of specialization;
                    and
 ·
                Interest rate volatility has risen over the
                  last decade.
 At
          the
          same time, homeowners’ propensity to refinance their mortgages has increased as
          the refinance process has become more efficient and cost-effective. The
          combined
          result has been large swings in the volume of mortgage loans originated
          from
          year to year. These swings in mortgage origination volume have placed
          significant pressure on both the originations and the servicing sides of
          the
          mortgage business.
 
 **Regulatory**
 
 The
          mortgage lending industry is highly regulated under federal, state and
          local
          laws. Our mortgage banking business is subject to the rules and regulations
          of,
          and examination by, the following entities with respect to the processing,
          origination, selling and servicing of mortgage loans:
 ·  HUD;
 ·  The
            Department of Veteran Affairs;
 ·  Fannie
            Mae, Freddie Mac, Ginnie Mae; and
 ·  Federal,
            state and local regulatory authorities.
 
 Our
          business is subject to extensive federal, state and local laws, rules and
          regulations, as well as judicial and administrative decisions that impose
          requirements and restrictions on our business. At the federal level, these
          laws
          and regulations include, among others:
 Our
          business is subject to extensive federal, state and local laws, rules and
          regulations, as well as judicial and administrative decisions that impose
          requirements and restrictions on our business. At the federal level, these
          laws
          and regulations include, among others:
   13
 ·  the
          Equal
          Credit Opportunity Act;
 ·  the
          Federal Truth in Lending Act;
 ·  the
          Home
          Ownership and Equity Protection Act;
 ·  the
          Real
          Estate Settlement Procedures Act;
 ·  the
          Fair
          Credit Reporting Act;
 ·  the
          Fair
          Debt Collection Practices Act;
 ·  the
          Home
          Mortgage Disclosure Act;
 ·  the
          Fair
          Housing Act; and
 ·  the
          Gramm-Leach-Bliley Act.
  In
          addition, because we originate mortgage loans in a majority of the states,
          we
          must comply with the laws and regulations, as well as judicial and
          administrative decisions of those jurisdictions. Further, individual cities
          and
          counties have begun to enact laws that restrict certain types of loan
          origination activities in those cities and counties.
 
 These
          federal, state and local laws, rules and regulations, among other
          things:
 
 ·  impose
          licensing obligations and financial requirements on us;
 ·  limit
          the
          interest rates, finance charges and other fees that we may charge;
 ·  prohibit
          discrimination;
 ·  impose
          underwriting requirements;
 ·  mandate
          disclosures and notices to consumers;
 ·  mandate
          the collection and reporting of statistical data regarding our
          customers;
 ·  impose
          underwriting requirements;
 ·  regulate
          our marketing techniques and practices; and
 ·  require
          us to safeguard non-public information about our customers.
 
 Our
          failure to comply with these laws, rules and regulations can lead
          to:
 
 ·  civil
          and
          criminal liability;
 ·  loss
          of
          approved status;
 ·  demands
          for indemnification or loan repurchases from buyers of our loans;
 ·  class
          action lawsuits; and
 ·  administrative
          enforcement actions.
  We
          actively analyze and monitor the laws, rules and regulations that apply
          to our
          business, as well as the changes to such laws, rules and regulations. We
          seek to
          maximize the extent to which we can program applicable laws, rules and
          regulations into our technology systems in order to minimize non-compliance
          as a
          result of human error. In addition, we regularly provide training courses
          and
          distribute summaries of relevant laws, rules and regulations to all appropriate
          personnel. Our compliance with applicable laws, rules and regulations is
          reviewed not only by our own compliance department, but by the warehouse
          lenders
          who finance our loans, the buyers that purchase our loans, and the state
          and
          federal governmental agencies that regulate us. Although we believe that
          we are
          currently in compliance in all material respects with applicable federal,
          state
          and local laws, rules and regulations, we cannot assure you that we are,
          or that
          we will continue to be, in full compliance with such laws, rules and
          regulations.
 
 14
 
 Additionally,
          there are a number of proposed and recently enacted federal, state and
          local
          laws and regulations aimed at lending practices affecting borrowers with
          blemished credit, that have been determined to be “predatory.” In general, these
          laws and regulations will impose new loan disclosure requirements, restrict
          or
          prohibit certain loan terms, fees and charges such as prepayment penalties,
          and
          will increase penalties for non-compliance. Due to our lending practices,
          we do
          not believe that the existence of, or compliance with, these laws and
          regulations will have a material adverse effect on our financial condition
          and
          our results of operations. However, there can be no assurance that more
          restrictive laws, rules and regulations will not be adopted in the future
          or
          that existing laws, rules and regulations will not be applied in a manner
          that
          may adversely impact our business or make compliance more difficult or
          expensive.
 
  15
  **ITEM
          2.**  **Properties.**
 
 Our
          corporate and administrative headquarters are located in leased facilities
          at
          815 Commerce Drive, Suite 100, Oak Brook, Illinois 60523. We do not have
          any
          real estate holdings as we lease approximately 58 office facilities in
          Arkansas,
          California, Florida, Georgia, Illinois, Nevada, Louisiana, Mississippi,
          New
          York, North Carolina, Oklahoma, Oregon, Tennessee, Utah, Virginia and
          Washington.
 
 **ITEM
          3.**  **Legal
          Proceedings.**
 
 We
          are
          involved in litigation in the normal course of business. This litigation
          is not
          expected to have a material effect on our results of operations or financial
          condition.
 
 **ITEM
          4.**  **Submission
          of Matters to a Vote of Security Holders.**
 
 There
          were no items submitted to a vote of security holders in the fiscal fourth
          quarter ended April 30, 2005.
  16
  
 **PART
          II**
 
 **ITEM
          5.**  **Market
          for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
          of Equity Securities.**
 
 Our
          common stock commenced trading on the NASDAQ SmallCap Market under the
          symbol
“UFMC” on May 18, 2005. Our common stock previously traded on the American Stock
          Exchange, or AMEX, under the symbol “UFM” from September 9, 2002 through May 17,
          2005. We had approximately 300 stockholders as of July 25, 2005,
          of which
          approximately 150 were stockholders of record.
 
 **Market
          Information**
  The
          table
          below sets forth the high and low sales price, as reported by AMEX, for
          our
          common stock for the periods indicated.
 **High**
                
                **Low****For
                    the Fiscal Year Ended April 30, 2005**First
                    Quarter
                
                $
                6.60
                
                $
                4.40Second
                    Quarter
                
                
                5.44
                
                
                4.35Third
                    Quarter
                
                
                5.20
                
                
                4.35Fourth
                    Quarter
                
                
                5.05
                
                
                4.15**For
                    the Fiscal Year Ended April 30, 2004**First
                    Quarter
                
                $
                11.50
                
                $
                4.95Second
                    Quarter
                
                
                7.79
                
                
                6.30Third
                    Quarter
                
                
                8.30
                
                
                6.15Fourth
                    Quarter
                
                
                7.50
                
                
                5.40
  **Dividends**
  We
          have
          never declared or paid a dividend on our common stock. Management expects
          that a
          substantial portion of our earnings, if any, for the foreseeable future
          will be
          used to expand loan origination and servicing capabilities and therefore
          management does not foresee an ability to pay dividends on our common stock.
          The
          decision to pay dividends, if any, in the future is within the discretion
          of our
          Board of Directors and will depend upon our earnings, our capital requirements,
          financial condition and other relevant factors such as loan covenants or
          other
          contractual obligations.
  17
 
 **ITEM
          6.**  **Selected
          Financial Data.**
 
 We
          are
          providing the following summary information to aid you in your analysis
          of our
          company. The majority of the financial information provided below was derived
          from our audited financial statements. The information is only a summary
          and you
          should read it in conjunction with historical financial statements and
          related
          notes, appearing in Item 8 and “Management’s Discussion and Analysis of
          Financial Conditions and Results of Operation” appearing in Item
          7.
  **At
                      or For the Fiscal Year Ended April 30,****2005**
                  
                  **2004**
                  
                  **2003**
                  
                  **2002**
                  
                  **2001**(Dollars
                      in thousands, except per share data)**Summary
                      Balance Sheet Data:**Total
                      assets
                  
                  $
                  276,236
                  
                  $
                  258,620
                  
                  $
                  170,950
                  
                  $
                  61,965
                  
                  $
                  60,387Cash
                      and cash equivalents
                  
                  
                  17,634
                  
                  
                  12,901
                  
                  
                  8,709
                  
                  
                  7,008
                  
                  
                  4,261Loans
                      held for sale
                  
                  
                  228,686
                  
                  
                  223,634
                  
                  
                  154,735
                  
                  
                  51,417
                  
                  
                  52,719Mortgage
                      servicing rights, net
                  
                  
                  21,349
                  
                  
                  16,438
                  
                  
                  4,735
                  
                  
                  1,340
                  
                  
                  592Warehouse
                      lines of credit
                  
                  
                  230,731
                  
                  
                  217,519
                  
                  
                  151,473
                  
                  
                  50,210
                  
                  
                  51,052Shareholders’
                      equity
                  
                  
                  31,021
                  
                  
                  29,669
                  
                  
                  12,880
                  
                  
                  8,298
                  
                  
                  7,430**Summary
                      of Operations:**Revenues
                  
                  $
                  75,682
                  
                  $
                  70,154
                  
                  $
                  51,291
                  
                  $
                  22,607
                  
                  $
                  14,941Expenses
                  
                  
                  73,408
                  
                  
                  62,193
                  
                  
                  43,461
                  
                  
                  20,304
                  
                  
                  13,901Earnings
                      before income taxes
                  
                  
                  2,274
                  
                  
                  7,961
                  
                  
                  7,830
                  
                  
                  2,303
                  
                  
                  1,040Income
                      taxes
                  
                  
                  920
                  
                  
                  3,186
                  
                  
                  3,221
                  
                  
                  1,207
                  
                  
                  172Net
                      income before cumulative effect of
                    Change
                      in accounting principle (1)
                  
                  
                  1,354
                  
                  
                  4,775
                  
                  
                  4,609
                  
                  
                  1,096
                  
                  
                  868Cumulative
                      effect of change in
                    Accounting
                      principle (1), net of tax
                  
                  
                  -
                  
                  
                  -
                  
                  
                  87
                  
                  
                  -
                  
                  
                  -Net
                      income
                  
                  
                  1,354
                  
                  
                  4,775
                  
                  
                  4,696
                  
                  
                  1,096
                  
                  
                  868Preferred
                      stock dividends
                  
                  
                  38
                  
                  
                  39
                  
                  
                  38
                  
                  
                  39
                  
                  
                  -Net
                      income available to common shareholders
                  
                  $
                  1,316
                  
                  $
                  4,736
                  
                  $
                  4,658
                  
                  $
                  1,057
                  
                  $
                  868**Per
                      Share Data:**Basic
                      earnings per common share
                  
                  $
                  0.23
                  
                  $
                  1.01
                  
                  $
                  1.18
                  
                  $
                  0.26
                  
                  $
                  0.21Diluted
                      earnings per common share
                  
                  $
                  0.22
                  
                  $
                  0.97
                  
                  $
                  1.16
                  
                  $
                  0.26
                  
                  $
                  0.21Book
                      value per diluted common share
                  
                  $
                  5.09
                  
                  $
                  4.97
                  
                  $
                  3.29
                  
                  $
                  2.10
                  
                  $
                  1.83Weighted
                      average number of shares
                    Outstanding
                      (basic)
                  
                  
                  5,970
                  
                  
                  4,687
                  
                  
                  3,933
                  
                  
                  3,992
                  
                  
                  4,069Weighted
                      average number of shares
                    Outstanding
                      (dilutive)
                  
                  
                  6,097
                  
                  
                  4,867
                  
                  
                  4,013
                  
                  
                  4,003
                  
                  
                  4,069Shares
                      outstanding, net of treasury stock
                  
                  
                  5,988
                  
                  
                  5,964
                  
                  
                  3,919
                  
                  
                  3,945
                  
                  
                  4,060
 (1)
                We
                    recorded a cumulative effect of a change in accounting principle
                    adjustment to reflect the fair value of rate lock commitments
                    outstanding
                    at May 1, 2002. At May 1, 2002, we had approximately $41 million
                    of rate
                    lock commitments with a fair value of $86,821, net of
                    tax.
   18
 **Selected
                    Financial Data**(Continued)**At
                    or For the Fiscal Year Ended April 30,****2005**
                
                **2004**
                
                **2003**
                
                **2002**
                
                **2001**(Dollars
                    in thousands, except offices and number of employees)**Other
                    Data:***Mortgage
                    Loan Activity:*Loans
                    originated for resalePurchase
                    money mortgages
                
                $
                839,300
                
                $
                545,600
                
                $
                326,400
                
                $
                306,400
                
                $
                220,400Refinancings
                
                
                1,836,800
                
                
                2,188,500
                
                
                1,637,400
                
                
                551,300
                
                
                167,600Number
                    of:Mortgage
                    loans originated
                
                
                14,123
                
                
                15,469
                
                
                11,150
                
                
                5,167
                
                
                2,520Mortgage
                    loans serviced
                
                
                9,730
                
                
                7,900
                
                
                3,030
                
                
                617
                
                
                195Proceeds
                    from sales of loans held for sale
                
                $
                2,730,373
                
                $
                2,735,167
                
                $
                1,902,404
                
                $
                876,539
                
                $
                378,647Net
                    gains on sales of loans held for sale
                
                
                64,190
                
                
                60,894
                
                
                47,092
                
                
                18,720
                
                
                12,230Loan
                    servicing fees, net
                
                
                3,465
                
                
                2,407
                
                
                368
                
                
                202
                
                
                79*Mortgage
                    Servicing Data:*Mortgage
                    loans serviced for others
                
                $
                1,694,471
                
                $
                1,400,958
                
                $
                526,166
                
                $
                107,176
                
                $
                33,805Capitalized
                    mortgage servicing rights
                
                
                21,349
                
                
                16,438
                
                
                4,735
                
                
                1,340
                
                
                592*Other:*Number
                    of:Retail
                    lending offices
                
                
                50
                
                
                30
                
                
                20
                
                
                12
                
                
                10Wholesale
                    lending offices
                
                
                8
                
                
                5
                
                
                5
                
                
                5
                
                
                4Full-time
                    employees
                
                
                488
                
                
                307
                
                
                212
                
                
                177
                
                
                150Available
                    warehouse lines of credit
                
                $
                377,600
                
                $
                297,600
                
                $
                187,000
                
                $
                100,000
                
                $
                85,000
   19


**ITEM
      7.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation.**





**Forward
      Looking Statements**





The
      following discussion and analysis presents our financial condition at April
      30,
      2005 and 2004 and the results of operations for the three fiscal years ended
      April 30, 2005, 2004 and 2003. One should read the following discussion together
      with our financial statements and the related notes elsewhere in this annual
      report. In addition to the historical information provided below, we have made
      certain estimates and forward-looking statements that involve risks and
      uncertainties. Our actual results could differ materially from those anticipated
      or implied by these estimates and forward-looking statements as a result of
      certain factors, including those discussed in the CAUTIONARY NOTE REGARDING
      FORWARD LOOKING STATEMENTS preceding Item 1 of this annual report.





**General**





Founded
      in 1986 and headquartered in Oak Brook, Illinois, United Financial Mortgage
      Corp. is an independent nationwide wholesale and retail mortgage banker that
      originates, funds, sells and services residential mortgage loans. We also engage
      in the brokerage and origination of loans on commercial real estate. We
      recognize revenue from our wholesale and retail origination channels through
      gains on the sale of mortgage loans and related servicing rights to institutions
      and investors, interest generated on mortgage loans held or warehoused from
      the
      time the mortgage loan is originated until the mortgage loan is sold, and,
      in
      the case of retail operations, origination fees. Our Mortgage Loan Servicing
      Division recognizes revenue from the servicing of mortgage loans for others.
      Expenses largely consist of commissions paid to loan originators on closed
      mortgage loans, salaries and benefits paid to employees, general selling and
      administrative expenses such as occupancy costs and advertising costs and
      interest paid under our warehouse credit facilities.





While
      our
      management monitors the revenue streams of the various products and services,
      operations are managed and financial performance is evaluated on a company-wide
      basis. Accordingly, all of our mortgage banking operations are considered by
      management to be aggregated in one reportable operating segment. We are an
      approved mortgage loan seller/servicer with the Federal Home Loan Mortgage
      Corporation and with the Federal National Mortgage Association. In addition,
      we
      are an approved mortgagee with the Government National Mortgage Association,
      the
      Federal Housing Administration, and the Department of Veteran’s
      Affairs.





We
      have
      focused on growing our origination volume by building a retail and wholesale
      origination network through internal growth and selective acquisitions.






20


·
            On
                May 5, 2005 we announced that wesigned
                a definitive agreement with Dallas, Texas-based AmPro Mortgage Corporation
                ("AmPro") pursuant to which we agreed to acquire AmPro's eight prime
                wholesale production offices and AmPro's Phoenix, Arizona, operations
                center. This acquisition, when completed, will give us a significant
                presence in states where we currently have no infrastructure, including
                Arizona, Colorado and Texas. It will also add scale in other markets
                where
                we currently operate, such as Florida and Georgia, and will solidify
                our
                already strong presence in California. We expect the acquisition
                to
                contribute total additional annual originations of between $2.4 and
                $3
                billion, representing between approximately a 90% to 112% increase
                over
                our fiscal 2005 originations, respectively. The acquisition is also
                expected to have an accretive impact on our future earnings. We anticipate
                that the transaction, which is structured as an asset purchase, will
                be
                completed once certain customary closing conditions have been satisfied,
                including our receipt of certain state licenses necessary to operate
                the
                acquired offices and to continue to operate the wholesale origination
                division. The parties have agreed to operate the prime wholesale
                origination division in accordance with the terms of the definitive
                agreement pending the closing.





·
            During
                the quarter ended January 31, 2005,
                we****acquired
                PlusFunding.com, Inc.****(“PlusFunding”),
                a Carlsbad, California-based retail originator of residential mortgage
                loans that acts as both a mortgage banker and broker. Servicing the
                San
                Diego area since 2000, PlusFunding has approximately 70 full-time
                employees and operates six branches. PlusFunding originated approximately
                $295 and $234 million in mortgage loans for the years ended December
                31,
                2004 and 2003, respectively.





·
            On
                August 31, 2004, we acquired Vision Mortgage Group, Inc., a mortgage
                banking division that operates six branches in and around Rockford,
                Illinois and Tacoma, Washington. In 2003, we acquired Portland Mortgage
                Company, a mortgage banking division that operates five branches
                in Oregon
                and southwest Washington.





The
      mortgage banking industry is generally subject to seasonal trends and interest
      rate volatility. Sales and resales of homes typically peak during the spring
      and
      summer seasons and decline to lower levels from mid-November through February.
      In addition, mortgage delinquency rates typically rise temporarily in the winter
      months. These trends reflect the general national pattern of sales and resales
      of homes, although mortgage refinancing tends to be less seasonal and more
      closely related to changes in mortgage interest rates. The mortgage loan
      servicing business is generally not subject to seasonal trends.





Interest
      rates and mortgage refinancing generally have an inverse relationship. In
      periods of decreasing interest rates, it is more likely for mortgages to be
      refinanced. Conversely, mortgage refinancing is less likely to occur when rates
      are rising. Interest rates fell to 30 year lows during the first half of
      calendar 2003 and the spring of 2004, and the Company, as well as the industry,
      experienced increased mortgage refinancing activity. Home sales and resales
      are
      also impacted inversely by interest rates.





**Critical
      Accounting Estimates**





Financial
      statements prepared in accordance with U.S. generally accepted accounting
      principles require management to make estimates and assumptions that affect
      the
      amounts reported in the financial statements and accompanying notes to the
      financial statements. Critical accounting policies comprise those policies
      that
      require our most difficult, subjective and complex judgments. These policies
      require estimates of matters that are inherently uncertain.





21


*Mortgage
      Loans Held for Sale.* Mortgage
      loans held for sale represent mortgage loans originated and held pending sale
      to
      permanent investors. The mortgages are carried at lower of cost or market as
      determined by market prices and yields in normal market outlets we use. Gains
      or
      losses on such sales are recognized at the time legal title transfers to the
      investor and are based upon the difference between the sales proceeds from
      the
      final investor and the adjusted book value of the loan sold.





*Mortgage
      Servicing Rights* .
      We
      recognize as a separate asset the rights to service mortgage loans for others.
      Mortgage servicing rights that are retained when mortgage loans are sold are
      recorded by allocating the previous carrying amount of the sold loan between
      the
      servicing rights retained and the loans that are sold. This allocation is based
      upon the relative fair values of the mortgage servicing rights and the loans
      sold.





The
      mortgage servicing rights asset is amortized over the projected period of,
      and
      in proportion to, the estimated amount of net servicing income. Amortization
      of
      the mortgage servicing rights asset will reduce the amount of income that is
      recorded in the respective period from the servicing of the mortgage loans.





Each
      reporting period, we evaluate the fair value of our remaining mortgage servicing
      rights asset. The amount by which the carrying amount of mortgage servicing
      rights exceeds the new estimate of fair value is charged against earnings for
      the period. Rather than directly reducing the carrying amount of the mortgage
      servicing rights asset, a valuation allowance is established for the same amount
      as the charge against earnings. In subsequent reporting periods, depending
      upon
      current estimates of fair value, the valuation allowance may be reversed. Such
      a
      reversal is limited to the remaining amount of the valuation allowance and
      will
      result in an increase in recorded earnings.





Judgments
      and assumptions that are most critical to the application of this accounting
      policy are the appropriate risk-weighted discount rates used to determine the
      present value of estimated net future cash flows, prepayment speeds that will
      determine the amount and period of servicing revenue that is expected to be
      earned, and estimated costs to service the loans. These assumptions are based
      upon actual performance of the underlying loans and the general market consensus
      regarding changes in mortgage and other interest rates. For example, declining
      mortgage interest rates typically result in accelerated mortgage prepayments,
      which tend to shorten the life and reduce the value of the servicing rights
      asset.





If
      different assumptions and conditions were to prevail, materially different
      amortization and valuation allowances than those that were recorded may be
      required. Since, as described above, so many factors can affect the value of
      mortgage servicing rights, it is difficult to predict, with any degree of
      certainty, the effect on income if different conditions or assumptions were
      to
      prevail.





*Derivative
      Financial Instruments* .
      Our
      mortgage-committed pipeline includes interest rate lock commitments that have
      been extended to borrowers who have applied for loan funding and meet certain
      defined credit and underwriting criteria. Effective with the adoption of
      Statement of Financial Accounting Standards (“SFAS”) No. 133, "Accounting
      for Derivative Instruments and Hedging Activities," as amended, we classify
      and
      account for the interest rate lock commitments as free-standing derivatives.
      At
      the time of the interest rate lock commitment, no gain or loss is recognized.
      Subsequent changes in fair value are determined in accordance with Staff
      Accounting Bulletin (“SAB”) 105, issued by the SEC, which states that future
      cash flows from servicing rights and other internally-developed intangible
      assets cannot be included in the determination of a rate lock commitment
      derivative. The fair value of interest rate lock commitments is included with
      loans held for sale, and changes in fair value are included in the net gain
      on
      sale of loans. The Company uses other derivative instruments, including mortgage
      forward delivery contracts to economically hedge the interest rate lock
      commitments, which are also classified and accounted for as free-standing
      derivatives and thus are recorded at fair value with the changes in fair value
      recorded to current earnings.





22


*Income
      Taxes.* Deferred
      tax assets and liabilities are based on estimated timing differences between
      the
      book and tax basis of certain assets and liabilities. These estimates may be
      affected by future changes in enacted tax legislation and the results of
      regulatory review. Realization of deferred tax assets is principally dependent
      upon the achievement of projected future taxable income. Our judgments regarding
      future profitability may change due to future market conditions, among other
      factors.





**Results
      of Operations**





*Fiscal
      Years Ended April 30, 2005 and April 30, 2004*




Gain
      on
      sale of loans increased 5% from $60.9 million for the fiscal year ended
      April 30, 2004 to $64.2 for the fiscal year ended April 30, 2005. The
      increase, in a year when the volume of loans sold was relatively constant,
      resulted from improved pricing by investors in a more competitive market coupled
      with an increase in our origination of nonprime mortgage loans as an overall
      percentage of all originations. Loan originations were also constant at $2.7
      billion for the fiscal years 2004 and 2005. For the year ended April 30, 2005,
      the breakdown of our originations was 69% refinances, 28% purchases and 3%
      other
      compared with 80% refinances, 17% purchases and 3% other for the year ended
      April 30, 2004. The increase in purchases versus refinances is consistent with
      the expansion of our retail presence during the 2005 fiscal year as both of
      the
      retail businesses we acquired during 2005 have strategic alliances with
      realtors.





Our
      mortgage loan servicing income increased by 44% from the prior year. Loan
      servicing income increased by $1.1 million, from $2.4 million during fiscal
      year
      2004 to $3.5 million during fiscal year 2005. We
      continued to pursue our strategy of retaining servicing rights on certain loans
      that we originate during the year ended April 30, 2005. Although our total
      originations remain strong, we have elected to retain servicing rights on fewer
      mortgage loans as a percentage of total production. If this trend continues,
      it
      is likely the overall servicing portfolio will remain constant or even decrease
      in the coming year.





Throughout the course of the year,
      the Company obtains third party valuations  of  the  mortgage
      servicing rights portfolio as well as obtains other  market 
      information  related  to  the  market  value
      of the
      mortgage servicing portfolio.  These valuations stratify the portfolio
      by
      loan type, interest  rates  and   geographic location. 
      The valuations  also take  into account  the current market
      conditions for  prepayment speeds and  interest rates.  
      As  a  result  of  this  valuation 
      process,   the Company took an impairment  charge 
      of $1.8
      million during the fourth quarter of the fiscal year.  The 
      Company  currently  believes  that  the 
      prepayment
      speeds and interest  rate  environment are the primary factors
      for the
      decline in the value of the portfolio.  As such, the Company believes
      that
      as interest rates and prepayment speeds  adjust, the value of the portfolio
      will increase.  The impairment is temporary in nature as there is no
      clear
      trend for prolonged or significant decline in interest rates. Additionally,
      management believes that the lack of movement in the interest rate despite
      movement in LIBOR and other rates is temporary. In the prior year, we had
      reversed our valuation allowance of $1.2 million as rates rose slightly and
      volume decreased at the close of the refinance boom.





23


The
      increase in the amortization of mortgage servicings rights in the current period
      is primarily the result of the increase in the size of our servicing portfolio,
      which has grown from $500 million at April 30, 2003, to $1.7 billion at April
      30, 2005





Our
      interest income increased $4.9 million, or 61%, from
      7.9
      million for the year ended April 30, 2004 to $12.8 million for the year ended
      April 30, 2005. This
      increase was attributable to an increase in the average coupon rate of our
      loans
      that were originated in the year ended April 30, 2005 versus the year
      ended
      April 30, 2004 and the length of time we held the loans prior to sale. The
      increase in the coupon rate was partially attributable to the increase in our
      nonprime business during the year.





Our
      salary and commissions expenses increased $4.0 million, or 8.5%, from $46.8
      million for the year ended April 30, 2004 to $50.8 million for the year ended
      April 30, 2005. Our August 2004 and January 2005 acquisitions of retail mortgage
      banking operations, which added eleven locations and over 100 employees,
      contributed to the increase in expenses versus the prior year. Additionally,
      $.9
      million or 23% of the increase is attributable to an increase in broker
      commissions paid during the 2005 fiscal year. This increase, despite relatively
      flat originations, is indicative of the competitive pressure in the wholesale
      market in the current year compared to the prior year and caused us to pass
      through our improved investor pricing directly to the brokers.





Selling
      and administrative expenses increased $4.0 million, or 36.0% from $11.1 million
      for the year ended April 30, 2004 to $15.1 million for the year ended April
      30,
      2005. The increase from 2004 to 2005 was due to the expansion of our sales
      efforts including the aforementioned acquisitions as well as opening additional
      offices throughout the United States. Our expansion costs consist primarily
      of
      office rental and insurance expenses. Additionally,
      we substantially increased our marketing expenditures for our retail segment
      and
      used outside information technology resources to enhance the automation and
      connectivity of our new offices and acquisitions.




Interest
      expense increased $3.2 million, or 79%, from $4.0 million for the year ended
      April 30, 2004 to $7.2 million for the year ended April 30, 2005. This increase
      was the result of higher average balances and higher interest rates on our
      warehouse lines of credit in the current year versus the prior year period
      as
      well as increases in LIBOR year over year. LIBOR increased steadily in the
      six
      months ended April 30, 2005 and has risen further since April 30, 2005. We
      anticipate our interest expense will be higher as a percentage of interest
      income during our 2006 fiscal year. In addition to the increase in LIBOR, our
      loans have been carried on the warehouse line a longer period of time in the
      2005 fiscal year compared to the same period in the prior fiscal year.





24


Our
      income taxes decreased from the prior year as a result of the decrease in our
      taxable income in the current year. Net income before taxes was $8.0 for the
      year ended April 30, 2004 compared to $2.3 million for the year ended April
      30,
      2005, a decrease of $5.7 million, or 71%. Our effective tax rate remained
      constant for both years at approximately 40%.





*Fiscal
      Years Ended April 30, 2004 and April 30, 2003*





The
      year
      ended April 30, 2004 was a period of significant growth for us. Loan volume
      and
      revenues increased substantially from year to year. In fact, both revenue and
      loan volume were at record highs in the year ended April 30, 2004. The primary
      reasons for the increase in revenue and loan volume were the opening of several
      new branch office locations in fiscal 2004 and late 2003 and the purchase of
      Portland Mortgage Company (“PMC”) in May, 2003, set against a backdrop of a
      favorable interest rate environment.





Gain
      on
      sale of loans increased 29% for the 2004 fiscal year compared to the prior
      fiscal year to $60.9 million. This increase was attributable to an increase
      in
      originations of 39% to $2.7 billion and the related loan sales. The increase
      in
      gain on sale of loans was less than the increase in originations as a result
      of
      the interest rate environment during the year. During fiscal year 2003 and
      the
      beginning of fiscal year 2004 interest rates remained at relatively low levels
      creating high volumes of refinance transactions. In fiscal 2004, the market
      slowed as interest rates, while still low from a historical perspective, rose
      slightly and then stabilized reducing the attractiveness of refinance
      transactions thus creating competition for the remaining transactions. This
      price pressure reduced the gain on sale in the form of lower loan origination
      fees, particularly in the retail origination channel.





Mortgage
      servicing rights impairment was reversed during the first quarter of the year
      ended April 30, 2004 representing an increase in the overall valuation of the
      servicing rights portfolio at the end of the refinance boom when interest rates
      rose and prepayment speeds slowed. In the year ended April 30, 2004, we had
      recorded a valuation allowance of $1.1 million as rates continued to fall during
      the refinance boom which caused prepayment speeds to be very high.





Loan
      servicing income increased by $2.0 million, to $2.4 million for the year ended
      April 30, 2004 compared to the prior fiscal year. We
      continued our strategy, which commenced in fiscal 2003, of retaining servicing
      rights on certain loans that we originate. The
      mortgage loan servicing portfolio increased by $874.8 million from April 30,
      2003 to $1.4 billion at April 30, 2004 and accounted for the higher servicing
      income as compared to the prior fiscal year.





Interest
      income increased 46% to $7.9 million for the 2004 fiscal year from the prior
      fiscal year. This increase was attributable to the aforementioned increase
      in
      overall loan originations and the length of time the loans were held prior
      to
      sale year over year. The increase in the holding period prior to sale is a
      function of expanded warehouse line of credit capacity as well as selling loans
      in groups rather than a one-by-one or flow basis. Since our cost of funds is
      less than the income from the loans we originate and hold for sale, the
      reduction in the turnover ratio on the loans held for sale generates margin
      for
      us.





25


Salary
      and commissions expenses increased $12.1 million, or 35%, to $46.8 million
      in
      the year ended April 30, 2004 from the year ended April 30, 2003. The increase
      was attributed to three main factors: increased volume of loans originated
      and
      the related commissions; continued investment in the expansion of the our sales
      organization as evidenced by the increase in retail loan offices from 20 to
      30
      and full-time employees from 212 to 307 as of April 30, 2003 and 2004,
      respectively; and, the increased cost of commissions paid on wholesale loan
      originations due to the competitive interest rate environment in the latter
      half
      of fiscal 2004.





Selling
      and administrative expenses increased 90%, or $5.2 million, to $11.1 million
      for
      the 2004 fiscal year compared to the prior fiscal year. Approximately $2.3
      million of the increase was attributable to the increase in originations and
      the
      related impact to direct selling expenses such as credit reports, appraisals,
      underwriting costs and investor expenses. Approximately $1.4 million of the
      increase resulted from the use of lead generation and advertising costs by
      the
      Retail Origination Division. An additional $1.2 million of the increase related
      to the market expansion of the retail loan offices from 12 at the beginning
      of
      fiscal 2003 to 30 at the end of fiscal 2004 and the related impact on rent
      and
      occupancy expenses of those offices. The Retail Origination Division, while
      generally having higher margins, does have a higher fixed cost structure, which
      was highlighted during fiscal year 2004 as new offices were opened. The
      remaining increase in the selling and administrative costs generally related
      to
      technology expenses, volume-based quality control costs and investor relations
      expense increases.





Interest
      expense during the year ended April 30, 2004 increased 49% to $4.0 million
      compared to prior fiscal year, primarily as a result of an increase in overall
      mortgage loan originations and the average balance of notes payable on the
      warehouse lines of credit.





**Financial
      Condition**





*April
      30, 2005 and 2004*





Total
      assets increased from $258.6 million at April 30, 2004 to $276.2 million at
      April 30, 2005, representing an increase of $17.6 million or 7%. The increase
      primarily related to an increase in loans held for sale, mortgage servicing
      rights and cash and cash equivalents. At April 30, 2005, loans held for sale
      were $228.7 million, an increase of $5.1 million, or 2%, compared to April
      30,
      2004. The increase in loans held for sale was due to an increase in the average
      holding period of a loan. At April 30, 2005, mortgage servicing rights increased
      to $21.3 million from $16.4 million, an increase of 30% from April 30, 2004.
      This increase resulted from our continued effort to increase our servicing
      rights portfolio while interest rates continue to be relatively low from a
      historical perspective. The weighted average coupon of the mortgage servicing
      rights portfolio remained under 6.0% as of April 30, 2005. Additionally, we
      have
      increased our holdings of cash and cash equivalents by $4.7 million to $17.6
      million as of April 30, 2005. Other assets increase by 87% from $2.1 to $3.9
      million in the 2005 fiscal year as a result of higher interest receivable and
      the increase in value of our captive reinsurance investments during the year.
      Goodwill also increased 89% or $.5 million during the 2005 fiscal year as a
      result of our acquisitions of Vision Mortgage and PlusFunding.com.





26


Total
      liabilities increased $16.3 million, or 7%, to $245 million at April 30, 2005
      primarily as a result of the borrowings on the warehouse lines of credit which
      finance the increase in loans held for sale. The increase in the warehouse
      lines
      of credit was $13.2 million, or 6.1%.





Total
      equity increased $1.4 million, or 4.6%, to $31.0 million at April 30, 2005
      as a
      result of the
      retention of $1.4 million earnings for fiscal year 2005.




**Liquidity
      and Capital Resources**




Our
      sources of cash flow include proceeds from the sale of mortgage loans, interest
      income and fees from originations, servicing fees and borrowings. Our primary
      sources of funding are borrowings under warehouse lines of credit and proceeds
      from the sale of loans. We sell our mortgage loans held for sale continuously
      to
      generate cash for operations. Our cash flow requirements, consequently, depend
      on the level and timing of our activities in loan origination in relation to
      the
      timing of the sale of such loans. Our uses of cash include the funding of
      mortgage loan purchases and originations and the retention of mortgage servicing
      rights, payment of interest, repayment of amounts borrowed pursuant to warehouse
      lines of credit, operating and administrative expenses, income taxes, capital
      expenditures and acquisitions.





Our
      net
      cash used in operating activities in the year ended April 30, 2005 was $1.7,
      million compared to $51.0 million and $98.2 million in 2004 and 2003,
      respectively. Our net cash from operating activities is impacted primarily
      by
      the origination of and proceeds from the sale of our mortgage loans held for
      sale. For the years ended April 30, 2005, 2004 and 2003, we originated $2.7
      billion, $2.7 billion and $2.0 billion in loans held for sale, respectively,
      and
      received proceeds of $2.7 billion, $2.7 billion and $1.9 billion on sales of
      loans, respectively. Throughout the years ended April 30, 2005, 2004 and 2003,
      we continued to pursue our strategy of retaining servicing rights on certain
      mortgage loans that we originate. Such retention has resulted in some reduction
      in short term cash flow available to us. We have employed capital to finance
      the
      retention of servicing rights. The retention of servicing rights, however,
      creates an asset on our balance sheet and generates a future cash flow stream
      in
      the form of servicing income.





Net
      cash
      used in investing activities was $1.3 million, $0.9 million and $1.2 million
      in
      the years ended April 30, 2005, 2004 and 2003, respectively. This increase
      in
      investing principally relates to the impact of the VMG and PlusFunding
      acquisitions in the year ended April 30, 2005 and continued expansion of offices
      and our technology platforms leading to the $.7 million increase in premises
      and
      equipment. The increase in our restricted cash continues to be a factor of
      our
      increasing warehouse capacity that causes the related compensating balance
      requirements to increase. The impact of this increase was lessened however,
      by
      restructuring our CD’s to 90 day maturities for liquidity causing them to be
      treated as cash equivalents rather than investments. The change from 2003 to
      2004 was primarily the result of the net cash of $.3 million received in the
      PMC
      acquisition as the cash balances of PMC exceeded the cash paid related to the
      acquisition through April 30, 2004.





Net
      cash
      provided in our financing activities, primarily corresponding to increases
      in
      and decreases in our warehouse lines of credit as a result of loan originations
      volume, were $7.7 million, $56.2 million and $101.1 million for the
      years
      ended April 30, 2005, 2004 and 2003, respectively. Fiscal
      year 2004 reflects $12.1 million in proceeds from the sale of 2,039,214 shares
      of common stock from an underwritten public offering. Proceeds from the December
      15, 2003 offering are being used for general corporate purposes, including
      the
      implementation of our growth and business strategies.





27


Liquidity
      refers to the ability or the financial flexibility to manage future cash flows
      and fund operations on a timely and cost-effective basis. We fund our business,
      in part, through the use of warehouse lines of credit. Our outstanding
      borrowings pursuant to the warehouse lines of credit totaled $230.7 million
      and
      $217.5 million at April 30, 2005 and 2004, respectively. The interest rates
      on
      the warehouse lines of credit vary primarily based on LIBOR plus a factor
      depending on the type of loan that is funded. Our commercial facility is based
      on the prime rate at the time of the advance. Consistent with past practices
      and
      in the ordinary course of our business, we have renewed a number of our credit
      facilities prior to their respective scheduled expiration. In a number of
      situations and, again, in the ordinary course of our business and consistent
      with past practices, in connection with these renewals, certain of the terms
      of
      our credit facilities were modified in a manner that we do not view as material.
      For example, in December 2004, we renewed the temporary extensions on both
      of
      our syndicated warehouse agreement for $30 million and our second facility
      for
      $50 million for approximately 60 days and nine months, respectively. We
      subsequently renewed the $30 million due to the potential volatility in
      originations volume from changes in market interest rates, we prefer temporary
      expansions of our facilities since the facilities generally have penalties
      if
      certain usage rates are not maintained. Additionally,
      we have a warehouse line for commercial loan production with another bank for
      $2.6 million, which renewed October 31, 2004 for another year. We have entered
      into another facility with an investor which allows us to warehouse up to $35
      million in loans which will be sold to them at a rate which is margin based
      on
      the underlying collateral over the one-month LIBOR. This facility expires August
      31, 2005. While we intend to renew these facilities at their respective
      expirations, if we cannot successfully maintain our existing credit facilities
      or replace them with comparable financing sources, we may be required to curtail
      our loan origination activities, which would have a material adverse effect
      on
      our financial condition and results of operations. Because our credit facilities
      are short-term lending commitments, the lenders may respond to market conditions
      which may favor an alternative investment strategy for them, making it more
      difficult for us to secure continued financing.





Additionally,
      our warehouse credit facilities contain extensive restrictions and covenants
      that, among other things, require us to satisfy specified financial tests.
      If we
      fail to meet or satisfy any of these covenants, we would be in default under
      these agreements and our lenders could elect to declare all amounts outstanding
      under the agreements to be immediately due and payable, enforce their interests
      against collateral pledged under such agreements and restrict our ability to
      make additional borrowings. These agreements also contain cross-default
      provisions, so that if a default occurs under any one agreement, the lenders
      under our other agreements could also declare a default. We believe we were
      in
      compliance with our covenants at April 30, 2005, and at the time of this
      filing.





We
      maintain cash balances in excess of the insurance limits provided by the Federal
      Deposit Insurance Corporation. We monitor the financial institutions where
      these
      balances are held to limit the risk on the uninsured portions of those balances.
      Additionally, we have adopted and are completing implementation of a policy
      to
      maintain cash balances at institutions which are involved in the warehouse
      lines
      of credit and apply excess cash against outstanding warehouse balances between
      reporting periods to limit our cash deposit exposure and reduce interest
      expense.





28


We
      believe our financial position will permit the financing of its business needs
      and opportunities for the foreseeable future assuming we continue our historical
      success in renewing our warehouse facilities.





**Off-Balance
      Sheet Arrangements**





We
      currently outsource servicing of our mortgage loans held in our servicing
      portfolio. The escrow funds of the underlying borrowers are not included in
      our
      balance sheet. At April 30, 2005 and 2004, the amount of funds escrowed at
      the
      sub-servicer was $8.4 million and $6.5 million, respectively.





**Tabular
      Disclosure of Contractual Obligations**


Payments
                      Due by Period**Contractual
                      Obligations**
                  
                  (in
                      thousands)Less
                      than 1
                  
                  1-3
                  
                  3-5
                  
                  More
                      than 5Total
                  
                  Year
                  
                  Years
                  
                  Years
                  
                  YearsWarehouse
                      lines of credit
                  
                  $
                  230,731
                  
                  $
                  230,731
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Capital
                      lease obligations
                  
                  
                  23
                  
                  
                  12
                  
                  
                  11
                  
                  
                  -
                  
                  
                  -Operating
                      lease obligations
                  
                  
                  7,941
                  
                  
                  2,419
                  
                  
                  3,650
                  
                  
                  1,872
                  
                  
                  -**Total**
                  
                  $
                  238,695
                  
                  $
                  233,162
                  
                  $
                  3,661
                  
                  $
                  1,872
                  
                  $
                  -


The
        table
        does not reflect amounts related to cash income taxes to be paid in future
        years. Please see Note 10 to the Financial Statements for additional information
        on historical cash taxes paid.
 
 **Inflation
        and Seasonality**
 
 We
        believe that the effect of inflation, other than its potential effect on
        market
        interest rates, has been insignificant thus far. Due to technological and
        infrastructure advancements, an increase in our servicing portfolio, and
        the
        opening of additional branches, we hope to continue to minimize seasonality
        fluctuations.
 
 **Industry
        Trends**
 
 We
        believe that the industry will continue to offer broader and more diversified
        product offerings and that technology will play an increasing part in real
        estate transactions. This includes expanded use of Internet capabilities,
        which
        we will continue to aggressively pursue. Our business base principally is
        concentrated in the Midwest and Western United States. As such, we may be
        subject to the effects of economic conditions and real estate markets specific
        to those regions unless we are able to further diversify our business
        geographically.
 
 29
 
 **ITEM
        7A. Quantitative and Qualitative Disclosures About Market
        Risk.**
 
 The
        primary market risk facing us is interest rate risk, which is highly sensitive
        to many factors, including governmental monetary and tax policies, domestic
        and
        international economic and political considerations and other factors beyond
        our
        control. We attempt to manage the impact of this risk on our
        business.
 
 Our
        rate
        lock commitments and mortgage loans held for sale are subject to market price
        fluctuation until committed for sale. These fluctuations are primarily tied
        to
        changes in market interest rates and the relationship of short-term rates
        to
        long-term rates. In order to mitigate this risk, we utilize a variety of
        financial derivative instruments to hedge or mitigate market price fluctuations.
        Our hedge positions are continually adjusted based on routine and ongoing
        quantification of our risk, but hedges may or may not be fully successful
        in
        complete risk mitigation. In particular, our Secondary Marketing Department
        must
        make estimates of the percentage of rate lock commitments expected to close
        under different interest rate changes. Losses on the sale of mortgage loans
        not
        offset by corresponding gains on hedge positions, or hedging activity not
        offset
        by corresponding gains on the sale of mortgages, could adversely impact our
        results of operations and financial position.
  **Sensitivity
        Analysis**
 
 We
        have
        performed various sensitivity analyses that quantify the net financial impact
        of
        changes in interest rates on our interest rate-sensitive assets, liabilities
        and
        commitments. These analyses presume an instantaneous parallel shift of the
        yield
        curve. Various techniques are employed to value the underlying financial
        instruments, and these techniques rely upon a number of critical assumptions.
        Actual experience may differ materially from the estimated amounts presented
        for
        each scenario. To the extent that yield curve shifts are non-parallel, and
        to
        the extent that actual variations in significant assumptions differ from
        those
        applied for purposes of the valuations, the resultant valuations can also
        be
        expected to vary, possibly materially.
   30
  The
        scenarios presented in the table below are illustrative of the sensitivity
        analysis:
  (dollars
                    in thousands)
                
                
                
                
                
                If
                    Interest Rates Were ToApril
                    30, 2005
                
                Increase
                
                Decrease
                
                Increase
                
                DecreaseCarrying
                    Amount
                
                Estimated
                  Fair
                    Value
                
                50
                    Basis Points
                  Estimated
                    Fair Value
                
                100
                    Basis Points
                  Estimated
                    Fair ValueInterest-earning
                    assets:Cash
                    and cash equivalents
                
                $
                17,634
                
                $
                17,634
                
                $
                17,634
                
                $
                17,634
                
                $
                17,634
                
                $
                17,634Restricted
                    cash
                
                $
                1,855
                
                $
                1,855
                
                $
                1,855
                
                $
                1,855
                
                $
                1,855
                
                $
                1,855Loans
                    held for sale, (lower
                  of
                    cost or market)
                
                $
                228,686
                
                $
                229,544
                
                $
                228,938
                
                $
                228,332
                
                $
                230,150
                
                $
                230,756Derivative
                    financial
                  instruments
                
                $
                1,320
                
                $
                1,320
                
                $
                1,302
                
                $
                1,338
                
                $
                1,284
                
                $
                1,356Total
                    interest-earning
                  assets
                
                $
                249,495
                
                $
                250,353
                
                $
                249,729
                
                $
                249,159
                
                $
                250,923
                
                $
                251,601Interest-bearing
                    liabilities:Warehouse
                    lines of credit
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731Total
                    interest-bearing
                  liabilities
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
                
                $
                230,731
  The
          following describes the methods and assumptions used by the Company in
          estimating fair values.
  *Cash
          and Cash Equivalents*
 The
          carrying amount for cash and cash equivalents approximates fair value because
          these instruments are demand deposits and money market accounts and do
          not
          present unanticipated interest rate or credit concerns.
  *Loans
          Held For Sale (lower of cost or market)*
 The
          fair
          value is estimated based on quoted market prices from institutional investors
          for similar types of mortgage loans. A portion of mortgage loans held for
          sale
          are committed for sale under mandatory sale arrangements and as such are
          not
          re-valued for subsequent changes in interest rates.
  *Derivatives*
 Fair
          values of forward sales of mortgage-backed securities are based on quoted
          market
          prices for these instruments. Fair values of our commitments to originate
          loans
          are based on any difference in the value of the loans expected to close
          between
          the time of the rate lock commitment and the current market value.
  *Warehouse
          Lines of Credit*
 The
          fair
          value of the warehouse line debt approximates the carrying amounts because
          of
          the short-term nature of the debt and interest on the debt fluctuates with
          market interest rates.
  31
  
  **ITEM
          8.**  **Financial
          Statements and Supplementary Data.**
 
 **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 The
          Board
          of Directors and Shareholders of
 United
          Financial Mortgage Corp.
 Oak
          Brook, Illinois
 
 We
          have
          audited the accompanying balance sheets of United Financial Mortgage Corp.
          as of
          April 30, 2005 and 2004, and the related statements of income, shareholders’
          equity and cash flows for each of the three years in the period ended April
          30,
          2005. These financial statements are the responsibility of the Company’s
          management. Our responsibility is to express an opinion on these financial
          statements based on our audits.
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. An audit includes examining,
          on a
          test basis, evidence supporting the amounts and disclosures in the financial
          statements. An audit also includes assessing the accounting principles
          used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audits provide a
          reasonable basis for our opinion.
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of United Financial Mortgage
          Corp. at
          April 30, 2005 and 2004, and the results of their operations and their
          cash
          flows for each of the three years in the period ended April 30, 2005, in
          conformity with U.S. generally accepted accounting principles.
 As
          discussed in Note 1 to the financial statements, on May 1, 2002, the Company
          adopted new accounting guidance on derivative instruments.
  
 Crowe
                    Chizek and Company LLC
 Oak
          Brook, Illinois
 July 22,
          2005
  32
  UNITED
                    FINANCIAL MORTGAGE CORP.Balance
                    Sheets(Dollars
                    in thousands)As
                    of April 30,2005
                
                2004**ASSETS**Cash
                    and due from financial institutions
                
                $
                453
                
                $
                10,968Interest-bearing
                    deposits in financial institutions
                
                
                17,181
                
                
                1,933Total
                    cash and cash equivalents
                
                
                17,634
                
                
                12,901Restricted
                    cash
                
                
                1,855
                
                
                1,388Certificates
                    of deposit
                
                
                -
                
                
                434Loans
                    held for sale
                
                
                228,686
                
                
                223,634Mortgage
                    servicing rights, net
                
                
                21,349
                
                
                16,438Premises
                    and equipment, net
                
                
                1,758
                
                
                1,185Goodwill
                
                
                1,084
                
                
                575Prepaid
                    expenses and other assets
                
                
                3,870
                
                
                2,065Total
                    assets
                
                $
                276,236
                
                $
                258,620**LIABILITIES
                    AND SHAREHOLDERS' EQUITY**LiabilitiesWarehouse
                    lines of credit
                
                $
                230,731
                
                $
                217,519Accrued
                    expenses and other liabilities
                
                
                14,484
                
                
                11,432Total
                    liabilities
                
                
                245,215
                
                
                228,951Shareholders'
                    equityPreferred
                    stock, 5,000,000 authorized, no par value,
                  Series
                    A redeemable shares, 63 issued and
                  outstanding
                    at April 30, 2005 and April 30, 2004
                  (aggregate
                    liquidation preference of $315)
                
                
                315
                
                
                315Common
                    stock, no par value, 20,000,000 shares
                  authorized,
                    6,164,543 and 6,140,843 shares issued at
                  April
                    30, 2005 and at April 30, 2004, respectively
                
                
                18,760
                
                
                18,687Retained
                    earnings
                
                
                12,305
                
                
                10,989Unearned
                    stock compensation
                
                
                (37
                )
                
                -Treasury
                    stock, 176,700 shares at April 30, 2005 and 2004, at cost
                
                
                (322
                )
                
                (322
                )Total
                    shareholders’ equity
                
                
                31,021
                
                
                29,669Total
                    liabilities and shareholders’ equity
                
                $
                276,236
                
                $
                258,620
 See
            accompanying notes to the financial statements.
 33
 UNITED
                      FINANCIAL MORTGAGE CORP.Statements
                      of Income(Dollars
                      in thousands, except per share data)For
                      the Years Ended April 30,2005
                  
                  2004
                  
                  2003**Revenues**Gain
                      on sale of loans, net
                  
                  $
                  64,190
                  
                  $
                  60,894
                  
                  $
                  47,092Loan
                      servicing income, net
                  
                  
                  3,465
                  
                  
                  2,407
                  
                  
                  368Mortgage
                      servicing rights valuation adjustment
                  
                  
                  (1,796
                  )
                  
                  1,229
                  
                  
                  (1,060
                  )Amortization
                      of mortgage servicing rights
                  
                  
                  (3,651
                  )
                  
                  (2,690
                  )
                  
                  (716
                  )Interest
                      income
                  
                  
                  12,760
                  
                  
                  7,950
                  
                  
                  5,449Other
                      income
                  
                  
                  714
                  
                  
                  364
                  
                  
                  158Total
                      revenues
                  
                  
                  75,682
                  
                  
                  70,154
                  
                  
                  51,291**Expenses**Salaries
                      and commissions
                  
                  
                  50,757
                  
                  
                  46,770
                  
                  
                  34,737Selling
                      and administrative
                  
                  
                  15,133
                  
                  
                  11,126
                  
                  
                  5,866Interest
                      expense
                  
                  
                  7,157
                  
                  
                  4,006
                  
                  
                  2,687Depreciation
                  
                  
                  361
                  
                  
                  291
                  
                  
                  171Total
                      expenses
                  
                  
                  73,408
                  
                  
                  62,193
                  
                  
                  43,461**Income
                      before income taxes and cumulative effect of**
                    **change
                      in accounting principle**
                  
                  
                  2,274
                  
                  
                  7,961
                  
                  
                  7,830Income
                      taxes
                  
                  
                  920
                  
                  
                  3,186
                  
                  
                  3,221**Income
                      before cumulative effect of change in**
                    **accounting
                      principle**
                  
                  
                  1,354
                  
                  
                  4,775
                  
                  
                  4,609**Cumulative
                      effect of change in accounting principle,**
                    **net
                      of tax**
                  
                  
                  -
                  
                  
                  -
                  
                  
                  87**Net
                      income**
                  
                  
                  1,354
                  
                  
                  4,775
                  
                  
                  4,696Preferred
                      stock dividends
                  
                  
                  38
                  
                  
                  39
                  
                  
                  38**Net
                      income for common shareholders**
                  
                  $
                  1,316
                  
                  $
                  4,736
                  
                  $
                  4,658Basic
                      earnings per common share before cumulative
                    effect
                      of change in accounting principle
                  
                  $
                  0.22
                  
                  $
                  1.01
                  
                  $
                  1.16Per
                      share cumulative effect of a change in accounting
                    principle
                  
                  
                  -
                  
                  
                  -
                  
                  
                  0.02Basic
                      earnings per common share
                  
                  $
                  0.22
                  
                  $
                  1.01
                  
                  $
                  1.18Diluted
                      earnings per common share before cumulative
                    effect
                      of change in accounting principle
                  
                  $
                  0.22
                  
                  $
                  0.97
                  
                  $
                  1.14Per
                      share cumulative effect of a change in accounting
                    principle
                  
                  
                  -
                  
                  
                  -
                  
                  
                  0.02Diluted
                      earnings per common share
                  
                  $
                  0.22
                  
                  $
                  0.97
                  
                  $
                  1.16
 See
                accompanying notes to the financial statements.
  34
 UNITED
                        FINANCIAL MORTGAGE CORP.STATEMENTS
                        OF SHAREHOLDERS' EQUITYYears
                        Ended April 30, 2005, 2004 and 2003(Dollars
                        in thousands)
  Preferred
                        Stock
                    
                    Common
                        StockShares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Retained
                        Earnings
                    
                    Unearned
                        Stock Compensation
                    
                    Treasury
                        Stock
                    
                    Total**Balance,
                        May 1, 2002**
                    
                    
                    63
                    
                    $
                    315
                    
                    
                    3,945,449
                    
                    $
                    6,633
                    
                    $
                    1,595
                    
                    $
                    -
                    
                    $
                    (246
                    )
                    $
                    8,298Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    4,696
                    
                    
                    
                    
                    
                    
                    
                    
                    4,696Preferred
                        stock dividend
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (38
                    )
                    
                    
                    
                    
                    
                    
                    
                    (38
                    )Treasury
                        stock Purchases
                    
                    
                    
                    
                    
                    
                    
                    
                    (27,800
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (77
                    )
                    
                    (77
                    )Issuance
                        of treasury shares
                    
                    
                    
                    
                    
                    
                    
                    
                    680
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1
                    
                    
                    1Exercise
                        of stock options
                    
                    
                    
                    
                    
                    
                    
                    
                    200
                    
                    
                    1
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -**Balance
                        April 30, 2003**
                    
                    
                    63
                    
                    
                    315
                    
                    
                    3,918,529
                    
                    
                    6,634
                    
                    
                    6,253
                    
                    
                    -
                    
                    
                    (322
                    )
                    
                    12,880Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    4,775
                    
                    
                    
                    
                    
                    
                    
                    
                    4,775Preferred
                        stock dividend
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (39
                    )
                    
                    
                    
                    
                    
                    
                    
                    (39
                    )Secondary
                        offering
                    
                    
                    
                    
                    
                    
                    
                    
                    2,039,214
                    
                    
                    12,038
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    12,038Exercise
                        of stock options
                    
                    
                    
                    
                    
                    
                    
                    
                    6,400
                    
                    
                    15
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    15**Balance
                        April 30, 2004**
                    
                    
                    63
                    
                    
                    315
                    
                    
                    5,964,143
                    
                    
                    18,687
                    
                    
                    10,989
                    
                    
                    -
                    
                    
                    (322
                    )
                    
                    29,669Net
                        income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,354
                    
                    
                    
                    
                    
                    
                    
                    
                    1,354Preferred
                        stock dividend
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (38
                    )
                    
                    
                    
                    
                    
                    
                    
                    (38
                    )Restricted
                        stock awards
                    
                    
                    
                    
                    
                    
                    
                    
                    10,000
                    
                    
                    50
                    
                    
                    
                    
                    
                    (50
                    )
                    
                    
                    
                    
                    (50
                    )Amortization
                        of unearned stock compensation
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13
                    
                    
                    
                    
                    
                    13Exercise
                        of stock options
                    
                    
                    
                    
                    
                    
                    
                    
                    13,700
                    
                    
                    23
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    23**Balance
                        April 30, 2005**
                    
                    
                    63
                    
                    $
                    315
                    
                    
                    5,987,843
                    
                    $
                    18,760
                    
                    $
                    12,305
                    
                    $
                    (37
                    )
                    $
                    (322
                    )
                    $
                    31,021
 See
          accompanying notes to the financial statements.
  35
 UNITED
                    FINANCIAL MORTGAGE CORP.Statements
                    of Cash Flows(Dollars
                    in thousands)For
                    the Years Ended April 30,2005
                
                2004
                
                2003**Cash
                    flows from operating activities**Net
                    income
                
                $
                1,354
                
                $
                4,775
                
                $
                4,696Less:
                    Cumulative effect of change in accounting principle
                
                
                -
                
                
                -
                
                
                87Income
                    before cumulative effect of change in accounting principle
                
                
                1,354
                
                
                4,775
                
                
                4,609Adjustments
                    to reconcile net income to net cash from operating
                    activities:Depreciation
                
                
                361
                
                
                291
                
                
                171Amortization
                    of mortgage servicing rights
                
                
                3,651
                
                
                2,690
                
                
                716Mortgage
                    servicing rights valuation adjustment
                
                
                1,796
                
                
                (1,229
                )
                
                1,060Equity
                    compensation
                
                
                13
                
                
                -
                
                
                -Gain
                    on sale of loans
                
                
                (64,190
                )
                
                (60,894
                )
                
                (47,092
                )Origination
                    of mortgage loans held for sale
                
                
                (2,676,164
                )
                
                (2,734,576
                )
                
                (1,963,801
                )Proceeds
                    from sale of mortgage loans held for sale
                
                
                2,730,373
                
                
                2,735,167
                
                
                1,902,404Change
                    in prepaid expenses and other assets
                
                
                (1,383
                )
                
                (1,573
                )
                
                480Change
                    in accrued expenses and other liabilities
                
                
                2,483
                
                
                4,305
                
                
                3,246Net
                    cash from operating activities
                
                
                (1,706
                )
                
                (51,044
                )
                
                (98,207
                )**Cash
                    flows from investing activities**Net
                    change in certificates of deposit
                
                
                434
                
                
                (2
                )
                
                (12
                )Acquisitions
                    net of cash acquired
                
                
                (585
                )
                
                265
                
                
                -Change
                    in restricted cash
                
                
                (467
                )
                
                (554
                )
                
                (745
                )Purchase
                    of premises improvements and equipment, net
                
                
                (653
                )
                
                (632
                )
                
                (466
                )Net
                    cash from investing activities
                
                
                (1,271
                )
                
                (923
                )
                
                (1,223
                )**Cash
                    flows from financing activities**Purchase
                    treasury stock,
                
                
                -
                
                
                -
                
                
                (76
                )Issuance
                    of common stock, net of issuance costs
                
                
                23
                
                
                12,053
                
                
                1Changes
                    in warehouse lines of credit, net
                
                
                7,796
                
                
                44,456
                
                
                101,264Payment
                    of notes payable
                
                
                (71
                )
                
                (350
                )
                
                (20
                )Preferred
                    stock dividend
                
                
                (38
                )
                
                -
                
                
                (38
                )Net
                    cash from financing activities
                
                
                7,710
                
                
                56,159
                
                
                101,131Change
                    in cash and cash equivalents
                
                
                4,733
                
                
                4,192
                
                
                1,701**Cash
                    and cash equivalents at beginning of period**
                
                
                12,901
                
                
                8,709
                
                
                7,008**Cash
                    and cash equivalents at end of period**
                
                $
                17,634
                
                $
                12,901
                
                $
                8,709Supplemental
                    informationInterest
                    paid
                
                $
                6,722
                
                $
                3,506
                
                $
                2,620Taxes
                    paid (refunded)
                
                
                (912
                )
                
                1,226
                
                
                1,141
 See
          accompanying notes to the financial statements.
  36


UNITED
      FINANCIAL MORTGAGE CORP.


NOTES
      TO
      THE FINANCIAL STATEMENTS


(Dollars
      in Thousands)


**NOTE
        1 - BASIS OF PRESENTATION**
 
 Founded
        in 1986 and headquartered in Oak Brook, Illinois, United Financial Mortgage
        Corp. (“UFM” or “the Company”) is an independent nationwide wholesale and retail
        mortgage banker that originates, funds, sells and services residential mortgage
        loans. UFM also engages in the brokerage and origination of loans on commercial
        real estate. UFM recognizes revenue from its wholesale and retail origination
        channels through gains on the sale of mortgage loans and related servicing
        rights to institutions and investors, interest generated on mortgage loans
        held
        or warehoused from the time the mortgage loan is originated until the mortgage
        loan is sold, and, in the case of retail operations, origination fees. UFM’s
        Mortgage Loan Servicing Division recognizes revenue from the servicing of
        mortgage loans for others. Expenses largely consist of commissions paid to
        loan
        originators on closed mortgage loans, salaries and benefits paid to employees,
        general selling and administrative expenses such as occupancy costs and
        advertising costs and interest paid under the Company’s warehouse credit
        facilities.
 
 While
        management monitors the revenue streams of the various products and services,
        operations are managed and financial performance is evaluated on a company-wide
        basis. Accordingly, all of the Company's mortgage banking operations are
        considered by management to be aggregated in one reportable operating segment.
        The Company is an approved mortgage loan seller/servicer with the Federal
        Home
        Loan Mortgage Corporation (“FHLMC”) and with the Federal National Mortgage
        Association (“FNMA”). In addition, the Company is an approved mortgagee with the
        Government National Mortgage Association, the Federal Housing Administration,
        and the Department of Veteran’s Affairs.
 
 All
        amounts presented herein are in thousands except employee stock options,
        pricing
        of employee stock options and per share data unless otherwise noted .
 
 Use
        of
        Estimates
 
 U.S.
        generally accepted accounting principles require management to make estimates
        and assumptions in preparing financial statements that affect the amounts
        reported and disclosed. These estimates and assumptions may change in the
        future, and future results could differ from these estimates. Areas involving
        the use of management's estimates and assumptions, which are susceptible
        to
        change in the near term, include the valuation of loans held for sale, mortgage
        servicing rights, derivatives and income taxes.
 
 Cash
        and Cash Equivalents
 
 Cash
        and
        cash equivalents include both non-interest-bearing and interest-bearing deposits
        with other financial institutions with original maturities of three months
        or
        less.
 
 37
 
  UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 Restricted
        Cash
 
 The
        Company has elected to maintain cash balances with its warehouse banks to
        facilitate borrowings under the terms of its warehouse credit facilities
        and the
        gross amount of these cash balances is presented in the financial statements
        as
        restricted cash.
 
 Loans
        Held for Sale and Related Derivatives
 
 Loans
        held for sale include deferred origination fees and costs and are stated
        at the
        lower of cost or market value in the aggregate. The market value of mortgage
        loans held for sale is based on market prices and yields at period end in
        normal
        typical outlets used by the Company.
 
 The
        Company enters into derivatives that include forward contracts to deliver
        loans
        and mortgage-backed securities. Forward contracts are used to manage interest
        rate risk on loans held for sale and the pipeline of loans in process. The
        loans
        held for sale are generally sold pursuant to forward contracts. Under Statement
        of Financial Accounting Standards No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        (SFAS 133), forward contracts are carried at fair value, while the
        change
        in fair value of loans held for sale will be recorded to offset the value
        of
        forward contracts designated as effective hedges. The fair value of derivatives
        is included with the balance of loans held for sale. Changes in the fair
        value
        of derivatives and the offsetting change in fair value of hedged loans held
        for
        sale is included in gain on sale of loans in the statements of
        income.
 
 The
        pipeline of loans in process includes commitments to make loans at specific
        interest rates (rate lock commitments). The
        Derivative Implementation Group of the Financial Accounting Standards Board
        issued guidance on mortgage loan rate lock commitments to borrowers. The
        guidance categorizes rate lock commitments intended for sale as derivatives
        and
        was effective May 1, 2002. On May 1, 2002, the Company began recording the
        fair
        value of rate lock commitments as derivatives.  At
        the
        time of interest rate lock commitment, no gain or loss is recognized. Subsequent
        changes in fair value are recorded in earnings. Fair value is determined
        based
        on the effect that change in market interest rates subsequent to the commitment
        date have on the value of the related loan. The fair value of rate lock
        commitments adjusted for estimated fallout is included with loans held for
        sale,
        and changes in fair value are included in the net gain on sale of
        loans.
 
 Effective
        May 1, 2002, this guidance required the Company to record a cumulative effect
        of
        a change in accounting principle adjustment to reflect the fair value of
        rate
        lock commitments outstanding at May 1, 2002. At May 1, 2002, the Company
        had
        approximately $41 million of rate lock commitments with a fair value of $87,
        net
        of tax.
 
 38
 
  UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 Mortgage
        Servicing Rights, Net
 
 The
        Company originates mortgage loans for sale to the secondary market and sells
        the
        loans on either a servicing-retained or servicing-released basis. Servicing
        rights are recognized as assets for the allocated value of retained servicing
        rights on loans sold. The capitalized cost of loan servicing rights is amortized
        in proportion to and over the period of estimated net future servicing revenue.
        The expected period of the estimated net servicing income is based, in part,
        on
        the expected prepayment of the underlying mortgages.
 
 Mortgage
        servicing rights are periodically evaluated for impairment. Impairment
        represents the excess of amortized cost over its estimated fair value.
        Impairment is evaluated based upon the fair value of the assets. Fair value
        is
        determined using prices for similar assets with similar characteristics,
        when
        available, or based upon discounted cash flows using market-based assumptions.
        Any impairment of a grouping is reported as a valuation allowance.
 
 Impact
        of Interest Rate Fluctuations
 
 Interest
        rate fluctuations generally have a direct impact on a mortgage banking
        institution's financial performance. Significant increases in interest rates
        may
        make it more difficult for potential borrowers to purchase residential property
        and to qualify for mortgage loans as well as potentially reduce the number
        of
        borrowers who may seek to refinance their current loans. As a result, the
        volume
        and related income from loan originations may be reduced. Significant increases
        in interest rates will also generally increase the value of the Company's
        servicing portfolio as a result of slower than anticipated prepayment activity.
 
 Significant
        decreases in interest rates may enable more potential borrowers to qualify
        for a
        mortgage loan, resulting in higher income related to the loan originations.
        However, significant decreases in interest rates may result in higher than
        anticipated loan prepayment activity and therefore reduce the value of the
        mortgage loan servicing portfolio.
 
 Reserve
        for losses - Loans sold
 
 The
        Company maintains a reserve for the representation and warranty liabilities
        related to the sold loans, and for the contractual obligation to rebate a
        portion of any premium paid by a purchaser when a borrower prepays a sold
        loan
        within an agreed period. The reserve, which is recorded as a liability in
        the
        Balance Sheets is established when loans are sold, and is calculated as the
        estimated fair value of losses reasonably estimated to occur over the life
        of
        the loan. Management estimates inherent losses based upon historical loss
        trends
        and frequency and severity of losses for similar loan product sales. The
        adequacy of this reserve is evaluated and adjusted as required. The provision
        for losses recognized at the sale date is included in the statements of income
        as a reduction of gains on sales of mortgage loans.
  39
 UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
  Premises
        and Equipment
 
 Premises
        and equipment are stated at cost less accumulated depreciation. Depreciation
        is
        computed primarily on the straight-line method over the estimated useful
        lives
        of the assets. The cost of maintenance and repairs is charged to expense
        as
        incurred, and significant improvements are capitalized. At the time of sale
        or
        disposition of an asset, the applicable cost and accumulated depreciation
        are
        removed from the books. Generally, the Company depreciates its computer software
        over 3 years, computer equipment over 5 years, furniture and office equipment
        over 7-10 years and leaseholds over the lesser of 10 years or the remaining
        life
        of the lease.
 
 Income
        and Expense Recognition
 
 The
        Company sells loans on both a servicing-retained and servicing-released basis.
        Gain or loss is recognized upon delivery of the loans to the purchaser. The
        gain
        or loss is equal to the difference between the sales price and the carrying
        amounts of the loans sold. Loan revenue is recognized into gain on sale at
        the
        time of sale and consists of various items including commitment fees,
        underwriting fees, and other charges that the customer pays to the Company.
        Certain direct loan origination costs for loans held for sale are deferred
        until
        the related loans are sold.
 
 Salaries
        and commissions related to the origination of loans held for sale and other
        corporate purposes are disclosed as a separate line item on the statements
        of
        income.
 
 Interest
        on loans held for sale is credited to income as earned, and interest on
        warehouse lines of credit is charged to expense as incurred.
 
 Income
        Taxes
 
 Deferred
        tax assets and liabilities are recognized for temporary differences between
        the
        financial reporting basis and the tax basis of the Company's assets and
        liabilities. Deferred taxes are recognized for the estimated taxes ultimately
        payable or recoverable based on enacted tax laws. Changes in enacted tax
        rates
        and laws are reflected in the financial statements in the periods in which
        they
        occur.
 
 Series
        A Preferred Stock
 
 The
        Series A preferred stock is nonvoting, is nonparticipating and has a liquidation
        preference upon dissolution of the Company of $5,000 per share. The holders
        of
        the preferred stock are entitled to a variable dividend only at the discretion
        of and determination by the Board of Directors.
 
 Earnings
        Per Common Share :
 
 Basic
        earnings per common share is net income, less preferred stock dividends,
        divided
        by the weighted average number of common shares outstanding during the period.
        Diluted earnings per common share includes the dilutive effect of additional
        potential common shares issuable under stock options and warrants.
  40
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 Stock-Based
        Compensation
 
 In
        accordance with the provisions of Statement of Financial Accounting Standards
        (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” we elected to
        follow Accounting Principles Board Opinion No. 25, “Accounting for Stock
        Issued to Employees” (“APB No. 25”) and related interpretations in
        accounting for our equity compensation plans and do not recognize compensation
        expense for our stock-based compensation plans other than for awards of
        restricted shares. Expense is recognized over the vesting period of the
        restricted shares.
 
 Under
        APB
        No. 25, because the exercise price of the Company’s employee stock options
        at least equals the market price of the underlying stock on the date of the
        grant, no compensation expense is recognized. Pro forma information regarding
        net income and earnings per share is required by SFAS No. 123, and
        has been
        determined as if the Company had accounted for its employee stock options
        under
        the Black-Scholes fair value method described in that statement.
 
 For
        purposes of pro forma disclosures, the estimated fair value of the options
        is
        amortized to expense over the options’ vesting periods. Our pro forma
        information is as follows:
 
 2005
              
              2004
              
              2003Net
                  income, as reported
              
              $
              1,316
              
              $
              4,736
              
              $
              4,658Deduct:
                  Stock-based compensation expense
                determined
                  under fair value based method
              
              
              198
              
              
              152
              
              
              107Pro
                  forma net income
              
              $
              1,118
              
              $
              4,584
              
              $
              4,551Basic
                  earnings per common share as reported
              
              $
              0.22
              
              $
              1.01
              
              $
              1.18Pro
                  forma basic common earnings per share
              
              $
              0.19
              
              $
              0.98
              
              $
              1.16Diluted
                  earnings per common share as reported
              
              $
              0.22
              
              $
              0.97
              
              $
              1.16Pro
                  forma diluted earnings per common share
              
              $
              0.18
              
              $
              0.94
              
              $
              1.13
 
 The
        pro
        forma effects are computed using option pricing models, using the following
        weighted-average assumptions as of grant date.
 
 2005
              
              2004
              
              2003Risk-free
                  interest rate
              
              
              3.36
              %
              
              2.67
              %
              
              3.00
              %Expected
                  option life
              
              
              5
                  years
              
              
              5
                  years
              
              
              5
                  yearsExpected
                  stock price volatility
              
              
              55.85
              %
              
              123.57
              %
              
              72.61
              %Dividend
                  yield
              
              
              N/A
              
              
              N/A
              
              
              N/AWeighted
                  average fair value per option granted
              
              $
              2.46
              
              $
              5.63
              
              $
              1.66
   41
 
 UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 On
        December 16, 2004, the Financial Accounting Standards Board issued
        Statement No. 123 (Revised 2004), Share-Based Payment (“Statement
        No. 123(R)”), which is a revision of FASB Statement No. 123, *Accounting
        for Stock-Based Compensation.* Statement 123(R) supersedes APB Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        amends FASB Statement No. 95, *Statement
        of Cash Flows.* Generally,
        the approach in Statement 123(R) is similar to the approach described
        in
        Statement 123. However, Statement 123(R) requires all share-based payments
        to
        employees, including grants of employee stock options, to be recognized in
        the
        income statement based on their fair values. Pro forma disclosure is no longer
        an alternative. Statement 123(R) was required to be adopted no later than
        July 1, 2005. On
        April 14, 2005 the Securities and Exchange Commission announced the
        adoption of a rule that amends the compliance dates for Statement 123(R).
        The
        new rule allows companies to implement Statement 123 (R) at the beginning
        of
        their next fiscal year that begins after June 15, 2005, which for
        the
        Company is the first fiscal quarter ending on July 31, 2006.
  Statement
        123(R) permits public companies to adopt its requirements using one of two
        methods:
  1.
              A
                  “modified prospective” method in which compensation cost is recognized
                  beginning with the effective date (a) based on the requirements
                  of
                  Statement 123(R) for all share-based payments granted after the
                  effective
                  date and (b) based on the requirements of Statement 123
                  for all
                  awards granted to employees prior to the effective date of Statement
                  123(R) that remain unvested on the effective
                  date.
 
 2.
              A
                  “modified retrospective” method which includes the requirements of the
                  modified prospective method described above, but also permits entities
                  to
                  restate based on the amounts previously recognized under Statement
                  123 for
                  purposes of pro forma disclosures either (a) all prior periods
                  presented or (b) prior interim periods of the year of
                  adoption.
  The
        Company plans to adopt Statement 123(R) using the modified prospective method.
  As
        permitted by Statement 123, the Company currently accounts for share-based
        payments to employees using APB Opinion 25’s intrinsic value method and, as
        such, generally recognizes no compensation cost for employee stock options.
        The
        effect of the adoption on the results of operations will depend on the level
        of
        future option grants and the calculation of the fair value of the options
        granted at such future date, as well as the vesting periods provided, and
        so
        cannot currently be predicted beyond the options which are currently unvested
        today. Existing options that will vest after the adoption date are expected
        to
        result in additional compensation expense of approximately $150,000 for the
        fiscal year ended April 30, 2007, $110,000 for the fiscal year ended April
        30,
        2008, and $20,000 for the fiscal year ended April 30, 2009.
 
 Loss
        Contingencies:
 
 Loss
        contingencies, including claims and legal actions arising in the ordinary
        course
        of business, are recorded as liabilities when the likelihood of loss is probable
        and an amount or range of loss can be reasonably estimated. Management does
        not
        believe that there now are such matters that will have a material effect
        on the
        financial statements.
  42
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 Reclassifications
        and Presentation
 
 Certain
        prior period amounts have been reclassified to conform to the current
        presentation.
 
 
 **NOTE
        2 - CONCENTRATION OF CREDIT RISK**
 
 The
        Company maintains cash balances in excess of the insurance limits provided
        by
        the Federal Deposit Insurance Corporation. A listing of these balances is
        below:
  2005
              
              2004Cash
                  and cash equivalentsCommercial
                  bank (former warehouse line)
              
              $
              77
              
              $
              1,883Commercial
                  bank (member of warehouse syndication)
              
              
              15,471
              
              
              9,034Commercial
                  bank (commercial warehouse line)
              
              
              2,071
              
              
              1,922Certificates
                  of deposit (commercial warehouse line)
              
              
              -
              
              
              434
 
 **NOTE
        3 - RESTRICTED CASH**
  The
        Company has elected to use the restricted cash provisions in some of the
        existing warehouse agreements to borrow the full value of the underlying
        loans
        rather than advance a percentage of the loan value. The following represents
        the
        cash restricted under the provisions of the warehouse arrangements as of
        April
        30, 2005 and 2004:
  2005
              
              2004Restricted
                  under warehouse syndication
              
              $
              1,421
              
              $
              1,103Restricted
                  by commercial entities
              
              
              434
              
              
              285Total
                  Restricted Cash
              
              $
              1,855
              
              $
              1,388
 
 **NOTE
        4 - MORTGAGE LOANS SERVICED AND LOANS HELD FOR SALE**
 
 The
        Company sells mortgage loans to secondary market investors (“Investor(s)”).
        These loans can be sold in one of two ways, servicing released or servicing
        retained. If a loan is sold servicing released, the Company has sold all
        the
        rights to the loan and the associated servicing rights. If a loan is sold
        servicing retained, the Company has sold the loan and kept the servicing
        rights,
        and thus the Company is responsible for collecting monthly principal and
        interest payments and performing certain escrow services for the Investor.
        The
        Investor, in turn, pays an annual fee for these services. The Company performs
        these servicing activities through what is referred to as a sub-servicer
        arrangement. The sub-servicer collects the monthly principal and interest
        payments and performs the escrow services for the Investor on behalf of the
        Company. The Company pays the sub-servicer a fee for these services. Servicing
        revenue is reported net of sub-servicer fees. At April 30, 2005 and 2004,
        the
        Company had the following loans held for sale.
  43
 
 UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 2005
              
              2004Loans
                  held for sale
              
              $
              228,
                  686
              
              $
              223,
                  634Less:
                  Allowance to adjust loans not assigned
                to
                  forward contracts to lower of cost ormarket
              
              
              -
              
              
              -Loans
                  held for sale, net
              
              $
              228,686
              
              $
              223,634
 
 The
        Company’s servicing portfolio for third parties was approximately $1.7 billion
        and $1.4 billion at April 30, 2005 and 2004, respectively. These loans are
        owned
        by third parties and are not included in the assets of the Company.
        The aggregate principal balance of loans in the Company's servicing portfolio
        for outside parties at
        April
        30, 2005 and 2004 was as
        follows:
 
 2005
              
              2004Mortgage
                  loan portfolios serviced for:FHLMC
              
              $
              1,298,784
              
              $
              989,
                  526FNMA
              
              
              395,009
              
              
              410,498IHDA
              
              
              678
              
              
              933$
              1,694,471
              
              $
              1,400,957
 
 The
        escrow funds are transferred to the sub-servicer and are not carried on the
        Company’s balance sheet. At April 30, 2005 and 2004, the sub-servicer maintained
        escrow balances of approximately $8.4 million and $6.5 million, respectively,
        for loans in the servicing portfolio. The value of the servicing rights is
        however included in the assets of the Company under the category of mortgage
        servicing rights, net.
 
 Activity
        related to capitalized mortgage servicing rights and the related valuation
        allowance for the years ended April 30, 2005, 2004 and 2003 is summarized
        as
        follows:
 
 2005
              
              2004
              
              2003Servicing
                  rights:Beginning
                  of year
              
              $
              16,438
              
              $
              5,965
              
              $
              1,509Additions
              
              
              10,358
              
              
              13,164
              
              
              5,172Amortized
              
              
              (3,651
              )
              
              (2,691
              )
              
              (716
              )Balance
                  at end of period
              
              $
              23,145
              
              $
              16,438
              
              $
              5,965Valuation
                  Allowance:Beginning
                  of year
              
              $
              -
              
              $
              (1,229
              )
              $
              (169
              )Provision
              
              
              (1,796
              )
              
              -
              
              
              (1,060
              )Valuation
                  allowance reversal
              
              
              -
              
              
              1,229
              
              
              -Balance
                  at end of period
              
              $
              (1,796
              )
              $
              -
              
              $
              (1,229
              )
  44
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 The
        Company analyzes the mortgage servicing rights for impairment on a quarterly
        basis. The Company incurred an impairment of $1,796 in the quarter ended
        April
        30, 2005. The provisions in fiscal 2005 and 2003 and reversal of the impairment
        charges incurred during the year ended April 30, 2004 were a result
        of this
        process. The value of the portfolio is estimated to be $21.3 million and
        $18.1
        million at April 30, 2005 and 2004, respectively.
 
 The
        following are the critical assumptions used by management to estimate the
        fair
        value:
 
 2005
              
              2004
              
              2003Servicing
                  cost per loan
              
              $
              46.03
              
              $
              40.98
              
              $
              40.77Weighted
                  average discount rates
              
              
              9.0
              %
              
              9.8
              %
              
              9.7
              %Weighted
                  average prepayment rates
              
              
              11.7
              %
              
              13.0
              %
              
              32.5
              %
 
 
 **NOTE
        5 - PREMISES AND EQUIPMENT**
 
 At
        April
        30, 2005 and 2004, premises and equipment consisted of the
        following:
 2005
              
              2004Furniture
                  and fixtures
              
              $
              1,359
              
              $
              1,013Office
                  equipment and premises
              
              
              2,375
              
              
              1,740Autos
              
              
              99
              
              
              -3,833
              
              
              2,753Accumulated
                  depreciation
              
              
              (2,075
              )
              
              (1,568
              )$
              1,758
              
              $
              1,185
 
 **NOTE
        6 - WAREHOUSE LINES OF CREDIT**
 
 The
        Company funds mortgage loan activity using various warehouse lines of credit
        that are secured by the mortgage loans funded by the lines. On August 1,
        2003,
        the Company combined several of its warehouse agreements into one syndicated
        facility (“the Syndication”) reducing its total number of credit lines to four.
        The Syndication also provides for a working capital line of credit that is
        secured by the Company’s mortgage loan servicing rights.
 
 The
        following table reflects the amounts outstanding on these lines as if the
        Syndication was in place for the fiscal years ended April 30, 2005 and
        2004:
 
 45
 
 UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 2005
              
              2004$110
                  million mortgage warehouse syndication led by a commercial bank;
                  interest
                  at the 30-day LIBOR plus a factor based on the profiles of the
                  underlying
                  loans; expiring August 28, 2005, with extension to $140 million
                  through
                  May 2, 2005.
              
              $
              106,178
              
              $
              100,099$150
                  million mortgage warehouse credit facility at a commercial bank
                  with an
                  extension to $200 million through expiration; interest rate at
                  the 30-day
                  LIBOR plus a rate depending on the type of loan funded; expires
                  August 25,
                  2005.
              
              
              109,958
              
              
              90,
                  285$2.6
                  million mortgage warehouse credit facility at a commercial bank;
                  interest
                  rate is fixed at prime at the time of each advance; expires October
                  31,
                  2005.
              
              
              2,353
              
              
              1,
                  264$35
                  million mortgage warehouse credit facility at a commercial entity;
                  interest is a margin based on underlying collateral over the one-month
                  LIBOR; expires August 31, 2005.
              
              
              12,242
              
              
              25,
                  871$
              230,731
              
              $
              217,519
 
 As
        it has
        historically, the Company expects to renew or extend its expiring credit
        facilities at levels appropriate for then current operations. After April
        30,
        2005, the $140 million facility has been increased to $185 million through
        expiration, which is August 28, 2005, the $200 million facility has been
        increased to $300 million through expiration, which is August 25, 2005, and
        the
        $35 million facility has been increased to $150 million through expiration,
        which is August 31, 2005.
 
 The
        warehouse lines of credit contain certain restrictive covenants that require
        the
        Company to maintain certain minimum net worth levels and maximum indebtedness
        to
        adjusted net worth ratios as defined in the respective agreements. The Company
        was in compliance or had obtained necessary waivers with all material aspects
        of
        these covenants as of April 30, 2005 and April 30, 2004.
 
 **NOTE
        7 - NOTE PAYABLE**
 
 The
        Company had a short-term note payable with a commercial bank that expired
        February 12, 2004, at 2.08% interest secured by a certificate of deposit.
        The
        balance was paid in full at expiration.
 
 **NOTE
        8 - RELATED PARTY TRANSACTIONS**
 
 The
        Company has entered into a compensation agreement with First Fidelity Capital
        Markets, Inc. ("Fidelity") of which a member of the Board of Directors for
        the
        Company is a principal. The agreement provides for Fidelity to receive as
        compensation 10% of the net pretax earnings earned by any mortgage banking
        or
        other opportunity introduced by Fidelity to the Company. To date, the Company
        has entered into one mortgage banking transaction with an individual introduced
        to the Company by Fidelity. During the years ended April 30, 2005 and 2004,
        the
        Company paid $581, and $151, respectively, to Fidelity based on the pretax
        profits of the division managed by the individual introduced under this
        arrangement.
 
 46
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 **NOTE
        9 - EMPLOYEE BENEFIT PLAN**
 
 The
        Company sponsors a 401(k) defined contribution profit sharing plan, which
        covers
        substantially all employees that have attained the age of 18. Employee
        contributions are limited to the maximum contributions allowed by the IRS.
        The
        plan allows for Company matching contributions, at the discretion of the
        Company’s Board of Directors, of up to 15% of employee compensation. There was
        no employer matching contribution in the 2005, 2004 or 2003 fiscal years
        by the
        Company.
 
 **NOTE
        10 - INCOME TAXES**
 
 The
        provision for income taxes consists of the following at April 30:
 
 2005
              
              2004
              
              2003Current
                  provisionFederal
              
              $
              (1,724
              )
              $
              (174
              )
              $
              1,170State
              
              
              (42
              )
              
              (24
              )
              
              239Deferred
                  provision
              
              
              2,686
              
              
              3,384
              
              
              1,812$
              920
              
              $
              3,186
              
              $
              3,221
 
 The
        net
        deferred tax liability is comprised of the following at April 30:
 
 2005
              
              2004Deferred
                  tax assetsReserves
              
              $
              177
              
              $
              -Other
              
              
              54
              
              
              -Net
                  operating loss
              
              
              244
              
              
              1,740475
              
              
              1,740Deferred
                  tax liabilitiesDepreciation
              
              
              241
              
              
              154Loan
                  origination costs
              
              
              513
              
              
              977Mortgage
                  servicing rights
              
              
              8,287
              
              
              6,381Other
              
              
              -
              
              
              1089,041
              
              
              7,620Net
                  deferred tax liability
              
              $
              8,566
              
              $
              5,880
 
 47
 
 UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 The
        difference between the financial statement tax expense and amounts computed
        by
        applying the statutory federal rate of 34% to pretax income is reconciled
        as
        follows:
  2005
              
              2004
              
              2003Statutory
                  rate applied to income before taxes
              
              $
              773
              
              $
              2,707
              
              $
              2,662Add
                  (deduct)State
                  tax, net
              
              
              109
              
              
              401
              
              
              289Effect
                  of nondeductible expenses and other adjustments
              
              
              38
              
              
              78
              
              
              270Income
                  tax expense
              
              $
              920
              
              $
              3,186
              
              $
              3,221
 
 
 **NOTE
        11 - COMMITMENTS**
 
 The
        Company has entered into various leases for office facilities and equipment,
        expiring in various years through 2010. Expenses for leased office facilities
        were $1,820 and $1,346 for 2005 and 2004, respectively. In addition to minimum
        lease payments, the Company is obligated to pay its share of building operating
        costs in excess of a base amount for certain leases. Future minimum lease
        payments are as follows:
 2006
              
              $
              2,4192007
              
              
              2,0192008
              
              
              1,6312009
              
              
              1,2792010
              
              
              593Thereafter
              
              
              -Total
                  minimum lease payments
              
              $
              7,941
 
 In
        the
        normal course of business, the Company is a party to financial instruments
        that
        are not reflected in the financial statements to meet the needs of its
        customers. These financial instruments include commitments to fund loans.
        At
        April 30, 2005 and 2004, the contract amount of these financial instruments
        is
        summarized as follows:
 
 2005
              
              2004Financial
                  instruments whose contract amount represents credit risk:Commitments
                  to fund loans
              
              $
              143,597
              
              $
              122,163
 
 The
        Company's exposure to credit loss in the event of nonperformance by the borrower
        for commitments to extend credit is represented by the contractual amount
        of the
        commitment. Since some commitments to make loans expire without being used,
        the
        contract amount does not necessarily represent future cash commitments.
        Collateral obtained upon exercise of the commitment consists of the residential
        real estate purchased with the loan proceeds.
 
 48
 
  UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 Commitments
        to make loans are generally at a specified interest rate and are subject
        to
        market risk resulting from fluctuations in interest rates. Although
        the Company sells loans without recourse, certain investor purchase agreements
        provide for conditions, such as borrower default on the first payment, which
        would require the Company to reacquire the related loans. This risk is
        controlled by the Company's quality control program. Since its inception,
        the
        Company's repurchase of loans from investors has not been
        significant.
 
 **NOTE
        12 - CAPITAL REQUIREMENTS**
 
 The
        Company is subject to various capital requirements in connection with
        seller/servicer agreements that the Company has entered into with secondary
        market investors. Failure to maintain minimum capital requirements could
        result
        in the Company's inability to originate and service loans for the respective
        investor and therefore could have a direct material effect on the Company's
        financial statements.
 
 The
        Company's actual capital amounts (adjusted for unacceptable assets as defined
        in
        the agreements) and the minimum amounts required for capital adequacy purposes,
        by investor, are as follows:
  MinimumActual
              
              CapitalCapital
              
              RequirementAs
                  of April 30, 2005HUD
              
              $
              24,340
              
              $
              1,000GNMA
              
              
              24,340
              
              
              250FHLMC
              
              
              24,340
              
              
              250FNMA
              
              
              24,340
              
              
              1,040As
                  of April 30, 2004HUD
              
              $
              25,653
              
              $
              1,000GNMA
              
              
              25,653
              
              
              250FHLMC
              
              
              25,653
              
              
              250FNMA
              
              
              25,653
              
              
              1,071
 
 **NOTE
        13 - STOCK OFFERING**
 
 On
        December 15, 2003, The Company completed its sale of 2,039,214 shares of
        common
        stock in an underwritten public offering. The public offering price was $6.67
        per share. Net proceeds to the Company totaled approximately $12.1 million.
        Upon
        consummation of the offering, the Company had 5,964,143 common shares
        outstanding. The net proceeds of the offering are being used for general
        corporate purposes, including the implementation of the Company’s growth and
        business strategies. In connection with the offering, the Company granted
        to the
        underwriter of the offering a warrant to purchase 142,745 shares at an exercise
        price of $8.00 per share. The warrant expires December 15, 2007.
 
 49
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 **NOTE
        14 - STOCK AWARDS**
 
 The
        United Financial Mortgage Corp. 2004 Stock Incentive Plan (the “2004 Plan”) was
        approved by shareholders at the Company’s annual meeting held September 8, 2004.
        A total of 400,000 shares of the Company’s Common Stock have been reserved for
        issuance under the 2004 Plan, which is a successor to the plan that expired
        in
        December of 2003. Of those, 248,000 are available for future grants as of
        April
        30, 2005. The 2004 Plan provides for the grant of options, stock appreciation
        rights, restricted stock units, performance shares and other stock based
        awards
        to employees, officers, directors, consultants and advisors of the Company
        and
        its subsidiaries and may or may not require the satisfaction of performance
        objectives. Stock options granted will generally have a 10-year life and
        will
        vest over 5 years. The 2004 Plan is administered by the Compensation and
        Human
        Resources Committee of the Board of Directors.
 
 The
        2004
        Plan also provides for the issuance of restricted stock awards. During the
        quarter ended January 31, 2005, the Company granted an officer a restricted
        stock award of 10,000 shares. The award vests 20% each on the grant date
        and the
        first four anniversaries of the grant date. Such shares are subject to
        restrictions based on continued employment with the Company. Compensation
        expense attributable to this award was approximately $13 for the year ended
        April 30, 2005. Unearned compensation of approximately $37 was recorded as
        a
        reduction of stockholders' equity until earned and will be earned according
        to
        the vesting schedule of the award.
 
 The
        following is a summary of stock option activity for the years ended April
        30:
 2005
                  
                  2004
                  
                  2003Weighted
                  
                  
                  
                  Weighted
                  
                  
                  
                  WeightedAverage
                  
                  
                  
                  Average
                  
                  
                  
                  AverageExercise
                  
                  
                  
                  Exercise
                  
                  
                  
                  ExerciseOptions
                  
                  Price
                  
                  Options
                  
                  Price
                  
                  Options
                  
                  PriceOutstanding
                      at beginning of year
                  
                  
                  433,100
                  
                  $
                  4.12
                  
                  
                  413,800
                  
                  $
                  3.67
                  
                  
                  220,500
                  
                  $
                  5.03Granted
                  
                  
                  142,750
                  
                  
                  4.97
                  
                  
                  130,500
                  
                  
                  6.70
                  
                  
                  223,500
                  
                  
                  2.70Exercised
                  
                  
                  (13,700
                  )
                  
                  1.71
                  
                  
                  (6,400
                  )
                  
                  2.41
                  
                  
                  (200
                  )
                  
                  2.70Expired
                  
                  
                  (46,000
                  )
                  
                  6.50
                  
                  
                  (67,500
                  )
                  
                  6.50
                  
                  
                  -
                  
                  
                  -Forfeited
                  
                  
                  (2,500
                  )
                  
                  5.71
                  
                  
                  (37,300
                  )
                  
                  4.10
                  
                  
                  (30,000
                  )
                  
                  6.50Outstanding
                      at end of year
                  
                  
                  513,650
                  
                  
                  4.20
                  
                  
                  433,100
                  
                  
                  4.12
                  
                  
                  413,800
                  
                  
                  3.67Exercisable
                      at end of year
                  
                  
                  235,610
                  
                  
                  3.60
                  
                  
                  186,480
                  
                  
                  3.93
                  
                  
                  148,000
                  
                  
                  4.91
  50
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 The
        following is a summary of the exercise prices, the number of outstanding
        options, and the remaining contractual life of the outstanding options as
        of
        April 30, 2005:
 
 Outstanding
              
              
              
              ExercisableRemainingExercise
              
              
              
              Contractual
              
              
              
              ExercisePrice
              
              Number
              
              Life
                  (in Years)
              
              Number
              
              Price$ 
                  1.10
              
              
              25,000
              
              
              1.31
              
              
              20,000
              
              $
              1.101.45
              
              
              25,100
              
              
              1.41
              
              
              20,080
              
              
              1.452.70
              
              
              192,550
              
              
              2.46
              
              
              115,530
              
              
              2.704.74
              
              
              72,000
              
              
              4.40
              
              
              14,400
              
              
              4.705.20
              
              
              70,000
              
              
              4.36
              
              
              14,000
              
              
              5.206.70
              
              
              129,000
              
              
              3.62
              
              
              51,600
              
              
              6.70Total
                  or weighted average
              
              
              513,650
              
              
              3.17
              
              
              235,610
              
              $
              3.60
 
 **NOTE
        15 - EARNINGS PER SHARE**
 
 The
        following summarizes the computation of basic and diluted earnings per common
        share before the cumulative effect of a change in accounting principle and
        after
        the preferred stock dividend:
 
 2005
              
              2004
              
              2003**Numerator
                  - Earnings**Net
                  income for common shareholders
              
              $
              1,316
              
              $
              4,736
              
              $
              4,571Effect
                  of dilutive securities
              
              
              -
              
              
              -
              
              
              -Numerator
                  for basic and diluted earnings per common share
              
              $
              1,316
              
              $
              4,736
              
              $
              4,571**Denominator
                  - Average Shares Outstanding**Denominator
                  for basic earnings per common share - weighted average
                  shares
              
              
              5,970
              
              
              4,687
              
              
              3,933Diluted
                  effect of assumed exercise of stock options
              
              
              127
              
              
              180
              
              
              80Denominator
                  for diluted earnings per common share
              
              
              6,097
              
              
              4,867
              
              
              4,013Basic
                  earnings per common share
              
              $
              0.22
              
              $
              1.01
              
              $
              1.16Diluted
                  earnings per common share
              
              $
              0.22
              
              $
              0.97
              
              $
              1.14
 
 W arrants
        to purchase 142,745 shares of common stock at a price of $8.00 per share
        were
        outstanding at April 30, 2005 and 2004, respectively, but not included in
        the
        calculation of the diluted earnings per share because the warrant price was
        greater than the average market price of the common stock and, therefore,
        anti-dilutive. Additionally, at April 30, 2003, warrants to purchase 80,000
        shares of common stock at $7.80 per share were outstanding but were not included
        in the calculation of diluted earnings per share because the option exercise
        price was greater than the average market price of the common stock and was
        therefore anti-dilutive. These warrants expired unexercised in May
        2003.
 
 51
 
  UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 Employee
        stock options for shares of common stock which were outstanding but not included
        in the calculation of diluted earnings per share because the option price
        was
        greater than the average market price of the common stock and, therefore,
        anti-dilutive were as follows:
 
 2005
              
              2004
              
              2003Options
                  excluded from calculation
              
              
              199,000
              
              
              -
              
              
              128,000Range
                  of prices of excluded options
              
              $
              5.20-$6.70
              
              
              -
              
              $
              6.50
  **NOTE
        16 - DERIVATIVES**
 
 Derivatives
        such as forward contracts and rate lock commitments are used in the ordinary
        course of business. Forward contracts represent future commitments to deliver
        securities and whole loans at a specified price and date and are used to
        manage
        interest rate risk on loan commitments and loans held for sale. Rate lock
        commitments are commitments to fund loans at a specific rate. The derivatives
        involve underlying items, such as interest rates, and are designed to transfer
        risk. Substantially all of these instruments expire within 90 days from the
        date
        of issuance. Notional amounts are amounts on which calculations and payments
        are
        based, but which do not represent credit exposure, as credit exposure is
        limited
        to the amounts required to be received or paid. The approximate notional
        amounts, fair values, and carrying amounts of these derivatives are as follows
        at April 30, 2005 and 2004:
 
 2005
              
              2004Forward
                  contractsNotional
                  amount
              
              $
              226,635
              
              $
              147,236Fair
                  value
              
              
              (968
              )
              
              2,897Carrying
                  amount
              
              
              (968
              )
              
              2,897Rate
                  lock commitmentsNotional
                  amount
              
              $
              143,597
              
              $
              122,163Fair
                  value
              
              
              766
              
              
              (210
              )Carrying
                  amount
              
              
              766
              
              
              (210
              )
 
 Forward
        contracts also contain an element of risk in the event that the counterparties
        may be unable to meet the terms of such agreements. In the event the parties
        to
        all delivery commitments were unable to fulfill their obligations, the Company
        would not incur any significant additional cost by replacing the positions
        at
        current market rates. The Company minimizes its risk of exposure by limiting
        the
        counterparties to those major banks and financial institutions that meet
        established credit and capital guidelines. Management does not expect any
        counterparty to default on their obligations and therefore, does not expect
        to
        incur any cost due to counterparty default.
  The
        Company is exposed to interest rate risk on loans held for sale and rate
        lock
        commitments. As market interest rates increase or decrease, the fair value
        of
        loans held for sale and rate lock commitments will decline or increase. To
        offset this interest rate risk, the Company enters into derivatives such
        as
        forward contracts to sell loans. The fair value of these forward contracts
        will
        change as market interest rates change, and the change in the value of these
        instruments is expected to largely, though not entirely, offset the change
        in
        fair value of loans held for sale and rate lock commitments. The objective
        of
        this activity is to minimize the exposure to losses on rate lock commitments
        and
        loans held for sale due to market interest rate fluctuations. The net effect
        of
        derivatives on earnings will depend on the effectiveness of hedging and risk
        management activities and a variety of other factors, including market interest
        rate volatility, the amount of rate lock commitments that close, the ability
        to
        fill the forward contracts before expiration, and the time period required
        to
        close and sell loans.
  52
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 Certain
        forward contracts are designated as fair value hedges of loans held for sale.
        Accordingly, these forward contracts and the hedged loans held for sale are
        carried at fair value in offsetting amounts. At April 30, 2005 and 2004,
        loans
        held for sale with a notional amount of approximately $99.0 million and $102.6
        million, respectively, were designated as a part of the fair value hedge.
        The
        fair value of these loans approximated $100.5 million and $100.2 million
        as of
        April 30, 2005 and 2004, respectively. The remaining forward contracts and
        rate
        lock commitments are not designated as hedges and are carried at fair value.
        The
        net gain or loss on all derivative activity is included as a component of
        gain
        on sale of loans, net.
 
 The
        following table reflects the net gain or loss recorded on all derivative
        activity, the portion of this net gain or loss attributable to the ineffective
        portion of fair value hedges, and the portion of gain or loss attributable
        to
        derivatives that are not included in fair value hedges for the years ended
        April
        30, 2005 and 2004:
 
 2005
              
              2004
              
              2003Net
                  gain/(loss) recognized in earnings
              
              $
              948
              
              $
              372
              
              $
              (597
              )Ineffective
                  portion of hedge
              
              
              -
              
              
              -
              
              
              -Gain/(loss)
                  from derivatives excluded from hedges
              
              $
              948
              
              $
              372
              
              $
              (597
              )
 
 **NOTE
        17 - FAIR VALUES OF FINANCIAL INSTRUMENTS**
 
 Carrying
        amounts and estimated fair values of financial instruments were as follows
        at
        April 30 (in thousands):
  2005
              
              2004Carrying
              
              Fair
              
              Carrying
              
              FairAmount
              
              Value
              
              Amount
              
              ValueFinancial
                  assetsCash
                  and cash equivalents
              
              $
              17,634
              
              $
              17,634
              
              $
              12,901
              
              $
              12,901Restricted
                  cash
              
              
              1,855
              
              
              1,855
              
              
              1,388
              
              
              1,388Certificates
                  of deposit
              
              
              -
              
              
              -
              
              
              434
              
              
              434Loans
                  held for sale
              
              
              228,686
              
              
              229,554
              
              
              223,634
              
              
              224,294Forward
                  contracts
              
              
              -
              
              
              -
              
              
              2,897
              
              
              2,897Rate
                  lock commitments
              
              
              766
              
              
              766
              
              
              -
              
              
              -
 
 53
 
  UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 2005
              
              2004Carrying
              
              Fair
              
              Carrying
              
              FairAmount
              
              Value
              
              Amount
              
              ValueFinancial
                  liabilitiesWarehouse
                  lines of credit
              
              $
              230,731
              
              $
              230,731
              
              $
              217,519
              
              $
              217,519Forward
                  contracts
              
              
              968
              
              
              968
              
              
              -
              
              
              -Rate
                  lock commitments
              
              
              -
              
              
              -
              
              
              210
              
              
              210
 
 The
        methods and assumptions used to estimate fair value are described as
        follows:
 
 Carrying
        amount is the estimated fair value for cash and cash equivalents, restricted
        cash, certificates of deposit, notes receivable, warehouse lines of credit,
        accrued interest payable, and note payable. Fair value of loans held for
        sale is
        based on market quotes. Derivatives include forward contracts and rate lock
        commitments. Forward commitments are valued at the amount payable or receivable
        to/from the counterparty to settle contracts. The fair value of commitments
        to
        fund loans (rate lock commitments) is determined as described in Note 1 under
        “Loans Held for Sale and Related Derivatives”.
 
 
 **NOTE
        18 - REINSURANCE AGREEMENTS**
 
 The
        Company has entered into various agreements from 2001 to 2003 with four
        insurance companies to share in the risk of loss on certain mortgage loans
        that
        require primary mortgage insurance (“PMI”). The agreements cover periods after
        the contract dates, and do not include retroactive reinsurance. The term
        of the
        coverage for each loan is limited to ten years. The agreements make the Company
        responsible for a portion of the losses incurred on loans designated for
        these
        agreements and in return, the Company receives 25% of the PMI premiums
        collected. The Company is responsible for any claims made on the loans that
        are
        designated as part of the agreements that fall between five and ten percent
        of
        the unpaid principal of loans for each calendar year loans were designated
        for
        the plan. The insurance companies are responsible for claims paid up to five
        percent and over ten percent of the unpaid principal balance. The Company
        is
        also required to pay various fees related to the management of the program.
        The
        Company recognizes revenue and expenses as the premiums are earned and
        management fees are incurred, and records a liability for any probable and
        estimable losses that are expected to be incurred. Premiums are paid monthly
        by
        the mortgagees during the coverage period, and premium revenue is recognized
        when received. A claims liability is estimated based on claims reported and
        using current and historical PMI loss experience of the Company to estimate
        claims incurred but not reported.
 
 54
  UNITED
          FINANCIAL MORTGAGE CORP.
 NOTES
          TO
          THE FINANCIAL STATEMENTS
 (Dollars
          in Thousands)
 As
        part
        of the agreements, the Company is required to deposit 10% of insured risk
        and
        all premiums earned into a trust account until it has accumulated enough
        reserves as defined by the agreements. The Company is required to maintain
        deposit reserves in the trust account equal to 102% of the greater of either,
        50% of any premiums earned, 20% of the portion of potential claims that the
        Company may be responsible for (reinsurance risk assumed), or 100% of the
        remaining losses the Company is contractually obligated to pay. The Company’s
        liability is limited to the amount in the trust account plus any premiums
        not
        yet remitted by the insurance company. Funds in the trust accounts not used
        to
        pay claims are disbursed to the Company. To date, the Company has not received
        any disbursements from the trust accounts under its agreements. The term
        for the
        coverage is ten years, but may be less as loans pre-pay or are otherwise
        removed
        from coverage. At this time, management does not believe that any losses
        have
        been incurred under these agreements based on claims reported and historical
        claims rates for all loans originated, and no liability has been recorded.
        Management periodically reviews its actual mortgage insurance claims both
        on an
        overall basis and on the loans specifically allocated to participate in the
        reinsurance agreements. Historically, claims have not exceeded the threshold
        that would require the Company to be responsible for any claims and claims
        paid
        by the PMI companies to date under the agreements have been nominal. In the
        event the loss development history changes in the future, the Company would
        record the liability as a current period charge to earnings.
 
 The
        following table provides information regarding the reinsurance agreements
        at
        April 30:
 
 2005
              
              2004Amount
                  of claims payable prior to responsibility
              
              $
              5,323
              
              $
              4,868Reinsurance
                  risk assumed by UFMC
              
              
              5,323
              
              
              4,868Claims
                  Paid to date
              
              
              198
              
              
              144Trust
                  account balance plus unremitted premiums
              
              
              1,205
              
              
              921Premium
                  revenue earned
              
              
              228
              
              
              229
 
 **NOTE
        19 - ACQUISITIONS**
 
 During
        the quarter ended January 31, 2005, the Company completed the acquisition
        of
        California based PlusFunding.com, Inc. (“PlusFunding”) which is a privately-held
        retail originator of residential mortgage loans that acts as both a mortgage
        banker and broker and has served the San Diego area since 2000. Plus Funding
        has
        approximately 70 full-time employees and operates five branches in southern
        California and one in Nevada. The purchase price for the acquisition was
        book
        value as of the closing date plus an earnout based upon the realization of
        certain earnings targets. If those targets are not met, the payments decrease
        and conversely, if they are exceeded, the purchase price payments are adjusted
        upward. The Company has paid approximately $487 to date related to this
        acquisition. Pro forma information has not been provided as the results of
        the
        operations of PlusFunding in total are not material to the overall net income
        of
        the Company.
 
 55
 
  UNITED
            FINANCIAL MORTGAGE CORP.
 NOTES
            TO
            THE FINANCIAL STATEMENTS
 (Dollars
            in Thousands)
 On
        August
        31, 2004, the Company acquired the operations of Vision Mortgage Group, Inc.
        (“VMG”). VMG’s operations consist of retail mortgage banking activities
        primarily in the Rockford, Illinois and Tacoma, Washington areas. VMG employs
        approximately 50 full-time employees and operates six branches in Illinois
        and
        Washington. The acquisition of these offices strengthens the Company’s position
        in the northwestern United States as well as northwest Illinois and increases
        the Company’s overall position in retail originations. The purchase price for
        the acquisition is based on the August 31, 2004 equity of VMG plus an earnout
        of
        approximately $788 payable 25% at closing and annually thereafter upon the
        realization of certain earnings targets. If those targets are not met, the
        payments decrease and conversely, if they are exceeded, the purchase price
        payments are adjusted upward. In accordance with the acquisition agreement,
        the
        Company has paid $388 to date related to this acquisition. Pro forma information
        has not been provided as the results of the operations of VMG in total are
        not
        material to the overall net income of the Company. The following table
        summarizes the purchase price allocation of the VMG and PlusFunding acquisitions
        as of the respective acquisition dates:
 
 VMG
              
              PlusFundingCash
                  and cash equivalents
              
              $
              185
              
              $
              105Accounts
                  receivable
              
              
              65
              
              
              216Loans
                  held for sale
              
              
              2,572
              
              
              2,847Premises
                  improvements and equipment
              
              
              114
              
              
              167Other
                  assets
              
              
              18
              
              
              122Goodwill
              
              
              244
              
              
              264Warehouse
                  lines of credit
              
              
              (2,569
              )
              
              (2,847
              )Note
                  payable
              
              
              -
              
              
              (71
              )Accrued
                  expenses and other liabilities
              
              
              (241
              )
              
              (316
              )
 
 **NOTE
        20 - QUARTERLY RESULTS OF OPERATIONS (unaudited)**
 
 The
        following table sets forth certain quarterly information for the years ended
        April 30, 2005 and 2004. This information, in the opinion of the Company’s
        management, reflects all adjustments (consisting only of normal recurring
        adjustments) necessary to present fairly this information.
 Fiscal
                    year ended April 30, 2005First
                
                Second
                
                Third
                
                Fourth(1)Quarter
                
                Quarter
                
                Quarter
                
                QuarterNet
                    revenues
                
                $
                15,349
                
                $
                17,977
                
                $
                23,250
                
                $
                19,106Income
                    before income taxes
                
                
                1,531
                
                
                1,610
                
                
                1,570
                
                
                (2,437
                )Net
                    income
                
                
                918
                
                
                966
                
                
                942
                
                
                (1,472
                )Basic
                    earnings per share
                
                $
                0.15
                
                $
                0.16
                
                $
                0.16
                
                $
                (0.25
                )Diluted
                    earnings per share
                
                $
                0.15
                
                $
                0.16
                
                $
                0.15
                
                $
                (0.24
                )
  56
 
 UNITED
              FINANCIAL MORTGAGE CORP.
 NOTES
              TO
              THE FINANCIAL STATEMENTS
 (Dollars
              in Thousands)
 Fiscal
                    year ended April 30, 2004First
                
                
                Second
                
                
                Third(2)
                
                
                Fourth(2)Quarter
                
                
                Quarter
                
                
                Quarter
                
                
                QuarterNet
                    revenues
                
                $
                22,436
                
                $
                17,134
                
                $
                12,686
                
                $
                17,898Income
                    before income taxes
                
                
                2,982
                
                
                2,210
                
                
                1,063
                
                
                1,706Net
                    income
                
                
                1,789
                
                
                1,323
                
                
                638
                
                
                986Basic
                    earnings per share
                
                $
                0.46
                
                $
                0.34
                
                $
                0.13
                
                $
                0.17Diluted
                    earnings per share
                
                $
                0.43
                
                $
                0.32
                
                $
                0.12
                
                $
                0.16(1)
                    The fourth quarter results in 2005 were impacted by two major
                    events. The
                    Company recorded a $1.8 million impairment on its mortgage servicing
                    rights asset due to high prepayment speeds and interest rates
                    which were
                    flat to down for the period thus making the marketability of
                    the portfolio
                    at April 30, 2005 more limited than in prior periods. Additionally,
                    the
                    fourth quarter was the first full quarter of increases to its
                    cost of
                    funds due to LIBOR increasing steadily in the last two quarters
                    of the
                    year thus increasing the Company’s interest expense.(2)
                    In December, 2004, the Company issued approximately 2 million
                    shares in a
                    public stock offering which caused the earnings per share for
                    those
                    quarters to be impacted
                    significantly.
 
 **NOTE
        21 - SUBSEQUENT EVENT**
 
 The
        Company announced that on May 4, 2005, it signed a definitive agreement with
        Dallas, Texas-based AmPro Mortgage Corporation ("AmPro") pursuant to which
        UFM
        agreed to acquire AmPro's eight prime wholesale production offices and AmPro's
        Phoenix, Arizona, operations center. The transaction will be completed once
        certain customary closing conditions have been satisfied, including the receipt
        by UFM of certain state licenses necessary to operate the acquired offices
        and
        to continue to operate the wholesale origination division.
 
 57
  **ITEM
        9.** **Changes
        in and Disagreements with Accountants on Accounting and Financial
        Disclosure** **.**
  None
 
 **ITEM
        9A. Controls and Procedures** **.**
 
 The
        Company carried out an evaluation, under the supervision and with the
        participation of the Company’s management, including the Company’s Chief
        Executive Officer and Chief Financial Officer, of the effectiveness of the
        design and operation of the Company’s disclosure controls and procedures
        pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
        the Chief
        Executive Officer and Chief Financial Officer concluded that, as of the end
        of
        the period covered by this report, the Company’s disclosure controls and
        procedures are effective to ensure that information required to be disclosed
        in
        the Company’s reports filed or submitted under the Exchange Act is recorded,
        processed, summarized and reported within the time periods specified in the
        SEC’s rules and forms, and are also effective to ensure that information
        required to be disclosed in the Company’s reports filed or submitted under the
        Exchange Act is accumulated and communicated to the Company’s management,
        including the principal executive and principal financial officers, to allow
        timely decisions regarding required disclosure.
 
 During
        the fourth fiscal quarter, there has been no change in the Company’s internal
        control over financial reporting that has materially affected, or is reasonably
        likely to materially affect, the registrant’s internal control over financial
        reporting.
  **ITEM 9B.
        Other Information.**
  None
  58
  **PART
        III**
  **ITEM
        10. Directors and Executive Officers of the Registrant** **.**
 
 The
        Company hereby incorporates by reference the information called for by Item
        10
        of this Form 10-K from the sections entitled “Election of Directors-The
        Nominees,” "Election of Directors - Compliance with Section 16(a) of the
        Securities Act of1934" and "Corporate Governance and the Board of Directors
        -
        Code of Ethics" of the Company's Proxy Statement for the 2005 Annual Meeting
        of
        Shareholders.
 
 **ITEM
        11. Executive Compensation** **.**
 
 The
        Company hereby incorporates by reference the information called for by Item
        11
        of this Form 10-K from the sections entitled “Executive Compensation,” "Report
        of the Compensation and Human Resources Committee on Executive Compensation"
        and
        "Stock Performance Presentation" of the Company’s Proxy Statement for the 2005
        Annual Meeting of Shareholders.
 
 **ITEM
        12. Security Ownership of Certain Beneficial Owners and Management and Related
        Stockholder Matters.**
 
 The
        Company hereby incorporates by reference the information called for by Item
        12
        of this Form 10-K from the sections entitled “Security Ownership of Certain
        Beneficial Owners and  Management”
        of the Company’s Proxy Statement for the 2005 Annual Meeting of  Shareholders.
 
 The
        table
        below sets forth the following information as of April 30, 2005 for (i) all
        compensation plans previously approved by our shareholders and (ii) all
        compensation plans not previously approved by our shareholders:
  (a)
              
              the
                  number of securities to be issued upon the exercise of outstanding
                  options, warrants and rights;
 
 (b)
              
              the
                  weighted-average exercise price of such outstanding options, warrants
                  and
                  rights; and
  (c)
              
              other
                  than securities to be issued upon the exercise of such outstanding
                  options, warrants and rights, the number of securities remaining
                  available
                  for future issuance under the plans.
 
 59
  EQUITY
                  COMPENSATION PLAN INFORMATION**Plan
                  category**
              **Number
                  of securities to be issued upon exercise of outstanding
                  options**
              **Weighted-average
                  exercise**
                **price
                  of outstanding options**
              **Number
                  of securities remaining available for future
                  issuance**Equity
                  compensation plans approved by security holders
              142,000
              $4.97
              248,000Equity
                  compensation plans not approved by security holders
              371,650
              $3.90
              -**Total**
              513,650
              $4.20
              248,000
 
 In
        connection with our public offering of shares in January 2004, we granted
        to the
        underwriter of the offering a warrant to purchase 142,745 shares at an exercise
        price of $8.00 per share. The warrant expires December 15, 2007.
 
 **ITEM
        13. Certain Relationships and Related Transactions** **.**
 
 The
        Company hereby incorporates by reference the information called for by Item
        13
        of this Form 10-K from the section entitled “Certain Relationships and Related
        Transactions” of the Company’s Proxy Statement for the 2005 Annual Meeting of
        Shareholders.
 
 **ITEM
        14. Principal Accounting Fees and Services**
 
 The
        Company hereby incorporates by reference the information called for by Item
        14
        of this Form 10-K from the section entitled “Accounting Fees and Service” of the
        Company’s Proxy Statement for the 2005 Annual Meeting of
        Shareholders.
  60
  **ITEM
        15. Exhibits** **,
        Financial Statement Schedules** **.**
  The
        following Financial Statements of United Financial Mortgage Corp. and the
        Reports of Independent Registered Public Accounting Firm are included herein
        beginning on page [32].
 
 (a)(1)
        Consolidated Financial Statements:
  Report
          of
          Independent Registered Public Accounting Firm — Crowe Chizek and Company
          LLC
 Balance
        Sheets as of April 30, 2005 and 2004
 Statements
        of Income for the years ended April 30 2005, 2004 and 2003
 Statements
        of Shareholders’ Equity for the years ended April 30 2005, 2004 and
        2003
 Statements
        of Cash Flows for the years ended 2005, 2004 and 2003
 Notes
        to
        the Financial Statements
  (2)
        Exhibits
 An
“Index
          to Exhibits” has been filed as part of this report immediately following the
          signature page and is incorporated herein by this reference.
 
 61
  INDEX
        TO
        EXHIBITS
 
 Number
              Exhibit
                  Name3.1
              Amended
                  and Restated Articles of Incorporation of United Financial Mortgage
                  Corp.
                  as amended (filed as exhibit to the Company’s Registration Statement on
                  Form SB-2 filed on May 14, 1997 and incorporated herein by
                  reference).3.2(i)
              Bylaws
                  of United Financial Mortgage Corp. (filed as an exhibit to the
                  Company’s
                  Quarterly Report on Form 10-Q/A filed on September 17, 2004 and
                  incorporated herein by reference).3.2(ii)
              Amendment
                  to Bylaws of United Financial Mortgage Corp. (filed as an exhibit
                  to the
                  Company’s Quarterly Report on Form 10-Q/A filed on September 17, 2004 and
                  incorporated herein by reference).4.1
              Underwriter’s
                  Warrant, dated December 15, 2003 (filed as an exhibit to the Company’s
                  Quarterly Report on Form 10-QSB filed on March 16, 2004 incorporated
                  herein by reference).23
              Consent
                  of Independent Registered Public Accounting Firm31.1
              Certification
                  of Chief Executive Officer Pursuant to Rule
                  13a-14(a)/15(d)-14(a).31.2
              Certification
                  of Chief Financial Officer Pursuant to Rule
                  13a-14(a)/15(d)-14(a).32.1
              Certification
                  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
                  as Adopted
                  Pursuant to Section 906 of the Sarbanes- Oxley Act of
                  2002.32.2
              Certification
                  of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
                  as Adopted
                  Pursuant to Section 906 of the Sarbanes- Oxley Act of
                  2002.
   62
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  Registrant:
              **United
                Financial Mortgage Corp.**Date:
              By:
              /S/
                Steve Y. KhoshabeSteve
                Y. Khoshabe, Presidentand
                Chief Executive Officer
 By:
                /S/
                  Robert L. HiattRobert L. Hiatt,
                  Chief Financial
                    Officer
 Dated:
                July 29, 2005Directors:
                By:
                /S/
                  Joseph KhoshabeJoseph
                  Khoshabe,Chairman
                  and Director
 By:
                  /S/
                    John A. ClarkJohn
                    A. Clark, Director
 By:
                    /S/
                      Anthony SchweigerAnthony
                      Schweiger, Director
 By:
                      /S/
                        James ZuhlkeJames
                        Zuhlke, Director
 By:
                        /S/
                          Elliot JacobsElliot
                          Jacobs, Director
 By:
                          /S/
                            Robert S. LuceRobert
                            S. Luce,Secretary
                            and Director
 63