**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR
                15(d)OF
                THE SECURITIES EXCHANGE ACT OF 1934For
                the quarterly period ended September 30, 2008ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR
                15(d)OF
                THE SECURITIES EXCHANGE ACT OF 1934




For
      the
      transition period from  to




Commission
      file number **001-32216**




**NEW
      YORK MORTGAGE TRUST, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




**Maryland**
            **47-0934168**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            (I.R.S.
                Employer
              Identification
                No.)




**52
      Vanderbilt Avenue, Suite 403, New York, New York 10017**


(Address
      of Principal Executive Office) (Zip Code)




**(212)
      792-0107**


(Registrant's
      Telephone Number, Including Area Code)




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.


Yes x No o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definitions of  “large accelerated filers” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check
      one.):




Large
                Accelerated Filero
            Accelerated
                Filero
            Non-Accelerated
                Filerx
            Smaller
                Reporting Companyo




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x




The
      number of shares of the registrant's common stock, par value $.01 per share,
      outstanding on November 6, 2008 was 9,320,094












**NEW
      YORK MORTGAGE TRUST, INC.**


**FORM
      10-Q**




**Page****Part
                I. Financial Information**Item
                1. Condensed Consolidated Financial Statements
                (unaudited):Condensed
                Consolidated Balance Sheets
            
            
            3Condensed
                Consolidated Statements of Operations
            
            
            4Condensed
                Consolidated Statement of Stockholders' Equity
            
            
            5Condensed
                Consolidated Statements of Cash Flows
            
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            
            8Item
                2. Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations
            
            
            25Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            
            
            42Item
                4. Controls and Procedures
            
            
            47**Part
                II. Other Information**
            
            
            48Item
                1. Legal Proceedings
            
            
            48Item
                1A. Risk Factors
            
            
            48Item
                6. Exhibits
            
            
            52Signatures
            
            
            53


2




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(dollar
      amounts in thousands, except per share data)


(unaudited)




**September 30,**
              **2008**
            
            **December 31,**
              **2007****ASSETS**Cash
                and cash equivalents
            
            $
            13,307
            
            $
            5,508Restricted
                cash
            
            
            278
            
            
            7,515Investment
                securities - available for sale
            
            
            480,142
            
            
            350,484Accounts
                and accrued interest receivable
            
            
            3,461
            
            
            3,485Mortgage
                loans held in securitization trusts (net)
            
            
            357,533
            
            
            430,715Derivative
                assets
            
            
            1,752
            
            
            416Prepaid
                and other assets
            
            
            2,157
            
            
            2,262Assets
                related to discontinued operation
            
            
            5,841
            
            
            8,876**Total
                Assets**
            
            $
            864,471
            
            $
            809,261**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Liabilities:**Financing
                arrangements, portfolio investments
            
            $
            406,295
            
            $
            315,714Collateralized
                debt obligations
            
            
            345,734
            
            
            417,027Derivative
                liabilities
            
            
            —
            
            
            3,517Accounts
                payable and accrued expenses
            
            
            5,680
            
            
            3,752Subordinated
                debentures
            
            
            45,000
            
            
            45,000Convertible
                preferred debentures
            
            
            19,665
            
            
            —Liabilities
                related to discontinued operation
            
            
            3,967
            
            
            5,833Total
                liabilities
            
            
            826,341
            
            
            790,843**Commitments
                and Contingencies****Stockholders'
                Equity:**Common
                stock, $0.01 par value, 400,000,000 shares authorized, 9,320,094
                shares
                issued and outstanding at September 30, 2008 and 1,817,927 shares
                issued
                and outstanding at December 31, 2007
            
            
            93
            
            
            18Additional
                paid-in capital
            
            
            151,725
            
            
            99,357Accumulated
                other comprehensive loss
            
            
            (15,715
            )
            
            (1,950
            )Accumulated
                deficit
            
            
            (97,973
            )
            
            (79,007
            )Total
                stockholders' equity
            
            
            38,130
            
            
            18,418**Total
                Liabilities and Stockholders' Equity**
            
            $
            864,471
            
            $
            809,261




*See
      notes to condensed consolidated financial statements.*




3




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(amounts
      in thousands, except per share data)


(unaudited)





**For
                the Three Months Ended**
              **September
                30,**
            
            **For
                the Nine Months Ended**
              **September
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**REVENUE:Interest
                income-investment securities and loans held in securitization
                trusts
            
            $
            10,324
            
            $
            12,376
            
            $
            34,332
            
            $
            38,987Interest
                expense-investment securities and loans held in securitization
                trusts
            
            
            6,692
            
            
            11,212
            
            
            23,997
            
            
            36,188Net
                interest income from investment securities and loans held in
                securitization trusts
            
            
            3,632
            
            
            1,164
            
            
            10,335
            
            
            2,799Interest
                expense - subordinated debentures
            
            
            (913
            )
            
            (895
            )
            
            (2,768
            )
            
            (2,671
            )Interest
                expense – convertible preferred debentures
            
            
            (537
            )
            
            —
            
            
            (1,612
            )
            
            —Net
                interest income
            
            
            2,182
            
            
            269
            
            
            5,955
            
            
            128OTHER
                EXPENSE:Loan
                losses
            
            
            (7
            )
            
            (99
            )
            
            (1,462
            )
            
            (1,039
            )Gain
                (loss) on securities and related hedges
            
            
            4
            
            
            (1,013
            )
            
            (19,927
            )
            
            (4,834
            )Total
                other expense
            
            
            (3
            )
            
            (1,112
            )
            
            (21,389
            )
            
            (5,873
            )EXPENSES:Salaries
                and benefits
            
            
            258
            
            
            178
            
            
            988
            
            
            674Marketing
                and promotion
            
            
            36
            
            
            37
            
            
            128
            
            
            99Data
                processing and communications
            
            
            74
            
            
            50
            
            
            212
            
            
            143Professional
                fees
            
            
            367
            
            
            266
            
            
            1,065
            
            
            471Depreciation
                and amortization
            
            
            74
            
            
            93
            
            
            223
            
            
            242Other
            
            
            626
            
            
            222
            
            
            2,210
            
            
            393Total
                expenses
            
            
            1,435
            
            
            846
            
            
            4,826
            
            
            2,022INCOME
                (LOSS) FROM CONTINUING OPERATIONS
            
            
            744
            
            
            (1,689
            )
            
            (20,260
            )
            
            (7,767
            )Income
                (loss) from discontinued operation - net of tax
            
            
            285
            
            
            (19,027
            )
            
            1,294
            
            
            (31,886
            )NET
                INCOME (LOSS)
            
            $
            1,029
            
            $
            (20,716
            )
            $
            (18,966
            )
            $
            (39,653
            )Basic
                and diluted income (loss) per common share
            
            $
            0.11
            
            $
            (11.39
            )
            $
            (2.39
            )
            $
            (21.88
            )Dividends
                Declared per share common share
            
            $
            0.16
            
            $
            —
            
            $
            0.44
            
            $
            0.50Weighted
                average shares outstanding-basic
            
            
            9,320
            
            
            1,818
            
            
            7,924
            
            
            1,812Weighted
                average shares outstanding- diluted
            
            
            9,320
            
            
            1,818
            
            
            7,924
            
            
            1,812




*See
      notes to condensed consolidated financial statements.*


4




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY**


(dollar
      amounts in thousands)


(unaudited)





**For
                the Nine Months Ended September 30, 2008****Common**
              **Stock**
            
            **Additional**
              **Paid-In**
              **Capital**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **Loss**
            
            **Accumulated**
              **Deficit**
            
            **Total****Balance, January
                1, 2008 -**Stockholders' Equity
            
            $
            18
            
            $
            99,357
            
            $
            (1,950
            )
            $
            (79,007
            )
            $
            18,418Comprehensive
                Income:Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (18,966
            )
            
            (18,966
            )Other
                comprehensive income (loss):Increase
                in net unrealized loss on available for sale
                securities
            
            
            —
            
            
            —
            
            
            (15,848
            )
            
            —
            
            
            (15,848
            )Increase in
                net unrealized gain on derivative instruments
            
            
            —
            
            
            —
            
            
            2,083
            
            
            —
            
            
            2,083Dividends
            
            
            
            
            
            (4,101
            )
            
            —
            
            
            —
            
            
            (4,101
            )Common
                Stock Issuance
            
            
            75
            
            
            56,469
            
            
            —
            
            
            —
            
            
            56,544**Balance,
                September 30, 2008 -**Stockholders' Equity
            
            $
            93
            
            $
            151,725
            
            $
            (15,715
            )
            $
            (97,973
            )
            $
            38,130




*See
      notes to condensed consolidated financial statements.*


5





**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(dollar
      amounts in thousands)


(unaudited)




**For
                the Nine Months Ended**
              **September
                30,****2008**
            
            **2007****Cash
                Flows from Operating Activities:**Net
                loss
            
            $
            (18,966
            )
            $
            (39,653
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            1,044
            
            
            683Amortization
                of premium on investment securities and mortgage loans held in
                securitization trusts
            
            
            819
            
            
            1,602Loss
                of securities and related hedges
            
            
            19,927
            
            
            4,834Gain
                on sale of retail lending segment
            
            
            —
            
            
            (4,525
            )Allowance
                for deferred tax asset
            
            
            —
            
            
            18,352Loan
                losses
            
            
            1,520
            
            
            6,648Other
            
            
            —
            
            
            1,596Changes
                in operating assets and liabilities:Due
                from loan purchasers
            
            
            —
            
            
            88,351Escrow
                deposits - pending loan closings
            
            
            —
            
            
            3,814Origination
                of mortgage loans held for sale
            
            
            —
            
            
            (300,863
            )Proceeds
                from sales or repayments of mortgage loans
            
            
            2,732
            
            
            398,807Accounts
                and accrued interest receivable
            
            
            48
            
            
            2,183Prepaid
                and other assets
            
            
            196
            
            
            2,526Due
                to loan purchasers
            
            
            117
            
            
            (11,721
            )Accounts
                payable and accrued expenses
            
            
            (1,221
            )
            
            (4,116
            )Other
                liabilities
            
            
            —
            
            
            (131
            )Net
                cash provided by operating activities:
            
            
            6,216
            
            
            168,387**Cash
                Flows from Investing Activities:**Restricted
                cash
            
            
            7,237
            
            
            (2,879
            )Purchases
                of investment securities
            
            
            (850,609
            )
            
            (231,932
            )Proceeds
                from sale of investment securities
            
            
            625,986
            
            
            246,874Principal
                repayments received on mortgage loans held in securitization
                trusts
            
            
            70,815
            
            
            127,301Principal
                paydown on investment securities - available for sale
            
            
            64,043
            
            
            104,875Proceeds
                from sale of retail lending platform
            
            
            —
            
            
            12,936Purchases
                of property and equipment
            
            
            —
            
            
            (396
            )Disposal
                of fixed assets
            
            
            11
            
            
            485Net
                cash (used in) provided by investing activities
            
            
            (82,517
            )
            
            257,264**Cash
                Flows from Financing Activities:**Proceeds
                from common stock issued (net)
            
            
            56,544
            
            
            —Proceeds
                from convertible preferred debentures
 (net)
            
            
            19,590
            
            
            —Payments
                made for termination of swaps
            
            
            (8,333
            )
            
            —Increase
                (decrease) in financing arrangements
            
            
            90,581
            
            
            (660,407
            )Collateralized
                debt obligation borrowings
            
            
            —
            
            
            337,431Collateralized
                debt obligation paydowns
            
            
            (71,672
            )
            
            (90,674
            )Common
                stock dividends paid
            
            
            (2,610
            )
            
            (1,826
            )Net
                cash provided by (used in) financing activities
            
            
            84,100
            
            
            (415,476
            )




*See
      notes to condensed consolidated financial statements.*




6




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)**


(dollar
      amounts in thousands)


(unaudited)




**For
                the Nine Months**
              **Ended
                September 30,****2008**
            
            **2007****Net
                Increase in Cash and Cash Equivalents**
            
            
            7,799
            
            
            10,175**Cash
                and Cash Equivalents - Beginning of Period**
            
            
            5,508
            
            
            969**Cash
                and Cash Equivalents - End of Period**
            
            $
            13,307
            
            $
            11,144**Supplemental
                Disclosure**Cash
                paid for interest
            
            $
            28,030
            
            $
            41,338**Non
                Cash Financing Activities**Dividends
                declared to be paid in subsequent period
            
            $
            1,491
            
            $
            —




*See
      notes to condensed consolidated financial statements.*


7




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**


**1.Organization and Summary of Significant Accounting
          Policies**





*Organization* - New
      York Mortgage Trust, Inc. together with its consolidated subsidiaries (“NYMT”,
      the “Company”, “we”, “our”, and “us”) is a self-advised real estate investment
      trust, or REIT, in the business of investing in residential adjustable rate
      mortgage-backed securities issued by a federally chartered corporation, such
      as
      the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home
      Loan Mortgage Corporation (“Freddie Mac”), prime credit quality residential
      adjustable-rate mortgage (“ARM”) loans, or prime ARM loans, and non-agency
      mortgage-backed securities. We refer to residential adjustable rate
      mortgage-backed securities throughout this Quarterly Report on Form
      10-Q as “MBS” and MBS issued by a federally chartered corporation as “Agency
      MBS”. We seek attractive long-term investment returns by investing our equity
      capital and borrowed funds in such securities. Our principal business objective
      is to generate net income for distribution to our stockholders resulting from
      the spread between the interest and other income we earn on our interest-earning
      assets and the interest expense we pay on the borrowings that we use to finance
      these assets, which we refer to as our net interest income.




The
      Company is organized and conducts its operations to qualify as a REIT for
      federal income tax purposes. As such, the Company will generally not be subject
      to federal income tax on that portion of its income that is distributed to
      stockholders if it distributes at least 90% of its REIT taxable income to its
      stockholders by the due date of its federal income tax return and complies
      with
      various other requirements.





In
      connection with the sale of the assets of our wholesale mortgage origination
      platform assets to Tribeca Lending Corp. (“Tribeca Lending”) on February 22,
      2007 and the sale of the assets of our retail mortgage lending platform, Indymac
      Bank, F.S.B. (“Indymac”) on March 31, 2007, we classified our mortgage lending
      business as a discontinued operation in accordance with the provisions of
      Statement of Financial Accounting Standard (“SFAS”) No. 144 *Accounting
      for the Impairment or Disposal of Long-Lived Assets.* As a
      result, we have reported revenues and expenses related to the mortgage lending
      business as a discontinued operation and the related assets and liabilities
      as
      assets and liabilities related to the discontinued operation for all periods
      presented in the accompanying condensed consolidated financial statements,
      except for the condensed consolidated statements of cash flows. Certain assets
      and liabilities, not assigned to Indymac or Tribeca Lending have become part
      of
      the ongoing operations of NYMT and accordingly, have not been classified as
      a
      discontinued operation in accordance with the provisions of SFAS No. 144 (see
      note 7).




Under
      the
      advisory agreement with JMP Asset Management LLC (“JMPAM”), which was entered
      into concurrent with our issuance of 1.0 million shares of Series A Cumulative
      Convertible Redeemable Preferred Stock (“Series A Preferred Stock”) on January
      18, 2008 to JMP Group, Inc. and certain of its affiliates, JMPAM advises two
      of
      our wholly-owned subsidiaries, Hypotheca Capital, LLC (formerly known as The
      New
      York Mortgage Company, LLC) (“HC”) and New York Mortgage Funding, LLC, as well
      as any additional subsidiaries acquired or formed in the future to hold
      investments made on our behalf by JMPAM. We refer to these subsidiaries in
      our
      periodic reports filed with the Securities and Exchange Commission (“SEC”) as
      the “Managed Subsidiaries.” As an advisor to the Managed Subsidiaries, we expect
      that JMPAM will focus on the acquisition of alternative mortgage related
      investments. As of the date of the filing of this report, we have not commenced
      investments pursuant to this strategy; however, this strategy, if and when
      implemented, will vary from our core strategy and we can provide no assurance
      that we will be successful at implementing any alternative investment
      strategy.


8


**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





*Basis
      of Presentation* - The
      condensed consolidated balance sheets at September 30, 2008, the condensed
      consolidated statements of operations for the three months and nine months
      ended
      September 30, 2008 and 2007, and the condensed consolidated statements of cash
      flows for the nine months ended September 30, 2008 and 2007 are unaudited.
      In
      our opinion, all adjustments (which include only normal recurring adjustments)
      necessary to present fairly the financial position, results of operations and
      cash flows have been made. Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted in accordance with Article 10 of Regulation S-X and the
      instructions to Form 10-Q. These condensed consolidated financial statements
      should be read in conjunction with the consolidated financial statements and
      notes thereto included in our Annual Report on Form 10-K for the year ended
      December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”).
      The results of operations for the three and nine months ended September 30,
      2008
      are not necessarily indicative of the operating results for the full
      year.




The
      accompanying condensed consolidated financial statements include our accounts
      and that of our consolidated subsidiaries. All significant intercompany amounts
      have been eliminated. The preparation of financial statements in conformity
      with
      accounting principles generally accepted in the United States of America
      requires us to make estimates and assumptions that affect the reported amounts
      of assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting periods. Actual results could differ from those
      estimates.





The
      Board
      of Directors declared a one for five reverse stock split of our common stock,
      as
      of October 9, 2007 and a one for two reverse stock split of our common stock,
      as
      of May 27, 2008, decreasing the number of common shares then outstanding to
      approximately 9.3 million. Prior and current period share amounts and earnings
      per share disclosures have been restated to reflect the reverse stock split.
      In
      addition, the terms of our Series A Preferred Stock provide that the conversion
      rate for the Series A Preferred Stock be appropriately adjusted to reflect
      any
      reverse stock split. As a result, the description of our Series A Preferred
      Stock reflects the May 2008 reverse stock split.





*New
      Accounting Pronouncements -* On
      January 1, 2008, the Company adopted SFAS 157, *Fair
      Value Measurements* ,
      which
      defines fair value, establishes a framework for measuring fair value in
      accordance with GAAP and expands disclosures about fair value
      measurements.




The
      changes to previous practice resulting from the application of SFAS No.157
      relate to the definition of fair value, the methods used to measure fair value,
      and the expanded disclosures about fair value measurements.  The
      definition of fair value retains the exchange price notion used in earlier
      definitions of fair value.  SFAS No.157 clarifies that the exchange
      price is the price in an orderly transaction between market participants to
      sell
      the asset or transfer the liability in the market in which the reporting entity
      would transact for the asset or liability, that is, the principal or most
      advantageous market for the asset or liability.  The transaction to
      sell the asset or transfer the liability is a hypothetical transaction at the
      measurement date, considered from the perspective of a market participant that
      holds the asset or owes the liability.  SFAS No.157 provides a
      consistent definition of fair value which focuses on exit price and prioritizes,
      within a measurement of fair value, the use of market-based inputs over
      entity-specific inputs.  In addition, SFAS No.157 provides a framework
      for measuring fair value, and establishes a three-level hierarchy for fair
      value
      measurements based upon the transparency of inputs to the valuation of an asset
      or liability as of the measurement date (see note 10).





On
      January 1, 2008, the Company adopted SFAS No.159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      which
      provides companies with an option to report selected financial assets and
      liabilities at fair value.





The
      objective of SFAS No. 159 is to reduce both complexity in accounting for
      financial instruments and the volatility in earnings caused by measuring related
      assets and liabilities differently. SFAS No. 159 establishes presentation and
      disclosure requirements and requires companies to provide additional information
      that will help investors and other users of financial statements to more easily
      understand the effect of the company's choice to use fair value on its earnings.
      SFAS No. 159 also requires entities to display the fair value of those assets
      and liabilities for which the Company has chosen to use fair value on the face
      of the balance sheet. The Company’s adoption of SFAS No. 159 did not have a
      material impact on the condensed consolidated financial statements as the
      Company did not elect the fair value option for any of its existing financial
      assets or liabilities as of January 1, 2008.


9




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




In
      June
      2007, the Emerging Issues Task Force (“EITF”) reached consensus on Issue
      No. 06-11, *Accounting
      for Income Tax Benefits of Dividends on Share-Based Payment
      Awards* . EITF
      Issue No. 06-11 requires that the tax benefit related to dividend
      equivalents paid on restricted stock units, which are expected to vest, be
      recorded as an increase to additional paid-in capital. The Company
      currently accounts for this tax benefit as a reduction to income tax expense.
      EITF Issue No. 06-11 is to be applied prospectively for tax benefits on
      dividends declared in fiscal years beginning after December 15, 2008, and
      the Company expects to adopt the provisions of EITF Issue No. 06-11
      beginning in the first quarter of 2009. The Company does not expect the adoption
      of EITF Issue No. 06-11 to have a material effect on its financial
      condition, results of operations or cash flows.





In
      December 2007, the FASB issued SFAS No. 141, *Business
      Combinations* and
      issued SFAS 141(R) *Business
      Combinations* . 
      SFAS No. 141(R) broadens the guidance of SFAS No. 141, extending its
      applicability to all transactions and other events in which one entity obtains
      control over one or more other businesses. It broadens the fair value
      measurement and recognition of assets acquired, liabilities assumed, and
      interests transferred as a result of business combinations; and it stipulates
      that acquisition related costs be generally expensed rather than included as
      part of the basis of the acquisition.  SFAS No. 141(R) expands required
      disclosures to improve the ability to evaluate the nature and financial effects
      of business combinations. SFAS No. 141(R) is effective for all transactions
      the
      Company closes, on or after January 1, 2009.  We are currently evaluating
      the impact SFAS No. 141(R) will have on our consolidated financial
      statements.




In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements - An Amendment
      of
      ARB No. 51* . 
      SFAS No.160 requires a noncontrolling interest in a subsidiary to be reported
      as
      equity and the amount of consolidated net income specifically attributable
      to
      the noncontrolling interest to be identified in the consolidated financial
      statements.  SFAS No. 160 also calls for consistency in the manner of
      reporting changes in the parent’s ownership interest and requires fair value
      measurement of any noncontrolling equity investment retained in a
      deconsolidation. SFAS No.160 is effective for the Company on January 1, 2009
      and
      most of its provisions will apply prosepectively. We are currently evaluating
      the impact SFAS No.160 will have on our consolidated financial
      statements.





In
      February 2008, the FASB issued FASB Staff Position (“FSP”) No. 140-3, *Accounting
      for Transfers of Financial Assets and Repurchase Financing
      Transactions* .
      SFAS
      No.140-3 requires an initial transfer of a financial asset and a repurchase
      financing that was entered into contemporaneously or in contemplation of the
      initial transfer to be evaluated as a linked transaction under SFAS No.140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (“SFAS
      No. 140”) unless certain criteria are met, including that the transferred asset
      must be readily obtainable in the marketplace. FSP No. 140-3 is effective
      for the Company’s fiscal years beginning after November 15, 2008, and will
      be applied to new transactions entered into after the date of adoption. Early
      adoption is prohibited. The Company is currently evaluating the impact of
      adopting FSP No.140-3 on its financial condition and cash flows. Adoption of
      FSP
      No.140-3 will have no effect on the Company’s results of
      operations.




In
      March 2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities — an amendment of FASB
      Statement No. 133.* SFAS No. 161 requires enhanced disclosures about an entity’s
      derivative and hedging activities, and is effective for financial statements
      the
      Company issues for fiscal years beginning after November 15, 2008, with
      early application encouraged. The Company will adopt SFAS No. 161 in
      the first quarter of 2009. Because SFAS No. 161 requires only
      additional disclosures concerning derivatives and hedging activities, adoption
      of SFAS No. 161 will not affect the Company’s financial condition,
      results of operations or cash flows.





In
      May
      2008, the FASB issued Staff Position No. APB 14-1, *Accounting for Convertible Debt Instruments that may be*  *Settled
      in Cash upon Conversion (Including Partial Cash Settlement)* ,
      (the
“FSP”). The adoption of this FSP would affect  the
      accounting for our convertible preferred debentures. The FSP requires the
      initial proceeds from the sale of our convertible preferred debentures to be
      allocated between a liability component and an equity component. The resulting
      discount would be amortized using the effective interest method over the period
      the debt is expected to remain outstanding as  additional
      interest expense. The FSP would be effective for our fiscal year beginning
      on
      January 1, 2009 and requires retroactive application. We are currently
      evaluating the impact of the FSP on our financial statements.





On
      October 10, 2008, the FASB issued FSP No. 157-3, *Determining
      the Fair Value of a Financial Asset When the Market for That Asset Is Not
      Active* (“FSP
      No.157-3”).  FSP No.157-3 clarifies the application of FAS No.157 in a
      market that is not active and provides an example to illustrate key
      consideration in determining the fair value of a financial asset when the market
      for that financial asset is not active.  The issuance of FSP 157-3 did
      not have any impact on the Company’s determination of fair value for its
      financial assets.


10




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




**2.
      Investment Securities - Available for Sale**




Investment
      securities available for sale consist of the following as of September 30,
      2008
      and December 31, 2007 (dollar amounts in thousands):




**September 30,**
              **2008**
            
            **December 31,**
              **2007**Amortized
                cost
            
            $
            495,990
            
            $
            350,484Gross
                unrealized losses
            
            
            (15,848
            )
            
            —Fair
                value
            
            $
            480,142
            
            $
            350,484




During
      March 2008, news of security liquidations increased the volatility of many
      financial assets, including those held in our portfolio. The significant
      liquidation of MBS by several large financial institutions in early March 2008
      caused a significant decline in the fair market value of our MBS portfolio,
      including Agency ARM MBS and CMO Floaters that we pledge as collateral
      for borrowings under our repurchase agreements. As a result of the significant
      decline in the fair value of our Agency securities, as determined by the lenders
      under our repurchase agreements, the haircut required by our lenders to obtain
      new or additional financing on these securities experienced, in some
      cases, a significant increase. As of September 30, 2008, the average
      haircut on the CMO Floaters in our portfolio was 12% or an advance rate of
      88%, as compared to 5% or an advance rate of 95% at December 31, 2007. As a
      result of the combination of lower fair values on our Agency securities and
      rising haircut requirements to finance those securities, we elected to improve
      our liquidity position by selling approximately $592.8 million of Agency MBS
      securities, including $516.4 million of Agency ARM MBS and $76.4
      million of CMO Floaters from our portfolio in March 2008. The sales resulted
      in
      a realized loss of $15.0 million.





As
      a
      result of the timing of these sales occurring prior to the release of our
      December 31, 2007 results, the Company determined that the unrealized losses
      on
      our entire MBS securities portfolio were considered to be other than temporarily
      impaired as of December 31, 2007 and incurred an $8.5 million impairment
      charge for the quarter ended December 31, 2007.





As
      of
      September 30, 2008 and the date of this filing, we have the intent, and believe
      we have the ability, to hold our portfolio of securities which are currently
      in
      unrealized loss positions until recovery of their amortized cost, which may
      be until maturity.  Given the uncertain state of the financial markets,
      should conditions change that would require us to sell securities at a loss,
      we
      may no longer be able to assert that we have the ability to hold our remaining
      securities until recovery, and we would then be required to record impairment
      charges related to these securities. Substantially all of the Company's
      investment securities available for sale are pledged as collateral for
      borrowings under financing arrangements (see note 5).




The
        decline in value of our securities as of September 30, 2008 are partly
        attributable to non interest related movements including decreased market
        liquidity and increased uncertainty among financial institutions facing material
        structural changes in the market place.




All
      securities held in Investment Securities Available for Sale, including Agency,
      investment and non-investment grade securities, are based on unadjusted price
      quotes for similar securities in active markets and are categorized as Level
      2
      per SFAS No.157 (see note 10).




The
        following table presents the Company's investment securities available for
        sale
        in an unrealized loss position, aggregated by investment category and length
        of
        time that individual securities have been in a continuous unrealized loss
        position at September 30, 2008. There were no unrealized positions twelve
        months
        or more or as of December 31, 2007 as the Company incurred an $8.5
        million impairment charge (dollar amounts in thousands):   **September
                    30, 2008**
                
                **Less
                    than 12 Months**
                
                **Total****Carrying**
                  **Value**
                
                **Gross**
                  **Unrealized**
                  **Losses**
                
                **Carrying**
                  **Value**
                
                **Gross**
                  **Unrealized**
                  **Losses**Agency
                    REMIC CMO floaters
                
                $
                195,405
                
                $
                6,638
                
                $
                195,405
                
                $
                6,638Agency
                    Hybrid ARM securities
                
                
                262,347
                
                
                3,742
                
                
                262,347
                
                
                3,742Non-Agency
                    floaters
                
                
                21,773
                
                
                4,252
                
                
                21,773
                
                
                4,252NYMT
                    retained securities
                
                
                617
                
                
                1,216
                
                
                617
                
                
                1,216Total
                
                $
                480,142
                
                $
                15,848
                
                $
                480,142
                
                $
                15,848




11




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




The
      following tables set forth the stated reset periods and weighted average yields
      of our investment securities at September 30, 2008, there are no investments
      with resets more than 6 months and less than 24 months (dollar amounts in
      thousands):




**Less than 6 Months**
            
            **More than 24****Months**
              **to 60 Months**
            
            **Total****Carrying**
              **Value**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Weighted**
              **Average**
              **Yield**Agency
                REMIC CMO floaters
            
            $
            195,405
            
            
            4.02
            %
            $
            —
            
            
            —
            
            $
            195,405
            
            
            4.02
            %Agency
                Hybrid ARM securities
            
            
            —
            
            
            —
            
            
            262,347
            
            
            4.78
            %
            
            262,347
            
            
            4.78
            %Non-Agency
                floaters
            
            
            21,773
            
            
            17.54
            %
            
            —
            
            
            —
            
            
            21,773
            
            
            17.54
            %NYMT
                Retained Securities (1)
            
            
            548
            
            
            10.74
            %
            
            69
            
            
            21.25
            %
            
            617
            
            
            19.35
            %Total/Weighted
                average
            
            $
            217,726
            
            
            5.62
            %
            $
            262,416
            
            
            4.96
            %
            $
            480,142
            
            
            5.27
            %




(1)
      The
      NYMT retained securities includes $0.1 million of residual interests related
      to
      the NYMT 2006-1 transaction.





The
      following table sets forth the stated reset periods and weighted average yields
      of our investment securities at December 31, 2007, there are no investments
      with
      resets more than 6 months and less than 24 months (dollar amounts in
      thousands):




**Less than 6 Months**
            
            **More than 24 Months**
              **to 60 Months**
            
            **Total****Carrying**
              **Value**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Weighted**
              **Average**
              **Yield**Agency
                REMIC CMO Floating Rate
            
            $
            318,689
            
            
            5.55
            %
            $
            —
            
            
            —
            
            $
            318,689
            
            
            5.55
            %Non-Agency
                Floaters
            
            
            28,401
            
            
            5.50
            %
            
            —
            
            
            —
            
            
            28,401
            
            
            5.50
            %NYMT
                Retained Securities (1)
            
            
            2,165
            
            
            6.28
            %
            
            1,229
            
            
            12.99
            %
            
            3,394
            
            
            10.03
            %Total/Weighted
                Average
            
            $
            349,255
            
            
            5.55
            %
            $
            1,229
            
            
            12.99
            %
            $
            350,484
            
            
            5.61
            %




(1)
      The
      NYMT retained securities includes $1.2 million of residual interests related
      to
      the NYMT 2006-1 transaction.




12




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




**3** . **Mortgage
      Loans Held in Securitization Trusts (net)**




Mortgage
      loans held in securitization trusts (net) consist of the following as of
      September 30, 2008 and December 31, 2007 (dollar amounts in
      thousands):




**September 30,**
              **2008**
            
            **December 31,**
              **2007**Mortgage
                loans principal amount
            
            $
            356,682
            
            $
            429,629Deferred
                origination costs – net
            
            
            2,257
            
            
            2,733Reserve
                for loan
                losses
            
            
            (1,406
            )
            
            (1,647
            )Total
            
            $
            357,533
            
            $
            430,715




*Reserve
      for Loan losses -* The
      following table presents the activity in the Company's reserve for loan losses
      on mortgage loans held in securitization trusts for the nine months
      ended September 30, 2008 and 2007 (dollar amounts in
      thousands).




**September 30,****2008**
            
            **2007**Balance at
                beginning of period
            
            $
            1,647
            
            $
            —Provisions
                for loan losses
            
            
            1,433
            
            
            1,011Charge-offs
            
            
            (1,674
            )
            
            —Balance
                of the end of period
            
            $
            1,406
            
            $
            1,011





All
      of
      the Company's mortgage loans held in securitization trusts are pledged as
      collateral for the collateralized debt obligations (“CDO”) (see note 6). As of
      September 30, 2008, the Company’s net investment in the securitization trusts,
      which is the maximum amount of the Company’s investment that is at risk to loss
      and represents the difference between the carrying amount of the loans and
      the
      amount of CDO outstanding, was $11.8 million.


13




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





The
      following tables set forth delinquent loans in our portfolio as of September
      30,
      2008 and December 31, 2007 (dollar amounts in thousands):


**September
                  30, 2008****Days
                  Late**
              
              **Number of**
                **Delinquent**
                **Loans**
              
              **Total**
                **Dollar**
                **Amount**
              
              **% of**
                **Loan**
                **Portfolio**30-60
              
              
              6
              
              $
              2,389
              
              
              0.67
              %61-90
              
              
              1
              
              
              860
              
              
              0.24
              %90+
              
              
              10
              
              
              5,015
              
              
              1.41
              %Real
                  estate owned through foreclosure
              
              
              3
              
              $
              1,410
              
              
              0.40
              %




**December
                  31, 2007****Days
                  Late**
              
              **Number of**
                **Delinquent**
                **Loans**
              
              **Total**
                **Dollar**
                **Amount**
              
              **% of**
                **Loan**
                **Portfolio**30-60
              
              
              —
              
              $
              —
              
              
              —
              %61-90
              
              
              2
              
              
              1,859
              
              
              0.43
              %90+
              
              
              12
              
              
              6,910
              
              
              1.61
              %Real
                  estate owned through foreclosure
              
              
              4
              
              $
              4,145
              
              
              0.96
              %




14




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





**4.
      Derivative Instruments and Hedging Activities**





The
      Company enters into derivatives to manage its interest rate and market risk
      exposure associated with its MBS investment activities and its subordinated
      debentures. These derivatives include interest rate swaps and caps to mitigate
      the effects of major interest rate changes on net investment
      spread.





During
      the nine months ended September 30, 2008, the Company terminated a total of
      $517.7 million of notional interest rate swaps resulting in a realized loss
      of
      $4.8 million.




The
      following table summarizes the estimated fair value of derivative assets and
      liabilities as of September 30, 2008 and December 31, 2007 (see note 10) (dollar
      amounts in thousands):




**September 30,**
              **2008**
            
            **December 31,**
              **2007****Derivative assets:**Interest
                rate caps
            
            $
            271
            
            $
            416Interest
                rate swaps
            
            
            1,481
            
            
            —**Total**
            
            $
            1,752
            
            $
            416**Derivative
                liabilities:**Interest
                rate swaps
            
            $
            —
            
            $
            3,517**Total**
            
            $
            —
            
            $
            3,517




The
      notional amounts of the Company's interest rate swaps and interest rate caps
      as
      of September 30, 2008 were $146.7 million and $504.9 million,
      respectively.




The
      notional amounts of the Company's interest rate swaps and interest rate caps
      as
      of December 31, 2007 were $220.0 million and $749.6 million,
      respectively.




The
      Company estimates that over the next 12 months, approximately $1.2 million
      of the net unrealized gains on the interest rate swaps will be reclassified
      from accumulated Other Comprehensive Income (“OCI”) into earnings.





The
      Company received $1.6 million in cash related to margin owed to the Company
      for
      interest rate swaps as of September 30, 2008 and had $4.7 million of restricted
      cash related to margin posted for interest rate swaps as of December 31, 2007.
      The Company is required to post margin in the form of either cash or Agency
      ARM
      MBS to cover fair value deficits from our interest rate swap counterparties.




**5.**  **Financing
      Arrangements, Portfolio Investments**





The
      Company has entered into repurchase agreements with third party financial
      institutions to finance its mortgage-backed securities portfolio. The repurchase
      agreements are short-term borrowings that bear interest rates typically based
      on
      a spread to LIBOR, and are secured by the MBS which they finance. At September
      30, 2008, the Company had repurchase agreements with an outstanding balance
      of
      $406.3 million and a weighted average interest rate of 4.08%. As of December
      31,
      2007, the Company had repurchase agreements with an outstanding balance of
      $315.7 million and a weighted average interest rate of 5.02%. At September
      30,
      2008 and December 31, 2007, securities pledged as collateral for repurchase
      agreements had estimated fair values of $452.1 million and $337.4 million,
      respectively. All outstanding borrowings under our repurchase agreements
      mature within 30 days. As of September 30, 2008, the average days to
      maturity for all repurchase agreements are 14 days. The Company had
      outstanding repurchase agreements with five different financial institutions
      as
      of September 30, 2008 as compared to four as of December 31,
      2007.


15




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




As
      of
      September 30, 2008, our Agency ARM MBS are financed with $234.2 million of
      repurchase agreement funding with an advance rate of 94% that implies a
      haircut of 6%, our Agency CMO floaters are financed with $156.4 million of
      repurchase agreement financing with an advance rate of 88% that implies a
      haircut of 12%, and the non-Agency CMO floater was financed with $15.7 million
      of repurchase agreement funding with an advance rate of 80% that implies a
      20%
      haircut.




In
      the
      event we are unable to obtain sufficient short-term financing through repurchase
      agreements or otherwise, or our lenders start to require additional collateral,
      we may have to liquidate our investment securities at a disadvantageous time,
      which could result in losses. Any losses resulting from the disposition of
      our investment securities in this manner could have a material adverse effect
      on
      our operating results and net profitability.




As
      of
      September 30, 2008, the Company had $13.3 million in cash and $28.1 million
      in
      unencumbered securities including $23.3 million in Agency MBS to meet additional
      haircut or market valuation requirements.





**6** . **Collateralized
      Debt Obligations**




The
      Company’s CDOs, which are recorded as liabilities on the Company’s balance
      sheet, are secured by ARM loans pledged as collateral, which are recorded as
      assets of the Company. As of September 30, 2008 and December 31, 2007, the
      Company had CDOs outstanding of $345.7 million and $417.0 million, respectively.
      As of September 30, 2008 and December 31, 2007, the current weighted average
      interest rate on these CDOs was 3.53% and 5.25%, respectively. The CDOs are
      collateralized by ARM loans with a principal balance of $356.7 million and
      $429.6 million at September 30, 2008 and December 31, 2007, respectively. The
      Company retained the owner trust certificates, or residual interest for three
      securitizations, and, as of September 30, 2008 and December 31, 2007, had a
      net
      investment in the securitizations trusts after loan loss reserves of $11.8
      million and $13.7 million, respectively.





The
      CDO
      transactions include amortizing interest rate cap contracts with an aggregate
      notional amount of $239.6 million as of September 30, 2008 and an aggregate
      notional amount of $286.9 million as of December 31, 2007, which are recorded
      as
      an asset of the Company. The interest rate caps are carried at fair value and
      totaled $0.3 million as of September 30, 2008 and $0.1 million as of December
      31, 2007, respectively. The interest rate caps reduce interest rate exposure
      on
      these transactions.




**7.
      Discontinued Operation**




In
      connection with the sale of our mortgage origination platform assets during
      the
      quarter ended March 31, 2007, we classified our mortgage lending segment as
      a
      discontinued operation in accordance with the provisions of SFAS No. 144. As
      a
      result, we have reported revenues and expenses related to the segment as a
      discontinued operation and the related assets and liabilities as assets and
      liabilities related to a discontinued operation for all periods presented in
      the
      accompanying condensed consolidated financial statements. Certain assets, such
      as the deferred tax asset, and certain liabilities, such as subordinated debt
      and liabilities related to leased facilities not assigned to Indymac, will
      become part of our ongoing operations and accordingly, we have not included
      these items as part of the discontinued operation in accordance with the
      provisions of SFAS No. 144.




16




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





***Balance
      Sheet Data***





The
      components of assets related to the discontinued operation as of September
      30,
      2008 and December 31, 2007 are as follows (dollar amounts in
      thousands):




**September 30,**
              **2008**
            
            **December 31,**
              **2007**Accounts
                and accrued interest receivable
            
            $
            26
            
            $
            51Mortgage
                loans held for sale (net of reserves of $1.1 million as of September
                30,
                2008 and $1.5 million as of December 31, 2007)
            
            
            5,391
            
            
            8,077Prepaid
                and other assets
            
            
            424
            
            
            737Property
                and equipment, net
            
            
            —
            
            
            11Total assets
            
            $
            5,841
            
            $
            8,876




The
      components of liabilities related to the discontinued operation as of September
      30, 2008 and December 31, 2007 are as follows (dollar amounts in
      thousands):




**September 30,**
              **2008**
            
            **December 31,**
              **2007**Due
                to loan purchasers
            
            $
            687
            
            $
            894Accounts
                payable and accrued expenses
            
            
            3,280
            
            
            4,939Total liabilities
            
            $
            3,967
            
            $
            5,833




***Statements
      of Operations Data***




The
      statements of operations of the discontinued operation for the three and nine
      months ended September 30, 2008 and 2007 are as follows (dollar amounts in
      thousands):




**For the Three Months Ended**
            
            **For the Nine Months Ended****September 30,**
            
            **September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Revenues
            
            $
            203
            
            $
            (39
            )
            $
            1,136
            
            $
            1,877Expenses
            
            
            (82
            )
            
            18,988
            
            
            (158
            )
            
            (33,763
            )Loss
                from discontinued operations - net of tax
            
            
            285
            
            
            (19,027
            )
            
            1,294
            
            
            (31,886
            )




17




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




**8** . **Commitments
      and Contingencies**




*Loans
      Sold to Investors*  *-* For
      loans originated and sold by our discontinued mortgage lending business, the
      Company is not exposed to long term credit risk.  In the normal course of
      business however, the Company is obligated to repurchase loans based on
      violations of representations and warranties in the sale agreement, or early
      payment defaults.  The Company did not repurchase any loans during the
      three months ended September 30, 2008.





The
      Company periodically receives repurchase requests, each of which management
      reviews to determine, based on management’s experience, whether such requests
      may reasonably be deemed to have merit. As of September 30, 2008, we had a
      total
      of $1.5 million of unresolved repurchase requests that management concluded
      may
      reasonably be deemed to have merit, against which the Company has a reserve
      of
      approximately $0.5 million. The reserve is based on one or more factors,
      including, among other things, historical settlement rates, property value
      securing the loan in question and specific settlement discussion with third
      parties.




*Outstanding
      Litigation* - The
      Company is at times subject to various legal proceedings arising in the ordinary
      course of business other than as described below, the Company does not believe
      that any of its current legal proceedings, individually or in the aggregate,
      will have a material adverse effect on its operations, financial condition
      or cash flows.




On
      December 13, 2006, Steven B. Yang and Christopher Daubiere (“Plaintiffs”), filed
      suit in the United States District Court for the Southern District of New York
      against HC and us, alleging that we failed to pay them, and similarly situated
      employees, overtime in violation of the Fair Labor Standards Act (“FLSA”) and
      New York State law.  The Plaintiffs, each of whom were former employees in
      our discontinued mortgage lending business, purported to bring a FLSA
“collective action” on behalf of similarly situated loan officers in our now
      discontinued mortgage lending business and sought unspecified amounts for
      alleged unpaid overtime wages, liquidated damages, attorney’s fees and
      costs.





On
      December 30, 2007 we entered into an agreement in principle with the Plaintiffs
      to settle this suit. On June 2, 2008 the court granted a preliminary approval
      of
      settlement and authorized notification to plaintiffs and held a fairness hearing
      on September 18, 2008. At the hearing, the court certified the class and
      approved the settlement, subject to a final motion to approve Plaintiffs’
counsel’s application for fees. As part of the preliminary settlement, the
      Company funded the settlement in the amount of $1.35 million into an escrow
      account for the Plaintiffs. The amount was previously reserved and expensed
      in
      the year ended December 31, 2007. Once the fee application is decided (any
      fee
      award is to be paid out of the fund with no additional costs to the Company),
      the funds will be distributed from the escrow account to the
      Plaintiffs.





*Leases* - The
      Company leases its corporate offices and certain office space related to our
      discontinued mortgage lending operation not assumed by IndyMac and equipment
      under short-term lease agreements expiring at various dates through 2013. All
      such leases are accounted for as operating leases. Total rental income for
      property and equipment amounted to $0.4 million and $0.1 million for the nine
      months and three months ended September 30, 2008. As of September 30, 2008,
      the
      Company had been reimbursed for $1.2 million by Indymac representing the
      reduction in escrow from the non performance of vacating the premise as
      described below and is included in other income.




Pursuant
      to an Assignment and Assumption of Sublease and an Escrow Agreement, each with
      Lehman Brothers Holdings Inc. (“Lehman”) (collectively, the “Agreements”), the
      Company assigned and Lehman assumed the sublease for the Company's corporate
      headquarters at 1301 Avenue of the Americas. Pursuant to the Agreements,
      Lehman funded an escrow account, containing $3.0 million for the
      benefit of HC. The escrow amount was reduced by $0.2 million for each month
      the
      Company or IndyMac remained in the leased space between February 1, 2008 and
      July 31, 2008, for a total escrow reduction of $1.2 million, which amount was
      reimbursed by IndyMac. The remaining $1.8 million in escrow was released to
      the
      Company on August 18, 2008. The Company relocated its corporate offices to
      52
      Vanderbilt Avenue in New York, New York on July 3, 2008. IndyMac occupied the
      leased space at 1301 Avenue of the Americas pursuant to the contractual
      provisions related to the sale of the mortgage origination business until July
      31, 2008. Pursuant to the provisions of the sale transaction with
      IndyMac, IndyMac paid rent equal to the Company’s cost, including any
      penalties and foregone bonuses resulting from the delay in vacating the leased
      premises.




18





**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





On
      September 15, 2008, Lehman filed a voluntary petition for relief under
      Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy
      Court for the Southern District of New York. Pursuant to the terms of a sublease
      agreement between the Company and PricewaterhouseCoopers LLP, whereby the
      Company agreed to lease the space at 1301 Avenue of the Americas until December
      31, 2010, the Company may be obligated to pay monthly rent of $0.2 million
      and
      certain other expenses for the leased space at 1301 Avenue of the Americas
      in
      the event Lehman or any successor thereof fails to satisfy its obligations
      under
      the Agreements.





*Letters
      of Credit* –
The
      Company maintains a letter of credit in the amount of $178,200 in lieu of a
      cash
      security deposit for its current corporate headquarters located at 52 Vanderbilt
      Avenue in New York City for its landlord, Vanderbilt Associates I, L.L.C, as
      beneficiary. This letter of credit is secured by cash deposited in a bank
      account maintained at JP Morgan Chase bank.





HC
      maintains a letter of credit in the amount of $100,000 in lieu of a cash
      security deposit for an office lease dated June 1998 for the Company's former
      headquarters located at 304 Park Avenue South in New York City. The sole
      beneficiary of this letter of credit is the owner of the building, 304 Park
      Avenue South LLC. This letter of credit is secured by cash deposited in a bank
      account maintained at JP Morgan Chase bank.




**9.**  **Concentrations
      of Credit Risk**




At
      September 30, 2008 and December 31, 2007, there were geographic concentrations
      of credit risk exceeding 5% of the total loan balances within mortgage loans
      held in the securitization trusts and retained interests in our REMIC
      securitization, NYMT 2006-1, as follows:




**September 30,**
              **2008**
            
            **December 31,**
              **2007**New
                York
            
            
            30.7
            %
            
            31.2
            %Massachusetts
            
            
            17.2
            %
            
            17.4
            %Florida
            
            
            7.8
            %
            
            8.3
            %California
            
            
            7.2
            %
            
            7.2
            %New
                Jersey
            
            
            6.0
            %
            
            5.7
            %




19




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





**10** . **Fair
      Value of Financial Instruments**





The
      Company adopted SFAS No.157 effective January 1, 2008, and accordingly all
      assets and liabilities measured at fair value will utilize valuation
      methodologies in accordance with the statement.  The Company has
      established and documented processes for determining fair
      values.  Fair value is based upon quoted market prices, where
      available.  If listed prices or quotes are not available, then fair
      value is based upon internally developed models that primarily use inputs that
      are market-based or independently-sourced market parameters, including interest
      rate yield curves.




A
      financial instrument’s categorization within the valuation hierarchy is based
      upon the lowest level of input that is significant to the fair value
      measurement.  The three levels of valuation hierarchy established by
      FAS 157 are defined as follows:




*Level
      1* - inputs
      to the valuation methodology are quoted prices (unadjusted) for identical assets
      or liabilities in active markets.




*Level
      2* - inputs
      to the valuation methodology include quoted prices for similar assets and
      liabilities in active markets, and inputs that are observable for the asset
      or
      liability, either directly or indirectly, for substantially the full term of
      the
      financial instrument.




*Level
      3* - inputs
      to the valuation methodology are unobservable and significant to the fair value
      measurement.




The
      following describes the valuation methodologies used for the Company’s financial
      instruments measured at fair value, as well as the general classification of
      such instruments pursuant to the valuation hierarchy.




*a.
      Investment Securities Available for Sale* - Fair
      value is generally based on quoted prices provided by dealers who make markets
      in similar financial instruments. The dealers will incorporate common market
      pricing methods, including a spread measurement to the Treasury curve or
      Interest Rate Swap Cure as well as underlying characteristics of the particular
      security including coupon, periodic and life caps, collateral type, rate reset
      period and seasoning or age of the security. If the fair value of a security
      is
      not reasonably available from a dealer, management estimates the fair value
      based on characteristics of the security that the Company receives from the
      issuer and based on available market information. Management reviews all prices
      used in determining valuation to ensure they represent current market
      conditions. This review includes surveying similar market transactions,
      comparisons to interest pricing models as well as offerings of like securities
      by dealers. The Company’s investment securities are valued based upon readily
      observable market parameters and are classified as Level 2 fair
      values.





b. *Interest
      Rate Swaps and Caps* - The
      fair value of interest rate swaps and caps are based on using market accepted
      financial models as well as dealer quotes. The model utilizes readily observable
      market parameters, including treasury rates, interest rate swap spreads and
      swaption volatility curves. The Company’s interest rate caps and swaps are
      classified as Level 2 fair values.





c. *Mortgage
      Loans Held for Sale (Net)* –The
      fair
      value of mortgage loans held for sale (net) are estimated by the Company based
      on the price that would be received if the loans were sold as whole loans taking
      into consideration the aggregated characteristics of the loans such as, but
      not
      limited to, collateral type, index, interest rate, margin, length of fixed
      interest rate period, life cap, periodic cap, underwriting standards, age and
      credit. As there are not readily available quoted prices for identical or
      similar loans are classified as Level 3 fair values.




The
      following table presents the Company’s financial instruments carried at fair
      value as of September 30, 2008 on the condensed consolidated balance sheet
      by
      SFAS No.157 valuation hierarchy, as previously described (dollar amounts in
      thousands):





**Fair Value at September 30, 2008****Assets carried at fair value:**
            
            **Level 1**
            
            **Level 2**
            
            **Level 3**
            
            **Total**Investment
                securities - available for sale
            
            $
            —
            
            $
            480,142
            
            $
            —
            
            $
            480,142Mortgage
                loans held for sale (net)
            
            
            —
            
            
            —
            
            
            5,391
            
            
            5,391Interest
                Rate Caps
            
            
            —
            
            
            271
            
            
            —
            
            
            271Interest
                Rate Swaps
            
            
            —
            
            
            1,481
            
            
            —
            
            
            1,481Total
            
            $
            —
            
            $
            481,894
            
            $
            5,391
            
            $
            487,285


20




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




The
      following table details changes in valuations for the Level 3 assets for the
      three and nine months ended September 30, 2008 (dollar amounts in
      thousands):





**Mortgage
                Loans Held for Sale (Net)**
            
            **Three Months**
              **Ended**
              **September 30, 2008**
            
            **Nine Months**
              **Ended**
              **September 30, 2008**Beginning
                balance
            
            $
            6,200
            
            $
            8,077Principal
                paydown
            
            
            (888
            )
            
            (2,732
            )Provision
                for loan
                losses
            
            
            —
            
            
            (87
            )LOCOM
                adjustment
            
            
            79
            
            
            133Ending
                balance
            
            $
            5,391
            
            $
            5,391





Any
      changes to the valuation methodology are reviewed by management to ensure the
      changes are appropriate.  As markets and products develop and the
      pricing for certain products becomes more transparent, the Company continues
      to
      refine its valuation methodologies.  The methods described above may
      produce a fair value calculation that may not be indicative of net realizable
      value or reflective of future fair values.  Furthermore, while the
      Company believes its valuation methods are appropriate and consistent with
      other
      market participants, the use of different methodologies, or assumptions, to
      determine the fair value of certain financial instruments could result in a
      different estimate of fair value at the reporting date.  The Company
      uses inputs that are current as of the measurement date, which may include
      periods of market dislocation, during which time price transparency may be
      reduced.  This condition could cause the Company’s financial
      instruments to be reclassified from Level 2 to Level 3 in future
      periods.





**11.**  **Segment
      Reporting**




Until
      March 31, 2007, the Company operated two reportable segments, the mortgage
      portfolio management segment and the mortgage lending segment. Upon the sale
      of
      substantially all the mortgage lending operating assets on March 31, 2007,
      the
      Company exited the mortgage lending business and accordingly no longer reports
      segment information.





**12.
      Capital Stock and Earnings per Share**




The
      Company had 400,000,000 shares of common stock, par value $0.01 per share,
      authorized with 9,320,094 shares issued and outstanding as of September 30,
      2008
      and 1,817,927 shares issued and outstanding as of December 31, 2007. The Company
      had 200,000,000 shares of preferred stock, par value $0.01 per share,
      authorized, including 2,000,000 shares of Series A Cumulative Convertible
      Redeemable Preferred Stock ( “ Series A Preferred Stock ” ) authorized. As of
      September 30, 2008 and December 31, 2007, the Company had issued and
      outstanding 1,000,000 and 0 shares, respectively, of Series A Preferred
      Stock. Of the common stock authorized, 103,111 shares (plus forfeited
      shares of 32,832 previously granted) were reserved for issuance as restricted
      stock awards to employees, officers and directors pursuant to the 2005 Stock
      Incentive Plan. As of September 30, 2008, 135,943 shares remain reserved for
      issuance under the 2005 Plan.





On
      February 21, 2008, the Company completed the issuance and sale of 7.5 million
      shares of its common stock in a private placement at a price of $8.00 per
      share.  This private offering of the Company's common stock generated net
      proceeds to the Company of $56.5 million after payment of private placement
      fees
      and expenses.  In connection with this private offering of our common
      stock, we entered into the Common Stock Registration Rights Agreement, pursuant
      to which we were required to file with the Securities and Exchange Commission,
      or SEC, a resale shelf registration statement registering for resale the
      7.5 million shares sold in this private offering. The Company filed a
      resale shelf registration statement on Form S-3 on April 4, 2008 which
      became effective on April 18, 2008.




21




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





On
      April 21, 2008, the Company declared a $0.12 per share cash dividend on its
      common stock. The dividend was payable on May 15, 2008 to common stockholders
      of
      record as of April 30, 2008. On June 26, 2008, the Company declared a $0.16
      per
      share cash dividend on its common stock. The dividend was payable on July 25,
      2008 to common stockholders of record as of July 10, 2008. On September 29,
      2008, the Company declared a $0.16 per share cash dividend on its common stock.
      The dividend was payable on October 27, 2008 to common stockholders of record
      as
      of October 10, 2008.





We
      paid a
      $0.50 per share cash dividend in each of the first two quarters on the
      Series A Preferred Stock. On September 29, 2008 the Company declared a $0.50
      per
      share cash dividend, or an aggregate of $0.5 million, payable on October
      31, 2008 to holders of record of our Series A Preferred Stock as of September
      30, 2008.





The
      Board
      of Directors declared a one-for-two reverse stock split of the Company’s common
      stock, effective on May 27, 2008, decreasing the number of shares outstanding
      to
      approximately 9.3 million.





The
      Board
      of Directors declared a one for five reverse stock split of the Company's common
      stock, effective on October 9, 2007, decreasing the number of common shares
      outstanding at the time to approximately 3.6 million.





All
      per
      share and share amounts provided in the quarterly report have been restated
      to give effect to both reverse stock splits.





The
      Company calculates basic net income (loss) per share by dividing net income
      (loss) for the period by weighted-average shares of common stock outstanding
      for
      that period. Diluted net income (loss) per share takes into account the effect
      of dilutive instruments, such as convertible preferred stock, stock options
      and unvested restricted or performance stock, but uses the average share price
      for the period in determining the number of incremental shares that are to
      be
      added to the weighted-average number of shares outstanding.


22




**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**




The
      following table presents the computation of basic and diluted net income (loss)
      per share for the periods indicated (in thousands, except per share
      amounts):





**For the Three Months Ended**
              **September 30,**
            
            **For the Nine Months Ended**
              **September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Numerator**:Net
                income (loss) – Basic
            
            $
            1,029
            
            $
            (20,716
            )
            $
            (18,966
            )
            $
            (39,653
            )Net
                income (loss) from continuing operations
            
            
            744
            
            
            (1,689
            )
            
            (20,260
            )
            
            (7,767
            )Net
                income (loss) from discontinued operations (net of tax)
            
            
            285
            
            
            (19,027
            )
            
            1,294
            
            
            (31,886
            )Effect
                of dilutive instruments:Convertible
                preferred debentures (1)
            
            
            537
            
            
            —
            
            
            1,612
            
            
            —Net
                income (loss) – Dilutive
            
            
            1,029
            
            
            (20,716
            )
            
            (18,966
            )
            
            (39,653
            )Net
                income (loss) from continuing operations
            
            
            744
            
            
            (1,689
            )
            
            (20,260
            )
            
            (7,767
            )Net
                income (loss) from discontinued operations (net of tax)
            
            $
            285
            
            $
            (19,027
            )
            $
            1,294
            
            $
            (31,886
            )**Denominator:**Weighted
                average basis shares outstanding
            
            
            9,320
            
            
            1,818
            
            
            7,919
            
            
            1,812Effect
                of dilutive instruments:Convertible
                preferred debentures (1)
            
            
            2,500
            
            
            —
            
            
            2,344
            
            
            —Weighted
                average dilutive shares outstanding
            
            
            9,320
            
            
            1,818
            
            
            7,919
            
            
            1,812**EPS:**Basic
                EPS
            
            $
            0.11
            
            $
            (11.39
            )
            $
            (2.39
            )
            $
            (21.88
            )Basic
                EPS from continuing operations
            
            
            0.08
            
            
            (0.93
            )
            
            (2.55
            )
            
            (4.28
            )Basic
                EPS from discontinued operations (net of tax)
            
            
            0.03
            
            
            (10.47
            )
            
            0.16
            
            
            (17.60
            )Dilutive
                EPS
            
            $
            0.11
            
            $
            (11.39
            )
            $
            (2.39
            )
            $
            (21.88
            )Dilutive
                EPS from continuing operations
            
            
            0.08
            
            
            (0.93
            )
            
            (2.55
            )
            
            (4.28
            )Basic
                EPS from discontinued operations (net of tax)
            
            
            0.03
            
            
            (10.47
            )
            
            0.16
            
            
            (17.60
            )


(1)
–
      Amount excluded from dilutive calculation as it is anti-dilutive.


**13.Convertible Preferred Debentures**


As
      of
      September 30, 2008, there were 1.0 million shares of our Series A Preferred
      Stock outstanding, with an aggregate redemption value of $20.0 million and
      current dividend payment rate of 10% per year. The Series A Preferred Stock
      matures on December 31, 2010, at which time any outstanding shares
      must be redeemed by the Company at the $20.00 per share liquidation
      preference. Pursuant to SFAS No.150, *Accounting*  *for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity* ,
      because
      of this mandatory redemption feature, the Company classifies these
      securities as  a liability on its balance sheet.





We
      issued
      these shares of Series A Preferred Stock to JMP Group Inc. and certain of its
      affiliates for an aggregate purchase price of $20.0 million. The Series A
      Preferred Stock entitles the holders to receive a cumulative dividend
      of 10% per year, subject to an increase to the extent any future quarterly
      common stock dividends exceed $0.20 per share. The Series A Preferred
      Stock is convertible into shares of the Company's common stock based on a
      conversion price of $8.00 per share of common stock, which represents a
      conversion rate of two and one-half (2 1⁄2) shares of common stock for each share
      of Series A Preferred Stock.


23





**NEW
      YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(unaudited)**





**14.
      Related Party Transactions**





Concurrent
      and in connection with the issuance of our Series A Preferred Stock on January
      18, 2008, we entered into an advisory agreement with JMPAM, which is an
      affiliate of JMP Group, Inc. and JMP Realty Trust, Inc. Pursuant
      to a Schedule 13D filed with the SEC on March 25, 2008, JMPAM and JMP
      Group, Inc. beneficially owned approximately 16.8% and 12.2% of our common
      stock. Under the agreement, JMPAM advises the Managed Subsidiaries. As
      previously disclosed, we have an approximately $63.7 million net operating
      loss
      carry-forward that remains with us after the sale of our mortgage lending
      business. As an advisor to the Managed Subsidiaries, we expect that JMPAM will,
      at some point in the future, focus on the acquisition of alternative mortgage
      related investments on behalf of the Managed Subsidiaries. Some of those
      investments may allow us to utilize all or a portion of the net operating loss
      carry-forward to the extent available by law. The commencement of any activity
      by JMPAM must be approved by the Board of Directors and any subsequent
      investment on behalf of Managed Subsidiaries must adhere to investment
      guidelines adopted by our board of directors. JMPAM will earn a base advisory
      fee of 1.5% of the “equity capital” (as defined in the advisory agreement) of
      the Managed Subsidiaries and is also eligible to earn incentive compensation
      if
      the Managed Subsidiaries achieve certain performance thresholds. As of September
      30, 2008, JMPAM was not managing any assets in the Managed Subsidiaries, but
      was
      earning a base advisory fee on the net proceeds to our Company from our private
      offerings in each of January 2008 and February 2008. For the three and nine
      months ended September 30, 2008, we JMPAM earned $0.2 million and $0.5 million
      respectively, in advisory fees. As of the date of this report, we expect JMPAM
      to earn approximately $0.7 million in advisory fees for the 2008 fiscal
      year.





In
      addition, pursuant to the stock purchase agreement providing for the sale of
      the
      Series A Preferred Stock to JMP Group, Inc. and certain of its affiliates,
      James
      J. Fowler and Steven M. Abreu were appointed to our Board of Directors, with
      Mr.
      Fowler being appointed the non-executive chairman of our Board of Directors.
      In
      addition, concurrent with the completion of the issuance and sale of the Series
      A Preferred Stock and pursuant to the stock purchase agreement, four of our
      then-existing directors resigned from the Board.





James
      J.
      Fowler, the Non-Executive Chairman of our Board of Directors and also the
      non-compensated Chief Investment Officer of Hypotheca Capital, LLC and New
      York
      Mortgage Funding, LLC, is a managing director of JMPAM and the president of
      JMP
      Realty Trust, Inc., a private REIT that is externally managed by JMPAM and
      which
      is one of the investors in our Series A Preferred Stock. JMPAM and JMP Realty
      Trust, Inc. are affiliates of JMP Group, Inc.





On
      February 21, 2008, we completed the issuance of 7.5 million shares of our common
      stock in a private placement to certain accredited investors, resulting in
      $56.5
      million in net proceeds to the Company. JMP Securities LLC, an affiliate of
      JMPAM, JMP Group, Inc. and JMP Realty Trust, Inc., served as the sole placement
      agent for the transaction and was paid a $3.0 million placement fee from the
      gross proceeds.





**15** . **Income
      Taxes**




All
      income tax benefits relate to HC and are included in the results of operations
      of the discontinued operation. Deferred taxes at September 30, 2008 include
      a
      deferred tax asset of $0.1 million and a deferred tax liability of $0.1 million
      which represents the tax effect of differences between tax basis and financial
      statement carrying amounts of assets and liabilities. The $64.6 million net
      operating loss carry-forward expires at various intervals between 2024 and
      2028.
      During the quarter ended September 30, 2007 management determined that the
      Company would likely not be able to utilize the deferred tax asset and
      accordingly recorded a 100% valuation allowance. The Company continued to
      reserve 100% of deferred tax benefit in the quarter ended September 30, 2008
      as
      the facts continue to support the Company's inability to utilize the deferred
      tax asset.


24


**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**




**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




This
      Quarterly Report on Form 10-Q contains certain forward-looking statements.
      Forward-looking statements are those which are not historical in nature. They
      can often be identified by their inclusion of words such as “will,”
“anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar
      expressions. Any projection of revenues, earnings or losses, capital
      expenditures, distributions, capital structure or other financial terms is
      a
      forward-looking statement. Certain statements regarding the following
      particularly are forward-looking in nature:




·
            our
                business strategy;




·
            future
                performance, developments, market forecasts or projected
                dividends;




·
            projected
                acquisitions or joint ventures; and




·
            projected
                capital expenditures.




It
      is
      important to note that the description of our business is general and our
      investment in mortgage loans and mortgage-backed securities holdings in
      particular, is a statement about our operations as of a specific point in time
      and is not meant to be construed as an investment policy. The types of
      assets we hold, the amount of leverage we use or the liabilities we incur and
      other characteristics of our assets and liabilities disclosed in this report
      as
      of a specified period of time are subject to reevaluation and change without
      notice.




Our
      forward-looking statements are based upon our management's beliefs, assumptions
      and expectations of our future operations and economic performance, taking
      into
      account the information currently available to us. Forward-looking statements
      involve risks and uncertainties, some of which are not currently known to us
      and
      many of which are beyond our control and that might cause our actual results,
      performance or financial condition to be materially different from the
      expectations of future results, performance or financial condition we express
      or
      imply in any forward-looking statements. Some of the important factors that
      could cause our actual results, performance or financial condition to differ
      materially from expectations are:




·
            our
                portfolio strategy and operating strategy may be changed or modified
                by
                our management without advance notice to you or stockholder approval
                and
                we may suffer losses as a result of such modifications or
                changes;




·
            market
                changes in the terms and availability of repurchase agreements used
                to
                finance our investment portfolio
                activities;




·
            reduced
                demand for our securities in the mortgage securitization and secondary
                markets;




·
            interest
                rate mismatches between our mortgage-backed securities and our borrowings
                used to fund such purchases;




·
            changes
                in interest rates and mortgage prepayment
                rates;





·
            changes
                in the financial markets and economy
                generally;




·
            effects
                of interest rate caps on our adjustable-rate mortgage-backed
                securities;




·
            the
                degree to which our hedging strategies may or may not protect us
                from
                interest rate volatility;




·
            potential
                impacts of our leveraging policies on our net income and cash available
                for distribution;




·
            our
                board's ability to change our operating policies and strategies without
                notice to you or stockholder
                approval;




·
            our
                ability to manage, minimize or eliminate liabilities stemming from
                the
                discontinued operations including, among other things, litigation,
                repurchase obligations on the sales of mortgage loans and property
                leases;
                and




·
            the
                other important factors identified, or incorporated by reference
                into this
                report, including, but not limited to those under the captions
                “Management's Discussion and Analysis of Financial Condition and Results
                of Operations” and “Quantitative and Qualitative Disclosures about Market
                Risk”, and those described in Part I, Item 1A of our Annual Report on
                Form 10-K for the year ended December 31, 2007, Part II, Item 1A
                of our
                Quarterly Reports on Form 10-Q for each of the quarterly reports
                filed in
                2008 and the various other factors identified in any other documents
                filed
                by us with the Securities and Exchange Commission, or
                SEC.


25




We
      undertake no obligation to publicly update or revise any forward-looking
      statements, whether as a result of new information, future events or otherwise.
      In light of these risks, uncertainties and assumptions, the events described
      by
      our forward-looking events might not occur. We qualify any and all of our
      forward-looking statements by these cautionary factors. In addition, you should
      carefully review the risk factors described in other documents we file from
      time
      to time with the Securities and Exchange Commission.




**General**





New
      York
      Mortgage Trust, Inc. together with its consolidated subsidiaries (“NYMT”, the
“Company”, “we”, “our”, and “us”) is a self-advised real estate investment
      trust, or REIT, in the business of investing in residential adjustable rate
      mortgage-backed securities issued by a federally chartered corporation, such
      as
      the Federal National Mortgage Association (“Fannie Mae”), or the Federal Home
      Loan Mortgage Corporation (“Freddie Mac”), prime credit quality residential
      adjustable-rate mortgage (“ARM”) loans, or prime ARM loans, and non-agency
      mortgage-backed securities. We refer to residential adjustable rate
      mortgage-backed securities throughout this Quarterly Report on Form 10-Q as
“MBS” and MBS issued by a federally chartered corporation as “Agency MBS”. We
      seek attractive long-term investment returns by investing our equity capital
      and
      borrowed funds in such securities. Our principal business objective is to
      generate net income for distribution to our stockholders resulting from the
      spread between the interest and other income we earn on our interest-earning
      assets and the interest expense we pay on the borrowings that we use to finance
      these assets, which we refer to as our net interest income. We believe that
      the
      best approach to generating a positive net interest income is to manage our
      liabilities, principally in the form of short-term indebtedness (maturities
      of
      one year or less), in relation to the interest rate risks of our investments.
      To
      help achieve this result, we employ repurchase agreement financing,
      generally short-term, and over time will combine our financings with hedging
      techniques, primarily interest rate swaps. We may, subject to maintaining our
      REIT qualification, also employ other hedging techniques from time to time,
      including interest rate caps, floors and swap options to protect against adverse
      interest rate movements.




Since
      inception, our investment portfolio strategy has focused on the acquisition
      of
      high-credit quality ARM loans and securities. Moreover, since our exit from
      the
      mortgage lending business on March 31, 2007, we have exclusively focused our
      resources and efforts on investing, on a leveraged basis, in MBS and, since
      August 2007, we have employed a portfolio strategy that focuses on
      investments in Agency MBS. As of September 30, 2008, our investment portfolio
      was comprised of $480.1 million in MBS, including $262.3 million of Agency
      ARM
      MBS, $195.4 million of Agency CMO floaters and $22.4 million of non-Agency
      MBS,
      of which $21.8 million are rated in the highest category by two rating agencies
      (either Moody's Investor Service, Inc. or Standard &
Poor's, Inc.), and $357.5 million of prime ARM loans held in
      securitization trusts.  As of September 30, 2008, we had approximately
      $864.5 million of total assets as compared to $809.3 million at December
      31, 2007.




26





***Our
      Alternative Investment Strategy Under Our Advisory
      Agreement***





Although
      we are in the business of investing in MBS and have most recently employed
      a
      portfolio strategy that focuses on investments in Agency MBS, we may engage
      in
      an alternative mortgage related investment strategy in the near future that
      would potentially allow us to utilize an approximately $64.6 million net
      operating loss carry-forward that resulted from our exit from the mortgage
      lending business. We expect this alternative mortgage-related investment
      strategy, which will be managed by JMP Asset Management LLC (“JMPAM”) pursuant
      to an advisory agreement between JMPAM and our company, to primarily take the
      form of equity investments in unaffiliated third party entities, or Funds,
      that
      acquire or manage a portfolio of non-Agency MBS, some or all of which may be
      classified as non-investment grade securities. Under the advisory agreement
      with
      JMPAM, which was entered into concurrent with our issuance of 1.0 million shares
      of Series A Cumulative Convertible Redeemable Preferred Stock to JMP Group,
      Inc.
      and certain of its affiliates, JMPAM advises two of our wholly-owned
      subsidiaries, Hypotheca Capital, LLC, or HC (formerly known as The New York
      Mortgage Company, LLC), and New York Mortgage Funding, LLC, or NYMF, as well
      as
      any additional subsidiaries acquired or formed in the future to hold investments
      made on our behalf by JMPAM. We refer to these subsidiaries in our periodic
      reports filed with the SEC as the “Managed Subsidiaries.” As an advisor to the
      Managed Subsidiaries, we expect that JMPAM will focus on the acquisition of
      alternative mortgage related investments. Investments by us in Funds will
      generally expose us to greater credit risk and less interest rate risk than
      investments in Agency MBS. Although our investment strategy thus far in 2008
      has
      focused on the acquisition of Agency MBS, JMPAM may commence investments under
      this alternative mortgage related investment strategy in the near future; *provided,
      however,* that
      the
      commencement of investments by JMPAM under this strategy must first be approved
      by our board of directors and any subsequent investment on behalf of Managed
      Subsidiaries must adhere to investment guidelines adopted by our board of
      directors. This strategy, if and when implemented, will vary from our core
      strategy and we can provide no assurance that we will be successful at
      implementing any alternative investment strategy.





**Known
      Material Trends and Commentary**





*Adverse
      developments in global financial markets and economic conditions* -
      Since
      mid-2007, global credit and other financial markets have suffered substantial
      stress, volatility and disruption, and recent signs indicate that the U.S.
      economy is in recession. For the nine month period ended September 30, 2008,
      continued concerns about the systemic impact of inflation, energy costs,
      geopolitical issues, the availability and cost of credit, the U.S. mortgage
      market and declining real estate values in the U.S. have contributed to
      increased volatility and diminished expectations for the U.S. and global
      economies generally. Market volatility and disruption was heightened in the
      third quarter of 2008 with the federal conservatorship of Fannie Mae and Freddie
      Mac, the declared bankruptcy of Lehman Brothers Holdings Inc. and the U.S.
      government loan to American International Group Inc.





In
      response to the financial issues affecting the banking system and financial
      markets and going concern threats to investment banks and other financial
      institutions, the Emergency Economic Stabilization Act of 2008, or EESA, was
      recently enacted by the U.S. Congress. The EESA provides the U.S. Secretary
      of
      the Treasury with the authority to establish a Troubled Asset Relief Program,
      or
      TARP, to purchase from financial institutions up to $700 billion of residential
      or commercial mortgages and any securities, obligations, or other instruments
      that are based on or related to such mortgages, that in each case was originated
      or issued on or before March 14, 2008, as well as any other financial instrument
      that the U.S. Secretary of the Treasury, after consultation with the Chairman
      of
      the Board of Governors of the Federal Reserve System, determines the purchase
      of
      which is necessary to promote financial market stability, upon transmittal
      of
      such determination, in writing, to the appropriate committees of the U.S.
      Congress. The EESA also provides for a program that would allow companies to
      insure their troubled assets.


27




*Declines
      in the prices of mortgage assets* -
      Investors’ appetite for U.S. mortgage assets continued to be weak throughout
      2008. In addition, the market disruption of March 2008 and related de-leveraging
      in the mortgage asset industry involved the liquidation or sale of a significant
      amount of Agency securities. This selling, along with decreased demand for
      these
      assets among investors, caused mortgage asset prices to decline in the quarter
      ended March 31, 2008. Prices improved during the second quarter as FNMA and
      FHLMC increased buying of Agency securities for their portfolio. The increased
      buying by the agencies was a direct result of the removal of the consent order
      that restricted portfolio growth by the Office of Federal Housing Enterprise
      Oversight (OFHEO). During the third quarter of 2008 FNMA and FHLMC were
      placed into federal conservatorship and Lehman Brothers Holdings
      Inc. declared bankruptcy, each of which were significant participants
      in the MBS markets. These events continue to put negative pressure on the
      pricing of all mortgage and credit sensitive assets.




*Tightening
      in the financing markets and reduced liquidity -* As
      prices of mortgage assets decreased, many lenders that finance mortgage assets
      took measures to insure their liquidity needs would not be compromised,
      particularly in March 2008. In connection with the market disruption of March
      2008, many financial institutions withdrew financing and liquidity that they
      typically offered clients as part of their daily business operations. The most
      common forms of liquidity provided to the mortgage market are in the form of
      repurchase agreements for MBS. This reduced availability of financing
      subsequently led to de-leveraging by many in the industry and, in some cases,
      forced liquidations, all of which exacerbated the problem. During the
      second quarter liquidity stabilized and there were no significant failures
      or
      disruptions. In the third quarter, as a result of FNMA, FHLMC and Lehman
      Brothers Holdings Inc., the MBS markets experienced a reduction in the
      number of liquidity providers.





*Volatility
      in financing costs* - The
      dislocations in the mortgage market led to increased volatility in the cost
      of
      financing. The relationships between certain short-term interest rates, normally
      very consistent, became less so in the second half of 2007 and has continued
      to
      widen during 2008. The Federal Funds rate, an interest rate used by banks for
      overnight loans to each other and determined by the Federal Reserve Board,
      is a
      benchmark used by others to determine similar short term rates. The London
      Inter
      Bank Offered Rate (“LIBOR”), a market determined rate for short term
      loans, is typically 10 basis points higher than the Federal Funds
      rate. LIBOR averaged 12 basis points above the Fed Funds target during the
      first
      quarter and 50 basis points during the second quarter and 66 basis points during
      the third quarter. At September 30, 2008 the spread between LIBOR and the Fed
      Funds rate was approximately 190 basis points. This divergence has led to
      increased borrowing costs under our repurchase agreements
      rates because the interest rates under the financing agreements are
      typically priced off of one month LIBOR.





*Hedging* - We
      generally seek to reduce the volatility of our net income by entering into
      interest rate swap agreements. As of September 30, 2008, we are a party to
      interest rate swap agreements with an aggregate notional amount of $146.7
      million. The Company discontinued hedge accounting treatment for the interest
      rate swap positions during the fourth quarter of 2007 as part of our strategic
      portfolio realignment related to the Series A Preferred Stock offering.
      Accordingly, the unrealized loss was recorded as an unrealized loss in our
      Statement of Operations and no longer reflected as part of other comprehensive
      income in our Balance Sheet. During the quarter ended March 31, 2008 the Company
      terminated certain swaps resulting in a realized loss of $4.8 million. The
      Company has not terminated any additional swaps since the first quarter of
      2008.





28





**Presentation
      Format**




In
      connection with the sale of substantially all of our wholesale and retail
      mortgage lending platform assets during the first quarter of 2007, we classified
      certain assets and liabilities related to our mortgage lending segment as a
      discontinued operation in accordance with the provisions of SFAS No. 144. As
      a
      result, we have reported revenues and expenses related to the segment as a
      discontinued operation and the related assets and liabilities as assets and
      liabilities related to a discontinued operation for all periods presented in
      the
      accompanying condensed consolidated financial statements. Our continuing
      operations are primarily comprised of what had been our portfolio management
      operations. In addition, certain assets such as the deferred tax asset, and
      certain liabilities, such as subordinated debt and liabilities related to leased
      facilities not assigned to Indymac, have become part of the ongoing
      operations of NYMT and accordingly, we have not classified as a discontinued
      operation in accordance with the provisions of SFAS No. 144.




The
      Company completed one for five reverse stock split of our common stock in
      October 2007 and a one for two reverse stock split of our common stock in May
      2008. All share amounts and earnings per share disclosures have been restated
      to
      reflect these reverse stock splits.




**Significance
      of Estimates and Critical Accounting Policies**




A
      summary
      of our critical accounting policies is included in Item 7 of our Annual Report
      on Form 10-K for the year ended December 31, 2007 and “Note 2 – Summary of
      Significant Accounting Policies” to the consolidated financial statements
      included therein. There have been no significant changes to those policies
      during 2008.





**Overview
      of Performance**




For
      the
      three and nine months ended September 30, 2008 we reported net income (loss)
      of
      $1.0 million and $(19.0) million as compared to a net loss of $20.7 million
      and
      $39.7 million, respectively for the same periods in 2007.




The
      main
      components of the change in income (loss) for the three and nine months ended
      September 30, 2008 as compared to the same period for the prior year are
      detailed in the following table (dollar amounts in thousands):





**Detailed
                Components of the change in income (loss)**
            
            **For the Three Months Ended**
              **September 30,**
            
            **For the Nine Months Ended**
              **September 30,****2008**
            
            **2007**
            
            **Difference**
            
            **2008**
            
            **2007**
            
            **Difference**Net
                interest income on investment portfolio
            
            $
            3,632
            
            $
            1,164
            
            $
            2,468
            
            $
            10,335
            
            $
            2,799
            
            $
            7,536Net
                interest income
            
            
            2,182
            
            
            269
            
            
            1,913
            
            
            5,955
            
            
            128
            
            
            5,827Loan
                losses
            
            
            (7
            )
            
            (99
            )
            
            92
            
            
            (1,462
            )
            
            (1,039
            )
            
            (423
            )Gain
                (loss) on securities and related hedges
            
            
            4
            
            
            (1,013
            )
            
            1,017
            
            
            (19,927
            )
            
            (4,834
            )
            
            (15,093
            )Income
                (loss) on continuing operations
            
            
            744
            
            
            (1,689
            )
            
            2,433
            
            
            (20,260
            )
            
            (7,767
            )
            
            (12,493
            )Income
                (loss) from discontinued operations - net of tax
            
            
            285
            
            
            (19,027
            )
            
            19,312
            
            
            1,294
            
            
            (31,886
            )
            
            33,180Net
                income (loss)
            
            $
            1,029
            
            $
            (20,716
            )
            $
            21,745
            
            $
            (18,966
            )
            $
            (39,653
            )
            $
            (20,687
            )





During
      January and February 2008, we used substantially all of the net proceeds from
      our private offerings of Series A Preferred Stock and common stock to purchase
      approximately $714.1 million of Agency MBS. As previously disclosed in our
      Quarterly Report on Form 10-Q for the three months ended March 31, 2008, we
      sold
      an aggregate of $592.8 million of Agency MBS in our portfolio during March
      2008
      in an effort to reduce our leverage and improve our liquidity position in
      response to the market disruption of March 2008, and incurred a loss of $15.0
      million. In addition, the Company terminated a total of $517.7 million of
      notional interest rate swaps in the quarter ended March 31, 2008, resulting
      in a
      realized loss of $4.8 million.




29




**Summary
      of Operations and Key Performance Measurements**




For
      the
      three and nine months ended September 30, 2008, our net income was dependent
      upon the net interest income (the interest income on portfolio assets net of
      the
      interest expense and hedging costs associated with such assets) generated from
      our portfolio of MBS and mortgage loans held in securitization trusts, which
      was
      partially offset by losses on delinquent loans held in securitization trusts
      and
      certain other expenses. The net interest spread on our investment portfolio
      was
      136 basis points for the quarter ended September 30, 2008, as compared to 143
      basis points for the quarter ended June 30, 2008, and 34 basis points for the
      quarter ended September 30, 2007.





Because
      the assets in our MBS portfolio represent approximately 56% of our total assets
      as of September 30, 2008 and we fund these assets, which generally have
      maturities with longer terms than their funding source, with short-term
      borrowings under repurchase agreements, our ability to achieve our investment
      objectives depends on our ability to borrow money in sufficient amounts and
      on
      favorable terms and on our ability to renew or replace maturing borrowings
      on a
      continuous basis. Repurchase agreements provide us with short-term borrowings
      that are secured by the securities in our investment portfolio and bear interest
      rates that are closely linked to the LIBOR. During the quarter ended September
      30, 2008, we continued to employ a balanced and diverse funding mix to finance
      our investment portfolio and assets. At September 30, 2008, our MBS portfolio
      was funded with approximately $406.3 million of repurchase agreement borrowing,
      or approximately 49.2% of our total liabilities, and our loans held in
      securitization trusts were permanently financed with approximately $345.7
      million of CDOs, or approximately 41.8% of our total liabilities. The Company
      has a net equity investment of $11.8 million in the securitization trusts.
      At
      September 30, 2008 our leverage ratio for our MBS investment portfolio, which
      we
      define as our outstanding indebtedness under repurchase agreements divided
      by
      the sum of stockholders’ equity and our convertible preferred debt, was 7 to 1.
      Given the continued uncertainty in the credit markets, we believe that
      maintaining a leverage ratio in the range of 7 to 8 times is appropriate at
      this
      time.




The
      key
      performance measures for our portfolio management activities are:




·
            net
                interest spread on the portfolio;




·
            losses
                on loans held in securitization
                trusts;




·
            change
                in book value;·
            return
                on equity capital invested.




**Financial
      Condition**





As
      of
      September 30, 2008, we had approximately $864.5 million of total assets, as
      compared to approximately $809.3 million of total assets as of December 31,
      2007. The increase in total assets results primarily from an increase in MBS
      of
      $129.7 million and a decrease of $73.2 million in mortgage loans held in
      securitization trust.





30





**Balance
      Sheet Analysis - Asset Quality**




*Investment
      Securities - Available for Sale* - Our
      securities portfolio primarily consists of Agency securities or AAA-rated
      residential mortgage-backed securities. The following tables set forth the
      credit characteristics of our securities portfolio as of September 30, 2008
      and
      December 31, 2007 (dollar amounts in thousands):




**Credit
      Characteristics of Our Investment Securities**


**September
                  30, 2008**
              
              **Sponsor or**
                **Rating**
              
              **Par**
                **Value**
              
              **Carrying**
                **Value**
              
              **%
                  of**
                **Portfolio**
              
              **Coupon**
              
              **Yield**Agency
                  REMIC CMO floaters
              
              
              FNMA/
                FHLMC
              
              $
              204,506
              
              $
              195,405
              
              
              41
              %
              
              3.51
              %
              
              4.02
              %Agency
                  Hybrid Arms
              
              
              FNMA/
                FHLMC
              
              
              260,735
              
              
              262,347
              
              
              55
              %
              
              5.16
              %
              
              4.78
              %Non-Agency
                  floaters
              
              
              AAA
              
              
              27,270
              
              
              21,773
              
              
              4
              %
              
              3.43
              %
              
              17.54
              %NYMT
                  retained securities
              
              
              AAA-BBB
              
              
              609
              
              
              548
              
              
              0
              %
              
              5.99
              %
              
              10.74
              %NYMT
                  retained securities
              
              
              Below
                  BBB
              
              
              2,747
              
              
              69
              
              
              0
              %
              
              5.67
              %
              
              21.25
              %Total/Weighted
                  average
              
              
              
              
              $
              495,867
              
              $
              480,142
              
              
              100
              %
              
              4.39
              %
              
              5.27
              %




**December
                  31, 2007**
              
              **Sponsor or**
                **Rating**
              
              **Par**
                **Value**
              
              **Carrying**
                **Value**
              
              **%
                  of**
                **Portfolio**
              
              **Coupon**
              
              **Yield**Agency
                  REMIC CMO floaters
              
              
              FNMA/FHLMC
              
              $
              324,676
              
              $
              318,689
              
              
              91
              %
              
              5.98
              %
              
              5.55
              %Non-Agency
                  floaters
              
              
              AAA
              
              
              29,764
              
              
              28,401
              
              
              8
              %
              
              5.66
              %
              
              5.50
              %NYMT
                  retained securities
              
              
              AAA-BBB
              
              
              2,169
              
              
              2,165
              
              
              1
              %
              
              6.31
              %
              
              6.28
              %NYMT
                  retained securities
              
              
              Below
                  BBB
              
              
              2,756
              
              
              1,229
              
              
              0
              %
              
              5.68
              %
              
              12.99
              %Total/Weighted
                  average
              
              
              
              
              $
              359,365
              
              $
              350,484
              
              
              100
              %
              
              5.95
              %
              
              5.61
              %


31




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





New
      York
      Mortgage Trust 2006-1, qualified as a sale under SFAS No. 140, which resulted
      in
      the recording of residual assets and mortgage servicing rights. As of September
      30, 2008 the residual assets totaled $0.1 million and are included in investment
      securities available for sale.


The
      following table details mortgage loans held in securitization trusts at
      September 30, 2008 (dollar amounts in thousands):




**Par Value**
            
            **Coupon**
            
            **Carrying Value**
            
            **Yield**September
                30, 2008
            
            $
            356,682
            
            
            5.58
            %
            $
            357,533
            
            
            5.48
            %




At
      September 30, 2008 mortgage loans held in securitization trusts totaled
      approximately $357.5 million, or 41% of our total assets. Of this mortgage
      loan
      investment portfolio, 100% are traditional ARMs or hybrid ARMs, 78% of which
      are
      ARM loans that are interest only. On our hybrid ARMs, interest rate reset
      periods are predominately five years or less and the interest-only/amortization
      period is typically 10 years, which mitigates the “payment shock” at the time of
      interest rate reset. No loans in our investment portfolio of mortgage loans
      are
      option-ARMs or ARMs with negative amortization.




The
      following table sets forth the composition of our portfolio of
      mortgage loans held in securitization trusts and retained interests in our
      REMIC securitization, NYMT 2006-1, as of September 30, 2008 (dollar amounts
      in thousands):




**#
                of Loans**
            
            **Par
                Value**
            
            **Carrying**
              **Value****Loan
                Characteristics:**Mortgage
                loans held in securitization trusts
            
            
            812
            
            $
            356,682
            
            $
            357,533Retained
                interest in securitization (included in Investment securities
                available for sale)
            
            
            344
            
            
            181,374
            
            
            617Total
                Loans Held
            
            
            1,156
            
            $
            538,056
            
            $
            358,150




**Average**
            
            **High**
            
            **Low****General
                Loan Characteristics:**Original
                Loan Balance (dollar amounts in thousands)
            
            $
            491
            
            $
            3,500
            
            $
            48Coupon
                Rate
            
            
            5.69
            %
            
            8.50
            %
            
            3.63
            %Gross
                Margin
            
            
            2.34
            %
            
            5.00
            %
            
            1.13
            %Lifetime
                Cap
            
            
            11.19
            %
            
            13.38
            %
            
            9.13
            %Original
                Term (Months)
            
            
            360
            
            
            360
            
            
            360Remaining
                Term (Months)
            
            
            322
            
            
            330
            
            
            286Average
                Months to Reset
            
            
            17
            
            
            27
            
            
            1Original
                Average FICO Score
            
            
            736
            
            
            820
            
            
            593Original
                Average LTV
            
            
            69.9
            
            
            95.0
            
            
            10.9





32




The
      following table details loan summary information for loans held in
      securitization trust at September 30, 2008 (dollar amounts in
      thousands)


**Principal****amount of****loans****subject
                  to****Periodic**
              
              
              
              **Face**
              
              **Carrying**
              
              **delinquent****Description**
              
              **Interest Rate %**
              
              **Final Maturity**
              
              **Payment**
              
              
              
              **Amount**
              
              **Amount**
              
              **principal****Property**
              
              
              
              **Loan**
              
              
              
              
              
              
              
              
              
              
              
              **Term**
              
              **Prior**
              
              **of**
              
              **of**
              
              **or****Type**
              
              **Balance**
              
              **Count**
              
              **Max**
              
              **Min**
              
              **Avg**
              
              **Min**
              
              **Max**
              
              **(months)**
              
              **Liens**
              
              **Mortgage**
              
              **Mortgage**
              
              **interest****Single**
              
              
              <=
                  $100
              
              
              12
              
              
              7.75
              
              
              4.75
              
              
              5.44
              
              
              12/01/34
              
              
              11/01/35
              
              
              360
              
              
              NA
              
              $
              1,595
              
              $
              862
              
              $
              69**Family**
              
              
              <=$250
              
              
              93
              
              
              8.50
              
              
              4.75
              
              
              5.66
              
              
              09/01/32
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              18,461
              
              
              16,748
              
              
              126<=$500
              
              
              145
              
              
              7.63
              
              
              4.25
              
              
              5.63
              
              
              09/01/32
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              53,690
              
              
              50,892
              
              
              894<=$1,000
              
              
              65
              
              
              7.50
              
              
              3.88
              
              
              5.62
              
              
              07/01/33
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              47,889
              
              
              45,992
              
              
              3,646>$1,000
              
              
              35
              
              
              7.00
              
              
              3.75
              
              
              5.64
              
              
              01/01/35
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              60,827
              
              
              60,172
              
              
              -**Summary**
              
              
              **350**
              
              
              **8.50**
              
              
              **3.75**
              
              
              **5.63**
              
              
              **09/01/32**
              
              
              **01/01/36**
              
              
              **360**
              
              
              NA
              
              **$**
              **182,462**
              
              **$**
              **174,666**
              
              **$**
              **4,735****2-4**
              
              
              <=
                  $100
              
              
              1
              
              
              6.63
              
              
              6.63
              
              
              6.63
              
              
              02/01/35
              
              
              02/01/35
              
              
              360
              
              
              NA
              
              $
              80
              
              $
              77
              
              $
              -**FAMILY**
              
              
              <=$250
              
              
              6
              
              
              6.75
              
              
              4.38
              
              
              5.75
              
              
              12/01/34
              
              
              07/01/35
              
              
              360
              
              
              NA
              
              
              1,115
              
              
              1,021
              
              
              -<=$500
              
              
              22
              
              
              7.25
              
              
              4.38
              
              
              5.71
              
              
              09/01/34
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              8,110
              
              
              7,910
              
              
              513<=$1,000
              
              
              4
              
              
              6.88
              
              
              5.38
              
              
              6.06
              
              
              12/01/34
              
              
              08/01/35
              
              
              360
              
              
              NA
              
              
              3,068
              
              
              3,048
              
              
              517>$1,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              360
              
              
              NA
              
              
              -
              
              
              -
              
              
              -**Summary**
              
              
              **33**
              
              
              **7.25**
              
              
              **4.38**
              
              
              **5.79**
              
              
              **09/01/34**
              
              
              **01/01/36**
              
              
              **360**
              
              
              NA
              
              **$**
              **12,373**
              
              **$**
              **12,056**
              
              **$**
              **1,030****Condo**
              
              
              <=
                  $100
              
              
              18
              
              
              6.63
              
              
              4.38
              
              
              5.67
              
              
              01/01/35
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              $
              2,368
              
              $
              1,245
              
              $
              -<=$250
              
              
              94
              
              
              6.88
              
              
              4.50
              
              
              5.66
              
              
              08/01/32
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              18,547
              
              
              16,947
              
              
              390<=$500
              
              
              92
              
              
              7.63
              
              
              3.75
              
              
              5.51
              
              
              09/01/32
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              32,204
              
              
              31,216
              
              
              654<=$1,000
              
              
              36
              
              
              7.50
              
              
              3.88
              
              
              5.38
              
              
              08/01/33
              
              
              11/01/35
              
              
              360
              
              
              NA
              
              
              26,589
              
              
              24,792
              
              
              975>$1,000
              
              
              15
              
              
              6.13
              
              
              4.88
              
              
              5.48
              
              
              07/01/34
              
              
              09/01/35
              
              
              360
              
              
              NA
              
              
              24,568
              
              
              22,074
              
              
              -**Summary**
              
              
              **255**
              
              
              **7.63**
              
              
              **3.75**
              
              
              **5.55**
              
              
              **08/01/32**
              
              
              **01/01/36**
              
              
              **360**
              
              
              NA
              
              **$**
              **104,276**
              
              **$**
              **96,274**
              
              **$**
              **2,019****CO-OP**
              
              
              <=
                  $100
              
              
              5
              
              
              6.25
              
              
              4.75
              
              
              5.60
              
              
              09/01/34
              
              
              06/01/35
              
              
              360
              
              
              NA
              
              $
              842
              
              $
              274
              
              $
              -<=$250
              
              
              25
              
              
              6.25
              
              
              4.00
              
              
              5.42
              
              
              10/01/34
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              4,950
              
              
              4,482
              
              
              -<=$500
              
              
              45
              
              
              6.38
              
              
              3.63
              
              
              5.42
              
              
              08/01/34
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              18,174
              
              
              16,755
              
              
              -<=$1,000
              
              
              29
              
              
              6.75
              
              
              4.75
              
              
              5.35
              
              
              11/01/34
              
              
              11/01/35
              
              
              360
              
              
              NA
              
              
              21,454
              
              
              20,456
              
              
              ->$1,000
              
              
              6
              
              
              6.00
              
              
              4.50
              
              
              5.21
              
              
              11/01/34
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              8,664
              
              
              8,176
              
              
              -**Summary**
              
              
              **110**
              
              
              **6.75**
              
              
              **3.63**
              
              
              **5.38**
              
              
              **08/01/34**
              
              
              **12/01/35**
              
              
              **360**
              
              
              NA
              
              **$**
              **54,084**
              
              **$**
              **50,143**
              
              **$**
              **-****PUD**
              
              
              <=
                  $100
              
              
              2
              
              
              5.63
              
              
              5.25
              
              
              5.44
              
              
              07/01/35
              
              
              07/01/35
              
              
              360
              
              
              NA
              
              $
              438
              
              $
              166
              
              $
              -<=$250
              
              
              28
              
              
              6.75
              
              
              4.38
              
              
              5.60
              
              
              01/01/35
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              6,037
              
              
              5,188
              
              
              -<=$500
              
              
              22
              
              
              7.88
              
              
              4.38
              
              
              5.95
              
              
              08/01/32
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              7,799
              
              
              7,499
              
              
              480<=$1,000
              
              
              8
              
              
              7.50
              
              
              4.75
              
              
              5.74
              
              
              09/01/33
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              5,637
              
              
              5,483
              
              
              ->$1,000
              
              
              4
              
              
              6.22
              
              
              5.63
              
              
              5.96
              
              
              04/01/34
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              5,233
              
              
              5,207
              
              
              -**Summary**
              
              
              **64**
              
              
              **7.88**
              
              
              **4.38**
              
              
              **5.76**
              
              
              **08/01/32**
              
              
              **01/01/36**
              
              
              **360**
              
              
              NA
              
              **$**
              **25,144**
              
              **$**
              **23,543**
              
              **$**
              **480****Summary**
              
              
              <=
                  $100
              
              
              38
              
              
              7.75
              
              
              4.38
              
              
              5.60
              
              
              09/01/34
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              $
              5,323
              
              $
              2,624
              
              $
              69<=$250
              
              
              246
              
              
              8.50
              
              
              4.00
              
              
              5.63
              
              
              08/01/32
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              49,110
              
              
              44,386
              
              
              516<=$500
              
              
              326
              
              
              7.88
              
              
              3.63
              
              
              5.63
              
              
              08/01/32
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              119,977
              
              
              114,272
              
              
              2,541<=$1,000
              
              
              142
              
              
              7.50
              
              
              3.88
              
              
              5.52
              
              
              07/01/33
              
              
              12/01/35
              
              
              360
              
              
              NA
              
              
              104,637
              
              
              99,771
              
              
              5,138>$1,000
              
              
              60
              
              
              7.00
              
              
              3.75
              
              
              5.58
              
              
              04/01/34
              
              
              01/01/36
              
              
              360
              
              
              NA
              
              
              99,292
              
              
              95,629
              
              
              -**Grand
                  Total**
              
              
              **812**
              
              
              **8.50**
              
              
              **3.63**
              
              
              **5.59**
              
              
              **08/01/32**
              
              
              **01/01/36**
              
              
              **360**
              
              
              NA
              
              **$**
              **378,339**
              
              **$**
              **356,682**
              
              **$**
              **8,264**




The
      following table details activity for loans held in securitization trust for
      the
      nine months ended September 30, 2008.





**Principal**
            
            **Premium**
            
            **Loan Reserve**
            
            **Net Carrying**
              **Value****Balance,
                January 1, 2008**
            
            **$**
            429,629
            
            $
            2,733
            
            $
            (1,647
            )
            **$**
            430,715Additions
            
            
            -
            
            
            -
            
            
            -
            
            
            -Principal
                repayments
            
            
            (72,947
            )
            
            -
            
            
            -
            
            
            (72,947
            )Provisions for
                loan loss
            
            
            -
            
            
            -
            
            
            (1,433
            )
            
            (1,433
            )Charge
                offs
            
            
            -
            
            
            -
            
            
            1,674
            
            
            1,674Amortization
                for premium
            
            
            -
            
            
            (476
            )
            
            -
            
            
            (476
            )**Balance,
                September 30, 2008**
            
            $
            356,682
            
            $
            2,257
            
            $
            (1,406
            )
            $
            357,533




33




*Cash
      and cash equivalents -* We had
      unrestricted cash and cash equivalents of $13.3 million at September 30, 2008
      versus $5.5 million at December 31, 2007.




*Restricted
      Cash* -
      Restricted cash of $0.3 million at September 30, 2008 includes amounts held
      as
      collateral for two letters of credit related to the Company's lease of office
      space, including its corporate headquarters. Restricted cash of $7.5 million
      at
      December 31, 2007, includes amounts held by counterparties as collateral for
      hedging instruments, amounts held as collateral for two letters of credit
      related to the Company's lease of office space, including its corporate
      headquarters, and amounts held in an escrow account to support warranties and
      indemnifications related to the sale of the retail mortgage lending platform
      to
      IndyMac.




*Accounts
      and accrued interest receivable* -
      Accounts and accrued interest receivable includes accrued interest receivable
      for investment securities and mortgage loans held in securitization trusts
      are
      also included.




*Prepaid
      and other assets* -
      Prepaid and other assets totaled $2.2 million as of September 30, 2008. Prepaid
      and other assets consist mainly of $1.2 million of capitalization expenses
      related to equity and bond issuance cost. These costs are being amortized into
      earnings over time related to the maturity of the underlying issuance. In
      addition, $0.3 million of capitalization servicing costs related to our
      securitization accounted for as a sale.





*Assets
      Related to Discontinued Operations:*




*Mortgage
      Loans Held for Sale(Net)* -
      Mortgage loans that we have originated but do not intend to hold for investment
      and are held pending sale to investors are classified as mortgage loans held
      for
      sale. We had mortgage loans held for sale (net) of $5.3 million at September
      30,
      2008 as compared to $8.1 million at December 31, 2007.




**Balance
      Sheet Analysis - Financing Arrangements**




*Financing
      Arrangements, Portfolio Investments* - As of
      September 30, 2008, there were approximately $406.3 million of repurchase
      borrowings outstanding. Our repurchase agreements typically have terms of 30
      days or less. As of September 30, 2008, the current weighted average borrowing
      rate on these financing facilities was 4.08%.




*Collateralized
      Debt Obligations* - As of
      September 30, 2008 we have CDOs outstanding of approximately $345.7 million
      with
      an average interest rate of 3.53%.




*Subordinated
      Debentures* - As of
      September 30, 2008, we have trust preferred securities outstanding of $45.0
      million. The securities are fully guaranteed by the Company with respect to
      distributions and amounts payable upon liquidation, redemption or repayment.
      These securities are classified as subordinated debentures in the liability
      section of our balance sheet.





*Convertible
      Preferred Debentures -* As of
      September 30, 2008, there were 1.0 million shares of our Series A Preferred
      Stock outstanding, with an aggregate redemption value of $20.0 million. The
      Series A Preferred Stock entitles the holders to receive a cumulative dividend
      of 10% per year, subject to an increase to the extent any future quarterly
      common stock dividends exceed $0.20 per share. The Series A Preferred Stock
      is
      convertible into shares of our common stock based on a conversion price of
      $8.00
      per share of common stock, which represents a conversion rate of two and
      one-half (2 1/2) shares of common stock for each share of Series A Preferred
      Stock. The Series A Preferred Stock matures on December 31, 2010, at which
      time any outstanding shares must be redeemed by us at the $20.00 per
      share liquidation preference. Pursuant to SFAS No. 150, because of this
      mandatory redemption feature, we classify these securities as convertible
      preferred debentures in the liability section of our balance
      sheet.


34




*Derivative
      Assets and Liabilities* - We
      generally attempt to hedge only the risk related to changes in the interest
      rates, usually LIBOR or a U.S. Treasury rate.




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




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




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




During
      the three and nine months ended September 30, 2008, the Company terminated
      a
      total of $0 and $517.7 million, respectively, of notional interest rate swaps
      resulting in a realized loss of $4.8 million.




The
      following table summarizes the estimated fair value of derivative assets as
      of
      September 30, 2008 and December 31, 2007 (dollar amounts in
      thousands):




**September 30,**
              **2008**
            
            **December 31,**
              **2007****Derivative
                Assets:**Interest
                rate caps
            
            $
            271
            
            $
            416Interest
                rate swaps
            
            
            1,481
            
            
            —**Total**
            
            $
            1,752
            
            $
            416**Derivative
                Liabilities:**Interest
                rate swaps
            
            $
            —
            
            $
            3,517**Total**
            
            $
            —
            
            $
            3,517




35




**Balance
      Sheet Analysis - Stockholders' Equity**




Stockholders'
      equity at September 30, 2008 was $38.1 million and included $15.7 million of
      net
      unrealized losses on available for sale securities and cash flow hedges
      presented as accumulated other comprehensive loss.




**Prepayment
      Experience**




The
      cumulative prepayment rate (“CPR”) on our mortgage portfolio averaged
      approximately 14% during the three months ended September 30, 2008 as compared
      to 20% for the three months ended September 30, 2007. CPRs on our purchased
      portfolio of investment securities averaged approximately 10% while the CPRs
      on
      mortgage loans held in our securitization trusts averaged approximately 19%
      during the three months ended September 30, 2008. When prepayment
      expectations over the remaining life of assets increase, we have to amortize
      premiums over a shorter time period resulting in a reduced yield to maturity
      on
      our investment assets. Conversely, if prepayment expectations decrease, the
      premium would be amortized over a longer period resulting in a higher yield
      to
      maturity. We monitor our prepayment experience on a monthly basis and adjust
      the
      amortization of our net premiums accordingly.




**Results
      of Operations**




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


36




***Other
      Operational Information***  **




The
      Company currently has six employees.





***Comparative
      Net Income (Loss) (dollars in thousands)***




**for the three months ended September 30,**
            
            **for the nine months ended September 30,****2008**
            
            **2007**
            
            **Difference**
            
            **2008**
            
            **2007**
            
            **Difference**Net
                interest income on investment portfolio
            
            $
            3,632
            
            $
            1,164
            
            $
            2,468
            
            $
            10,335
            
            $
            2,799
            
            $
            7,536Net
                interest income
            
            
            2,182
            
            
            269
            
            
            1,913
            
            
            5,955
            
            
            128
            
            
            5,827Loan
                losses
            
            
            (7
            )
            
            (99
            )
            
            92
            
            
            (1,462
            )
            
            (1,039
            )
            
            (423
            )Loss
                on securities and related hedges
            
            
            4
            
            
            (1,013
            )
            
            1,017
            
            
            (19,927
            )
            
            (4,834
            )
            
            (15,093
            )Total
                Expenses
            
            
            1,435
            
            
            846
            
            
            589
            
            
            4,826
            
            
            2,022
            
            
            2,804Income
                (loss) from continuing operations
            
            
            744
            
            
            (1,689
            )
            
            2,433
            
            
            (20,260
            )
            
            (7,767
            )
            
            (12,493
            )Loss
                from discontinued operations - net of tax
            
            
            285
            
            
            (19,027
            )
            
            19,312
            
            
            1,294
            
            
            (31,886
            )
            
            33,180Net
                Income (loss)
            
            $
            1,029
            
            $
            (20,716
            )
            $
            21,745
            
            $
            (18,966
            )
            $
            (39,653
            )
            $
            (20,687
            )EPS
                Basic and Diluted
            
            $
            0.11
            
            $
            (11.39
            )
            $
            11.50
            
            $
            (2.39
            )
            $
            (21.88
            )
            $
            19.49





For
      the
      three months ended September 30, 2008, we reported net income of $1.0 million,
      as compared to a net loss of $20.7 million for the three months ended September
      30, 2007. The increase in net income of $21.7 million is primarily due to the
      improvement in net interest margin of $2.4 million, a decrease of $1.0 million
      in realized loss on securities and related hedges, and a $19.3 million
      improvement on earnings from the discontinued operations as a result of exiting
      the lending business on March 31, 2007. For the nine months ended September
      30,
      2008, we reported a net loss of $19.0 million, as compared to a net loss of
      $39.7 million for the nine months ended September 30, 2007.





Expenses
      increased by approximately $0.6 million to $1.4 million for three months ended
      September 30, 2008 as compared to the same period in 2007. Of this increase
      in
      expenses, approximately $0.2 million was the result of allocating to the Company
      100% of the salaries and benefits payable to the Company’s employees, as well as
      certain professional fees. Previously, these expenses had been allocated to
      both
      the continuing and discontinued operations of the Company. The remaining
      increase in expenses was due primarily to an increase of approximately $0.4
      million in other expenses, which included $0.2 million in management fees
      payable to JMPAM pursuant to the advisory agreement and $0.2 million in D&O
      insurance premiums allocated 100% to the continuing operations.





Expenses
      increased by approximately $2.8 million to $4.8 million for the nine months
      ended September 30, 2008 as compared to the same period in 2007. Of this
      increase in expenses, approximately $1.0 million was the result of the
      re-allocation of expenses between the continuing and discontinued operations,
      as
      described above. The remaining increase in expenses was due primarily to an
      increase of approximately $1.8 million in other expenses, which included $0.5
      million in management fees payable to JMPAM pursuant to the advisory agreement
      and $0.7 million in penalty fees paid pursuant to the Common Stock Registration
      Rights Agreement.




37





***Comparative
      Net Interest Income***




The
      following table sets forth the changes in net interest income, yields earned
      on
      mortgage loans and securities and rates on financial arrangements for the three
      and nine months ended September 30, 2008 and 2007 (dollar amounts in thousands,
      except as noted):





**For the Three Months Ended****September 30,****2008**
            
            **2007****Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**($
                Millions)
            
            ($
                Millions)**Interest
                income:**Investment
                securities and loans held in the securitization
                trusts
            
            $
            872.5
            
            $
            10,517
            
            
            4.82
            %
            $
            863.7
            
            $
            12,813
            
            
            5.93
            %Amortization
                of net premium
            
            
            1.9
            
            
            (193
            )
            
            (0.10
            )%
            
            1.5
            
            $
            (437
            )
            
            (0.21
            )%Interest
                income/weighted average
            
            $
            874.4
            
            $
            10,324
            
            
            4.72
            %
            
            `865.2
            
            $
            12,376
            
            
            5.72
            %**Interest
                expense:**Investment
                securities and loans held in the securitization trusts
            
            $
            779.9
            
            $
            6,692
            
            
            3.36
            %
            $
            817.6
            
            $
            11,212
            
            
            5.49
            %Subordinated
                debentures
            
            
            45.0
            
            
            913
            
            
            7.94
            %
            
            45.0
            
            $
            895
            
            
            7.96
            %Convertible
                preferred debentures
            
            
            20.0
            
            
            537
            
            
            10.51
            %
            
            —
            
            
            —
            
            
            —
            %Interest
                expense/weighted average
            
            $
            844.9
            
            $
            8,142
            
            
            3.77
            %
            $
            862.6
            
            $
            12,107
            
            
            5.61
            %Net
                interest income/weighted average
            
            
            
            
            $
            2,182
            
            
            0.95
            %
            
            
            
            $
            269
            
            
            0.11
            %







**For the Nine Months Ended****September 30,****2008**
            
            **2007****Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**($
                Millions)
            
            ($
                Millions)**Interest
                income:**Investment
                securities and loans held in the securitization
                trusts
            
            $
            929.8
            
            $
            34,775
            
            
            4.99
            %
            $
            942.3
            
            $
            40,415
            
            
            5.72
            %Amortization
                of net premium
            
            
            1.1
            
            
            (443
            )
            
            (0.07
            )%
            
            3.2
            
            
            (1,428
            )
            
            (0.22
            )%Interest
                income/weighted average
            
            $
            930.9
            
            $
            34,332
            
            
            4.92
            %
            
            `945.5
            
            $
            38,987
            
            
            5.50
            %**Interest
                expense:**Investment
                securities and loans held in the securitization trusts
            
            $
            846.0
            
            $
            23,997
            
            
            3.73
            %
            $
            891.4
            
            $
            36,188
            
            
            5.41
            %Subordinated
                debentures
            
            
            45.0
            
            
            2,768
            
            
            8.08
            %
            
            45.00
            
            
            2,671
            
            
            7.83
            %Convertible
                preferred debentures
            
            
            20.0
            
            
            1,612
            
            
            10.59
            %
            
            —
            
            
            —
            
            
            —
            %Interest
                expense/weighted average
            
            $
            911.0
            
            $
            28,377
            
            
            4.09
            %
            $
            936.4
            
            $
            38,859
            
            
            5.47
            %Net
                interest income/weighted average
            
            
            
            
            $
            5,955
            
            
            0.83
            %
            
            
            
            $
            128
            
            
            0.03
            %




The
      increase in net interest income for nine months ended September 30, 2008 is
      due
      to a more favorable interest rate environment and significant
      portfolio restructuring in 2008.


38




The
      following table sets forth, among other things, the net interest spread, since
      inception, for our portfolio of investment securities available for sale,
      mortgage loans held for investment and mortgage loans held in
      securitization trusts, excluding the costs of our subordinated
      debentures.




**Quarter
                Ended**
            
            **Average**
              **Interest**
              **Earning**
              **Assets**
              **($
                millions)**
            
            **Weighted**
              **Average**
              **Coupon**
            
            **Weighted**
              **Average**
              **Cash**
              **Yield on**
              **Interest**
              **Earning**
              **Assets**
            
            **Cost
                of**
              **Funds**
            
            **Net**
              **Interest**
              **Spread**
            
            **Constant**
              **Prepayment**
              **Rate**
              **(CPR)**September
                30, 2008
            
            $
            874.5
            
            
            4.81
            %
            
            4.72
            %
            
            3.36
            %
            
            1.36
            %
            
            13.8
            %June
                30, 2008
            
            $
            899.3
            
            
            4.86
            %
            
            4.78
            %
            
            3.35
            %
            
            1.43
            %
            
            14.0
            %March
                31, 2008
            
            $
            1,019.2
            
            
            5.24
            %
            
            5.20
            %
            
            4.35
            %
            
            0.85
            %
            
            13.0
            %December
                31, 2007
            
            $
            799.2
            
            
            5.90
            %
            
            5.79
            %
            
            5.33
            %
            
            0.46
            %
            
            19.0
            %September
                30, 2007
            
            $
            865.7
            
            
            5.93
            %
            
            5.72
            %
            
            5.38
            %
            
            0.34
            %
            
            21.0
            %June
                30, 2007
            
            $
            948.6
            
            
            5.66
            %
            
            5.55
            %
            
            5.43
            %
            
            0.12
            %
            
            21.0
            %March
                31, 2007
            
            $
            1,022.7
            
            
            5.59
            %
            
            5.36
            %
            
            5.34
            %
            
            0.02
            %
            
            19.2
            %December
                31, 2006
            
            $
            1,111.0
            
            
            5.53
            %
            
            5.35
            %
            
            5.26
            %
            
            0.09
            %
            
            17.2
            %September
                30, 2006
            
            $
            1,287.6
            
            
            5.50
            %
            
            5.28
            %
            
            5.12
            %
            
            0.16
            %
            
            20.7
            %June
                30, 2006
            
            $
            1,217.9
            
            
            5.29
            %
            
            5.08
            %
            
            4.30
            %
            
            0.78
            %
            
            19.8
            %March
                31, 2006
            
            $
            1,478.6
            
            
            4.85
            %
            
            4.75
            %
            
            4.04
            %
            
            0.71
            %
            
            18.7
            %December
                31, 2005
            
            $
            1,499.0
            
            
            4.84
            %
            
            4.43
            %
            
            3.81
            %
            
            0.62
            %
            
            26.9
            %September
                30, 2005
            
            $
            1,494.0
            
            
            4.69
            %
            
            4.08
            %
            
            3.38
            %
            
            0.70
            %
            
            29.7
            %June
                30, 2005
            
            $
            1,590.0
            
            
            4.50
            %
            
            4.06
            %
            
            3.06
            %
            
            1.00
            %
            
            30.5
            %March
                31, 2005
            
            $
            1,477.9
            
            
            4.39
            %
            
            4.01
            %
            
            2.86
            %
            
            1.15
            %
            
            29.2
            %December
                31, 2004
            
            $
            1,325.7
            
            
            4.29
            %
            
            3.84
            %
            
            2.58
            %
            
            1.26
            %
            
            23.7
            %September
                30, 2004
            
            $
            776.5
            
            
            4.04
            %
            
            3.86
            %
            
            2.45
            %
            
            1.41
            %
            
            16.0
            %





**Off-Balance
      Sheet Arrangements**




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


39




**Liquidity
      and Capital Resources**





Liquidity
      is a measure of our ability to meet potential cash requirements, including
      ongoing commitments to repay borrowings, fund and maintain investments, fund
      our
      operations, pay dividends to our stockholders and other general business needs.
      We recognize the need to have funds available for our operating businesses
      and
      meet these potential cash requirements. Our investments and assets generate
      liquidity on an ongoing basis through mortgage principal and interest payments,
      prepayments and net earnings held prior to payment of dividends. In addition,
      depending on market conditions, the sale of investment securities or capital
      market transactions may provide additional liquidity. We intend to meet our
      liquidity needs through normal operations with the goal of avoiding unplanned
      sales of assets or emergency borrowing of funds. In connection with the March
      2008 market disruption and the anticipated increase in collateral requirements
      by our lenders as a result of the decrease in the market value of our investment
      securities, we elected to increase our liquidity by reducing our leverage
      through the sale of an aggregate of approximately $592.8 million of Agency
      MBS
      in March 2008, which resulted in an aggregate loss of approximately $17.1
      million, including losses related to the termination of interest rate swaps.
      At
      September 30, 2008, we had cash balances of $13.3 million, $28.1 million in
      unencumbered securities and borrowings of $406.3 million under outstanding
      repurchase agreements. At September 30, 2008, we also had longer-term capital
      resources, including CDOs outstanding of $345.7 million and subordinated
      debt of $45.0 million. In addition, the Company received net proceeds of $19.6
      million and $56.6 million from private offerings of its Series A Preferred
      Stock
      and common stock, respectively, in January and February 2008. The Series A
      Preferred Stock matures on December 31, 2010, at which time
      any outstanding shares must be redeemed by us at the $20.00 per share
      liquidation preference. Based on our current investment portfolio, leverage
      ratio and available borrowing arrangements, we believe our existing cash
      balances, funds available under our current repurchase agreements and
      cash flows from operations will meet our liquidity requirements for at
      least the next 12 months. However, should further volatility and
      deterioration in the broader credit, residential mortgage and MBS markets occur
      in the future, we cannot assure you that our existing sources of liquidity
      will
      be sufficient to meet our liquidity requirements during the next 12
      months.





To
      finance our MBS investment portfolio, we generally seek to borrow between seven
      and 10 times the amount of our equity. At September 30, 2008 our leverage ratio
      for our MBS investment portfolio, which we define as our outstanding
      indebtedness under repurchase agreements divided by the sum of total
      stockholders’ equity and the convertible preferred debentures, was 7:1. This
      definition of the leverage ratio is consistent with the manner in which the
      credit providers under our repurchase agreements calculate our
      leverage.





We
      had
      outstanding repurchase agreements, a form of collateralized short-term
      borrowing, with five different financial institutions as of September 30, 2008.
      These agreements are secured by our mortgage-backed securities and bear interest
      rates that have historically moved in close relationship to LIBOR. Our
      borrowings under repurchase agreements are based on the fair value of our
      mortgage backed securities portfolio.  Interest rate changes can have a
      negative impact on the valuation of these securities, reducing the amount we
      can
      borrow under these agreements.   Moreover, our repurchase agreements
      allow the counterparties to determine a new market value of the collateral
      to
      reflect current market conditions and because these lines of financing are
      not
      committed, the counterparty can call the loan at any time. If a counterparty
      determines that the value of the collateral has decreased, the counterparty
      may
      initiate a margin call and require us to either post additional collateral
      to
      cover such decrease or repay a portion of the outstanding borrowing, on minimal
      notice. Moreover, In the event an existing counterparty elected to not reset
      the
      outstanding balance at its maturity into a new repurchase agreement, we would
      be
      required to repay the outstanding balance with cash or proceeds received from
      a
      new counterparty or to surrender the mortgage-backed securities that serve
      as collateral for the outstanding balance, or any combination thereof. If we
      are
      unable to secure financing from a new counterparty and had to surrender the
      collateral, we would expect to incur a significant loss.





In
      connection with the dramatic declines in the housing market and significant
      asset write-downs by financial institutions, many investors and financial
      institutions that lend in the mortgage securities repurchase markets (including
      some of the lenders under our repurchase agreements) significantly tightened
      their lending standards and, in some cases, have ceased to provide funding
      to
      borrowers, including other financial institutions. In our case, during March
      2008, we experienced increases in the amount of “haircut,” which is the
      difference between the value of the collateral and the loan amount, required
      to
      obtain financing for both our Agency MBS and non-Agency MBS. As of September
      30,
      2008, our MBS securities portfolio consisted of approximately of $457.8 million
      of Agency MBS and $22.4 million of non-Agency MBS, which was financed with
      approximately $406.3 million of repurchase agreement borrowing with an average
      haircut of 9%. Although average haircuts have remained stable since the
      second quarter, any increase in haircuts by our lenders would materially
      adversely affect our profitability and liquidity. Moreover, in the event the
      conditions that have recently caused global credit and other financial markets
      to experience substantial volatility and disruption persist or worsen, certain
      financial institutions may become insolvent or further tighten their lending
      standards, which could make it more difficult for us to obtain financing on
      favorable terms or at all. Our profitability may be adversely affected if we
      are
      unable to obtain cost-effective financing for our investments.


40




We
      enter
      into interest rate swap agreements to extend the maturity of our repurchase
      agreements as a mechanism to reduce the interest rate risk of the securities
      portfolio. At September 30, 2008, we had $146.7 million in notional interest
      rate swaps outstanding. Should market rates for similar term interest rate
      swaps
      drop below the minimum rates we have agreed to on our interest rate swaps,
      we
      will be required to post additional margin to the swap counterparty, reducing
      available liquidity. The weighted average maturity of the swaps was 3.9 years
      at
      September 30, 2008.




Our
      inability to sell approximately $5.4 million, net of loan loss reserve, of
      mortgage loans we own could adversely affect our profitability as any sale
      for
      less than the current reserved balance would result in a loss. Currently, these
      loans are not financed or pledged.





As
      it
      relates to loans sold previously under certain loan sale agreements by our
      discontinued mortgage lending business, we may be required to repurchase some
      of
      those loans or indemnify the loan purchaser for damages caused by a breach
      of
      the loan sale agreement. While in the past we complied with the repurchase
      demands by repurchasing the loan with cash and reselling it at a loss, thus
      reducing our cash position; more recently we have addressed these requests
      by
      negotiating a net cash settlement based on the actual or assumed loss on the
      loan in lieu of repurchasing the loans. The Company periodically receives
      repurchase request, each of which management reviews to determine, based on
      management’s experience, whether such request may reasonably be deemed to have
      merit. As of September 30, 2008, we
      had a
      total of $1.5 million of unresolvedrepurchase requests that
      management concluded may reasonably be deemed to have merit, against
      which we had a reserve of approximately $0.5 million. In addition, we may be
      subject to new repurchase requests from investors with whom we have not
      settled or with respect to repurchase obligations not covered under the
      settlement.





We
      paid
      quarterly cash dividends of $0.12 and $0.16 per common share in May and July
      2008, respectively. On September 29, 2008, we declared a third quarter cash
      dividend of $0.16 per common share to common stockholders of record October
      10,
      2008, which was paid on October 27, 2008. On
      October 31, 2008, we paid a $0.50 per share cash dividend, or approximately
      $0.5
      million in the aggregate, on shares of our Series A Preferred Stock to holders
      of record as of September 30, 2008. We also paid a $0.50 per share cash dividend
      on shares of our Series A Preferred Stock during each of the first and second
      quarters of 2008. Each of these dividends was paid out of the Company’s working
      capital. Our board of directors will continue to evaluate our dividend policy
      each quarter and will make adjustments as necessary, based on a variety of
      factors, including, among other things, the need to maintain our REIT status,
      our financial condition, liquidity, earnings projections and business prospects.
      Our dividend policy does not constitute an obligation to pay dividends, which
      only occurs when our board of directors declares a dividend.




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




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





·
            sell
                assets in adverse market
                conditions;





·
            borrow
                on unfavorable terms;





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


41





***Advisory
      Agreement***




On
      January 18, 2008, we entered into an advisory agreement with JMPAM, pursuant
      to
      which JMPAM will advise, manage and make investments on behalf of two of our
      wholly-owned subsidiaries. Pursuant to the Advisory Agreement, JMPAM is entitled
      to receive the following compensation:




·
            base
                advisory fee equal to 1.50% per annum of the “equity capital” (as defined
                in Item 1 of this Annual Report) of the Managed Subsidiaries is payable
                by
                us to JMPAM in cash, quarterly in arrears;
                and




·
            incentive
                compensation equal to 25% of the GAAP net income of the Managed
                Subsidiaries attributable to the investments that are managed by
                JMPAM
                that exceed a hurdle rate equal to the greater of (a) 8.00% and (b)
                2.00%
                plus the ten year treasury rate for such fiscal year will be payable
                by us
                to JMPAM in cash, quarterly in arrears;*provided,
                however,*that a portion of the incentive compensation may be paid in shares
                of our
                common stock.




If
      we
      terminate the advisory agreement (other than for cause) or elect not to renew
      it, we will be required to pay JMPAM a cash termination fee equal to the sum
      of
      (i) the average annual base advisory fee and (ii) the average annual incentive
      compensation earned during the 24-month period immediately preceding the date
      of
      termination.




**Inflation**




For
      the
      periods presented herein, inflation has been relatively low and we believe
      that
      inflation has not had a material effect on our results of operations.




**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**




Market
      risk is the exposure to loss resulting from changes in interest rates, credit
      spreads, foreign currency exchange rates, commodity prices and equity prices.
      Because we are invested solely in U.S.-dollar denominated instruments, primarily
      residential mortgage instruments, and our borrowings are also domestic and
      U.S.
      dollar denominated, we are not subject to foreign currency exchange, or
      commodity and equity price risk; the primary market risk that we are exposed
      to
      is interest rate risk and its related ancillary risks. Interest rate risk 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. All of our market risk sensitive assets,
      liabilities and related derivative positions are for non-trading purposes
      only.




Management
      recognizes the following primary risks associated with our business and the
      industry in which we conduct our business:




·
            Interest
                rate risk




·
            Market
                (fair value) risk




·
            Credit
                spread risk




·
            Liquidity
                and funding risk




·
            Prepayment
                risk




·
            Credit
                risk




***Interest
      Rate Risk***





Interest
      rates are sensitive to many factors, including governmental, monetary, tax
      policies, domestic and international economic conditions, and political or
      regulatory matters beyond our control. Changes in interest rates affect the
      value of our MBS and ARM loans we manage and hold in our investment portfolio,
      the variable-rate borrowings we use to finance our portfolio, and the interest
      rate swaps and caps we use to hedge our portfolio. All of our interest rate
      related market risk sensitive assets, liabilities and related derivative
      positions are managed with a long term perspective and are not for trading
      purposes.


42









Interest
      rate risk is measured by the sensitivity of our current and future earnings
      to
      interest rate volatility, variability of spread relationships, the difference
      in
      re-pricing intervals between our assets and liabilities and the effect that
      interest rates may have on our cash flows, especially the speed at which
      prepayments occur on our residential mortgage related assets. Changes in
      interest rates can affect our net interest income, which is the difference
      between the interest income earned on assets and our interest expense incurred
      in connection with our borrowings.





Our
      CMO
      Floaters have interest rates that adjust monthly, at a margin over LIBOR, as
      do
      the repurchase agreement liabilities that we use to finance those
      Floaters.





Our hybrid
      ARM assets reset on various dates that are not matched to the reset dates on
      our
      repurchase agreements.  In general, the repricing of our repurchase
      agreements occurs more quickly than the repricing of our assets. First, our
      floating rate borrowings may react to changes in interest rates before our
      adjustable rate assets because the weighted average next re-pricing dates on
      the
      related borrowings may have shorter time periods than that of the ARM assets.
      Second, interest rates on ARM assets may be limited to a “periodic cap” or
      an increase of typically 1% or 2% per adjustment period, while our borrowings
      do
      not have comparable limitations. Third, our adjustable rate assets typically
      lag
      changes in the applicable interest rate indices by 45 days due to the notice
      period provided to ARM borrowers when the interest rates on their loans are
      scheduled to change.





We
      seek
      to manage interest rate risk in the portfolio by utilizing interest rate swaps,
      caps and Eurodollar futures, with the goal of optimizing the earnings potential
      while seeking to maintain long term stable portfolio values. We continually
      monitor the duration of our mortgage assets and have a policy to hedge the
      financing such that the net duration of the assets, our borrowed funds related
      to such assets, and related hedging instruments, are less than one
      year.





Interest
      rates can also affect our net return on hybrid ARM securities and loans net
      of
      the cost of financing hybrid ARMs. We continually monitor and estimate the
      duration of our hybrid ARMs and have a policy to hedge the financing of the
      hybrid ARMs such that the net duration of the hybrid ARMs, our borrowed funds
      related to such assets, and related hedging instruments are less than one year.
      During a declining interest rate environment, the prepayment of hybrid ARMs
      may
      accelerate (as borrowers may opt to refinance at a lower rate) causing the
      amount of liabilities that have been extended by the use of interest rate swaps
      to increase relative to the amount of hybrid ARMs, possibly resulting in a
      decline in our net return on hybrid ARMs as replacement hybrid ARMs may have
      a
      lower yield than those being prepaid. Conversely, during an increasing interest
      rate environment, hybrid ARMs may prepay slower than expected, requiring us
      to
      finance a higher amount of hybrid ARMs than originally forecast and at a time
      when interest rates may be higher, resulting in a decline in our net return
      on
      hybrid ARMs. Our exposure to changes in the prepayment speed of hybrid ARMs
      is mitigated by regular monitoring of the outstanding balance of hybrid ARMs,
      and adjusting the amounts anticipated to be outstanding in future periods and,
      on a regular basis, making adjustments to the amount of our fixed-rate borrowing
      obligations for future periods.




We
      utilize a model based risk analysis system to assist in projecting portfolio
      performances over a scenario of different interest rates. The model incorporates
      shifts in interest rates, changes in prepayments and other factors impacting
      the
      valuations of our financial securities, including mortgage-backed securities,
      repurchase agreements, interest rate swaps and interest rate caps.





Based
      on
      the results of the model, as of September 30, 2008, changes in interest rates
      would have the following effect on net interest income:




**Changes in Net Interest Income****Changes
                in Interest Rates**
            
            **Changes
                in Net Interest Income**(Basis
                Points)
            
            
            (Dollar
                amounts in thousands+200
            
            
            $ 
                (4,454)+100
            
            
            $  (3,749)-100
            
            
            $   
                3,821





Interest
      rate changes may also impact our net book value as our mortgage assets and
      related hedge derivatives are marked-to-market each quarter. Generally, as
      interest rates increase, the value of our mortgage assets decreases and as
      interest rates decrease, the value of such investments will increase. In
      general, we would expect however that, over time, decreases in the value of
      our
      portfolio attributable to interest rate changes will be offset, to the degree
      we
      are hedged, by increases in value of our interest rate swaps, and vice versa.
      However, the relationship between spreads on securities and spreads on swaps
      may
      vary from time to time, resulting in a net aggregate book value increase or
      decline. Unless there is a material impairment in value that would result in
      a
      payment not being received on a security or loan, changes in the book value
      of
      our portfolio will not directly affect our recurring earnings or our ability
      to
      make a distribution to our stockholders.


43




***Market
      (Fair Value) Risk***




Changes
      in interest rates also expose us to market risk that the market (fair) value
      on
      our assets may decline. For certain of the financial instruments that we own,
      fair values will not be readily available since there are no active trading
      markets for these instruments as characterized by current exchanges between
      willing parties. Accordingly, fair values can only be derived or estimated
      for
      these investments using various valuation techniques, such as computing the
      present value of estimated future cash flows using discount rates commensurate
      with the risks involved. However, the determination of estimated future cash
      flows is inherently subjective and imprecise. Minor changes in assumptions
      or
      estimation methodologies can have a material effect on these derived or
      estimated fair values. These estimates and assumptions are indicative of the
      interest rate environments as of September 30, 2008, and do not take into
      consideration the effects of subsequent interest rate fluctuations.




We
      note
      that the values of our investments in mortgage-backed securities and in
      derivative instruments, primarily interest rate hedges on our debt, will be
      sensitive to changes in market interest rates, interest rate spreads, credit
      spreads and other market factors. The value of these investments can vary and
      has varied materially from period to period. Historically, the values of our
      mortgage loan portfolio have tended to vary inversely with those of its
      derivative instruments.





The
      following table presents the Company’s financial instruments carried at fair
      value as of September 30, 2008, on the condensed consolidated balance sheet
      by
      the applicable FAS No.157 valuation hierarchy (dollar amounts in
      thousands):





**Fair Value at September 30, 2008****Assets carried at fair value**
            
            **Level 1**
            
            **Level 2**
            
            **Level 3**
            
            **Total**Investment
                securities - available for sale
            
            $
            —
            
            $
            480,142
            
            $
            —
            
            $
            480,142Mortgage
                loans held for sale (net)
            
            
            —
            
            
            —
            
            
            5,391
            
            
            5,391Interest
                Rate Caps
            
            
            —
            
            
            271
            
            
            —
            
            
            271Interest
                Rate Swaps
            
            
            —
            
            
            1,481
            
            
            —
            
            
            1,481Total
            
            $
            —
            
            $
            481,894
            
            $
            5,391
            
            $
            487,285





The
      following table details changes in valuations for the Level 3 assets for the
      three and nine months ended September 30, 2008 (dollar amounts in
      thousands):





**Mortgage
                Loans Held for Sale (Net)**
            
            **Three Months**
              **Ended**
              **September 30, 2008**
            
            **Nine Months**
              **Ended**
              **September 30, 2008**Beginning
                balance
            
            $
            6,200
            
            $
            8,077Principal
                paydown
            
            
            (888
            )
            
            (2,732
            )Provision
                for loan
                losses
            
            
            
            
            
            (87
            )LOCOM
                adjustment
            
            
            79
            
            
            133Ending
                balance
            
            $
            5,391
            
            $
            5,391




Any
      changes to the valuation methodology are reviewed by management to ensure the
      changes are appropriate. There has been no change in valuation
      methodology since the previous period.  As markets and products develop and
      the pricing for certain products becomes more transparent, the Company continues
      to refine its valuation methodologies.  The methods described above
      may produce a fair value calculation that may not be indicative of net
      realizable value or reflective of future fair values.  Furthermore,
      while the Company believes its valuation methods are appropriate and consistent
      with other market participants, the use of different methodologies or
      assumptions to determine the fair value of certain financial instruments could
      result in a different estimate of fair value at the reporting
      date.  The Company uses inputs that are current as of the measurement
      date, which may include periods of market dislocation, during which price
      transparency may be reduced.  This condition could cause the Company’s
      financial instruments to be reclassified from Level 2 to Level 3 in the
      future.





The
      market risk management discussion and the amounts estimated from the analysis
      that follows are forward-looking statements that assume that certain market
      conditions occur. Actual results may differ materially from these projected
      results due to changes in our portfolio assets and borrowings mix and due to
      developments in the domestic and global financial and real estate markets.
      Developments in the financial markets include the likelihood of changing
      interest rates and the relationship of various interest rates and their impact
      on our portfolio yield, cost of funds and cash flows. The analytical methods
      that we use to assess and mitigate these market risks should not be considered
      projections of future events or operating performance.


44




As
      a
      financial institution that has only invested in U.S.-dollar denominated
      instruments, primarily residential mortgage instruments, and has only borrowed
      money in the domestic market, we are not subject to foreign currency exchange
      or
      commodity price risk. Rather, our market risk exposure is largely due to
      interest rate risk. Interest rate risk impacts our interest income, interest
      expense and the market value on a large portion of our assets and
      liabilities. In managing interest rate risk, we attempt to maximize
      earnings and to preserve capital by minimizing the negative impacts of changing
      market rates, asset and liability mix, and prepayment activity.





The
      use
      of hedging instruments is a critical part of our interest rate risk management
      strategies, and the effects of these hedging instruments on the market value
      of
      the portfolio are reflected in the model's output. This analysis also takes
      into
      consideration the value of options embedded in our mortgage assets including
      constraints on the re-pricing of the interest rate of assets resulting from
      periodic and lifetime cap features, as well as prepayment options. Assets and
      liabilities that are not interest rate-sensitive such as cash, payment
      receivables, prepaid expenses, payables and accrued expenses are
      excluded.





The
      table
      below presents the sensitivity of the market value changes of our portfolio
      using a discounted cash flow simulation model. Application of this method
      results in an estimation of the fair market value change of our assets,
      liabilities and hedging instruments per 100 basis point (“bp”) shift in interest
      rates, as well as this same value expressed in years - a measure commonly
      referred to as duration. Positive portfolio duration indicates that the market
      value of the total portfolio will decline if interest rates rise and increase
      if
      interest rates decline. The closer duration is to zero, the less interest rate
      changes are expected to affect earnings.




Changes
      in assumptions including, but not limited to, volatility, mortgage and financing
      spreads, prepayment behavior, defaults, as well as the timing and level of
      interest rate changes will affect the results of the model. Therefore, actual
      results are likely to vary from modeled results.




**Market Value Changes****Changes in**
              **Interest Rates**
            
            **Changes in**
              **Market Value**
            
            **Net**
              **Duration**(Basis Points)
            
            (Dollar amounts in thousands)
            
            (Years)+200
            
            (19,612)
            
            1.10+100
            
            (8,397)
            
            0.87**Base**
            
            **—**
            
            **0.46**-100
            
            4,319
            
            0.10




It
      should
      be noted that the model is used as a tool to identify potential risk in a
      changing interest rate environment but does not include any changes in portfolio
      composition, financing strategies, market spreads or changes in overall market
      liquidity.




Based
      on
      the assumptions used, the model output suggests a very low degree of portfolio
      price change given increases in interest rates, which implies that our cash
      flow
      and earning characteristics should be relatively stable for comparable changes
      in interest rates.




Although
      market value sensitivity analysis is widely accepted in identifying interest
      rate risk, it does not take into consideration changes that may occur such
      as,
      but not limited to, changes in investment and financing strategies, changes
      in
      market spreads and changes in business volumes. Accordingly, we make extensive
      use of an earnings simulation model to further analyze our level of interest
      rate risk.




There
      are
      a number of key assumptions in our earnings simulation model. These key
      assumptions include changes in market conditions that affect interest rates,
      the
      pricing of ARM products, the availability of investment assets and the
      availability and the cost of financing for portfolio assets. Other key
      assumptions made in using the simulation model include prepayment speeds and
      management's investment, financing and hedging strategies, and the issuance
      of
      new equity. We typically run the simulation model under a variety of
      hypothetical business scenarios that may include different interest rate
      scenarios, different investment strategies, different prepayment possibilities
      and other scenarios that provide us with a range of possible earnings outcomes
      in order to assess potential interest rate risk. The assumptions used represent
      our estimate of the likely effect of changes in interest rates and do not
      necessarily reflect actual results. The earnings simulation model takes into
      account periodic and lifetime caps embedded in our assets in determining the
      earnings at risk.


45




***Credit
      Spread Risk***




The
      mortgage-backed securities we currently, and will in the future, own are also
      subject to spread risk. The majority of these securities will be adjustable-rate
      securities that are valued based on a market credit spread to U.S. Treasury
      security yields. In other words, their value is dependent on the yield demanded
      on such securities by the market based on their credit relative to U.S. Treasury
      securities. Excessive supply of such securities combined with reduced demand
      will generally cause the market to require a higher yield on such securities,
      resulting in the use of a higher or wider spread over the benchmark rate
      (usually the applicable U.S. Treasury security yield) to value such securities.
      Under such conditions, the value of our securities portfolio would tend to
      decline. Conversely, if the spread used to value such securities were to
      decrease or tighten, the value of our securities portfolio would tend to
      increase. Such changes in the market value of our portfolio may affect our
      net
      equity, net income or cash flow directly through their impact on unrealized
      gains or losses on available-for-sale securities, and therefore our ability
      to
      realize gains on such securities, or indirectly through their impact on our
      ability to borrow and access capital.




Furthermore,
      shifts in the U.S. Treasury yield curve, which represents the market's
      expectations of future interest rates, would also affect the yield required
      on
      our securities and therefore their value. These shifts, or a change in spreads,
      would have a similar effect on our portfolio, financial position and results
      of
      operations.




***Liquidity
      and Funding Risk***




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





As
      it
      relates to our investment portfolio, derivative financial instruments we use
      also subject us to “margin call” risk based on their market values. Under our
      interest rate swaps, we pay a fixed rate to the counterparties while they pay
      us
      a floating rate. Most of our interest rate swap agreements provide for a
      bi-lateral posting of margin, the effect being that either swap party must
      post
      margin, depending on the change in value of the swap over time. Unlike typical
      unilateral posting of margin only in the direction of the swap counterparty,
      this provides us with additional flexibility in meeting our liquidity
      requirements as we can call margin on our counterparty as swap values
      increase.





When
      floating rates are low, on a net basis we pay the counterparty and visa-versa.
      In a declining interest rate environment, the market value of the swap would
      generally decline and we would be subject to additional exposure for cash margin
      calls. A declining interest rate environment may also result in
      accelerating prepayments of mortgage assets which may require the Company to
      post additional margin for our repurchase agreements. However, the asset side
      of
      the balance sheet should increase in value in a declining interest rate
      scenario.





Incoming
      cash on our mortgage loans and securities is a principal source of cash. The
      volume of cash depends on, among other things, interest rates. The volume of
      such incoming cash flows can be impacted by severe and immediate changes in
      interest rates. If rates increase dramatically, our short-term funding costs
      will increase quickly. While many of our Agency securities are hybrid ARMs,
      they
      typically will not reset as quickly as our funding costs creating a reduction
      in
      incoming cash flow. Our derivative financial instruments, primarily interest
      rate swaps, are used to mitigate the effect of rising interest rate environment
      as they effectively convert our floating rate short term debt into fixed rate
      longer term debt.




We
      manage
      liquidity to ensure that we have the continuing ability to maintain cash flows
      that are adequate to meet commitments on a timely and cost-effective basis.
      Our
      principal sources of liquidity are the repurchase agreement market, principal
      and interest payments from portfolio assets and, when market conditions permit,
      the issuance of common or preferred equity.




***Prepayment
      Risk***




When
      borrowers repay the principal on their mortgage loans before maturity or faster
      than their scheduled amortization, the effect is to shorten the period over
      which interest is earned, and therefore, reduce the cash flow and yield on
      our
      ARM assets. Furthermore, prepayment speeds exceeding or lower than our
      reasonable estimates for similar assets, impact the effectiveness of any hedges
      we have in place to mitigate financing and/or fair value risk. Generally, when
      market interest rates decline, borrowers have a tendency to refinance their
      mortgages. The higher the interest rate a borrower currently has on his or
      her
      mortgage the more incentive he or she has to refinance the mortgage when rates
      decline. Additionally, when a borrower has a low loan-to-value ratio, he or
      she
      is more likely to do a “cash-out” refinance. Each of these factors increases the
      chance for higher prepayment speeds during the term of the
      loan.


46





We
      mitigate prepayment risk by constantly evaluating our ARM portfolio at a range
      of reasonable market prepayment speeds observed at the time for assets with
      a
      similar structure, quality and characteristics. In addition, we utilize
      prepayment models to assist in evaluating our hedging strategy.




For
      the
      three months ended September 30, 2008, our mortgage assets paid down at an
      approximate average annualized constant paydown rate (“CPR”) of 14%, compared to
      20% for the comparable period in 2007. When prepayment experience increases,
      we
      have to amortize our premiums over a shorter time period, resulting in a reduced
      yield to maturity on our ARM assets. Conversely, if actual prepayment experience
      decreases, we would amortize the premium over a longer time period, resulting
      in
      a higher yield to maturity. We monitor our prepayment experience on a monthly
      basis and adjust the amortization of the net premium, as
      appropriate.





***Credit
      Risk***





Credit
      risk is the risk that we will not fully collect the principal we have invested
      in our MBS or mortgage loans held in securitization trusts. The Company
      minimizes the principal risk related to MBS securities by focusing its
      investment strategy on Agency MBS as well as the highest rated securities for
      non-Agency securities. As of September 30, 2008 the Company had $480.1 million
      in MBS securities of which 95.3% were Agency MBS and 4.7% were rated
      AAA.




With
      regard to loans included in our securitization trusts, factors such as FICO
      score, LTV, debt-to-income ratio, and other borrower and collateral factors
      were
      evaluated. Credit enhancement features, such as mortgage insurance were
      also factored into the credit decision. In some instances, when the borrower
      exhibited strong compensating factors, exceptions to the underwriting
      guidelines were approved.




Our
      mortgage loans held in securitization trusts are concentrated in geographic
      markets that are generally supply constrained. We believe that these markets
      have less exposure to sudden declines in housing values than those markets
      which
      have an oversupply of housing.




**Item
      4. Controls and Procedures**




*Evaluation
      of Disclosure Controls and Procedures* - We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in the reports that we file or submit
      under
      the Securities Exchange Act of 1934, as amended, is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms
      of the SEC, and that such information is accumulated and communicated to our
      management as appropriate to allow timely decisions regarding required
      disclosures. An evaluation was performed under the supervision and with the
      participation of our management, including our Co-Chief Executive Officers
      and
      our Chief Financial Officer, of the effectiveness of our disclosure controls
      and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, as amended) as of September 30, 2008. Based upon that
      evaluation, our management, including our Co-Chief Executive Officers and our
      Chief Financial Officer, concluded that our disclosure controls and procedures
      were effective as of September 30, 2008.




*Changes
      in Internal Control over Financial Reporting* - There
      has been no change in our internal control over financial reporting during
      the
      quarter ended September 30, 2008 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.


47




**PART
      II: OTHER INFORMATION**




**Item
      1.   Legal Proceedings.**





As
      previously disclosed in our Annual Report on Form 10-K for the year ended
      December 31, 2007, Steven B. Yang and Christopher Daubiere (“Plaintiffs”), filed
      suit in the United States District Court for the Southern District of New York
      against HC and us on December 13, 2006, alleging that we failed to pay them,
      and
      similarly situated employees, overtime in violation of the Fair Labor Standards
      Act (“FLSA”) and New York State law.  The Plaintiffs, each of whom were
      former employees in our discontinued mortgage lending business, purported to
      bring a FLSA “collective action” on behalf of similarly situated loan officers
      in our now discontinued mortgage lending business and sought unspecified amounts
      for alleged unpaid overtime wages, liquidated damages, attorney’s fees and
      costs.





On
      December 30, 2007 we entered into an agreement in principle with the Plaintiffs
      to settle this suit. On June 2, 2008 the court granted a preliminary approval
      of
      settlement and authorized notification to plaintiffs and held a fairness hearing
      on September 18, 2008. At the hearing, the court certified the class and
      approved the settlement, subject to a final motion to approve Plaintiffs’
counsel’s application for fees. As part of the preliminary settlement the
      Company funded the settlement in the amount of $1.35 million into an escrow
      account for the plaintiffs. The amount was previously reserved and expensed
      in
      the year ended December 31, 2007. Once the Court rules on Plaintiff’s counsel’s
      fee application (any fee award is to be paid out of the fund with no additional
      costs to the Company), the escrow funds will be distributed.





**Item
      1A. Risk Factors**




***We
      previously disclosed risk factors under "Item 1A. Risk Factors" in our Annual
      Report on Form 10-K for the year ended December 31, 2007 and Part II. "Item
      1A.
      Risk Factors " in our Quarterly Reports on Form 10-Q for each of the three
      month
      periods ended March 31, 2008 and June 30, 2008. In addition to those risk
      factors and the other information included elsewhere in this report, you should
      also carefully consider the risk factors discussed below, ***which
      supplement and, in some cases, update our previously disclosed risk
      factors***. The risks described below and in our Annual Report
      on Form 10-K for the year ended December 31, 2007 and our Quarterly Reports
      on
      Form 10-Q filed in 2008 are not the only risks facing our company. Additional
      risks and uncertainties not currently known to us or that we deem to be
      immaterial also may materially adversely affect our business, financial
      condition and/or results of operations.***





**Risks
      Related to Our Business**




***Continued
      adverse developments in the broader residential mortgage market may adversely
      affect the value of the securities we seek to acquire or currently hold in
      our
      portfolio.***




In
      2008,
      the residential mortgage market in the United States has experienced a variety
      of difficulties and changed economic conditions, including defaults, credit
      losses and liquidity concerns. Recently, some commercial banks, investment
      banks
      and insurance companies have announced extensive losses from exposure to the
      residential mortgage market. These losses have reduced financial industry
      capital, leading to reduced liquidity for some institutions. These factors
      have
      impacted investor perception of the risk associated with real estate related
      assets, including Agency MBS and other high-quality non-Agency MBS assets.
      As a
      result, values for MBS, including Agency MBS and other non-Agency MBS, have
      experienced significant volatility. Further increased volatility and
      deterioration in the broader residential mortgage and residential MBS markets
      may adversely affect the performance and market value of the investment
      securities we seek to acquire or currently hold in our portfolio.




As
      of
      September 30, 2008, our investment portfolio was comprised of Agency MBS,
      non-Agency MBS and prime ARM loans. Since our exit from the mortgage lending
      business on March 31, 2007, we have exclusively focused our resources and
      efforts on investing, on a leveraged basis, in MBS and, since August 2007,
      we
      have employed a portfolio strategy that has focused on investments in
      Agency MBS. Any material decline in the value of the MBS in our portfolio,
      or
      perceived market uncertainty about their value, would likely make it difficult
      for us to obtain financing for our MBS on favorable terms or at all, or maintain
      our compliance with terms of any financing arrangements already in place. The
      MBS held in our investment portfolio are classified for accounting purposes
      as
      available-for-sale. All assets classified as available-for-sale are be reported
      at fair value, based on market prices from third-party sources, with unrealized
      gains and losses excluded from earnings and reported as a separate component
      of
      stockholders’ equity. As a result, a decline in fair values may reduce the book
      value of our assets. Moreover, if the decline in fair value of an
      available-for-sale security is other-than-temporarily impaired, such decline
      will reduce earnings. If market conditions result in a decline in the value
      of
      our agency securities, our financial position and results of operations could
      be
      adversely affected.


48





***Continued
      adverse developments in the residential mortgage market, including recent
      mergers, acquisitions or bankruptcies of potential repurchase agreement
      counterparties, as well as defaults, credit losses and liquidity concerns,
      could
      make it difficult for us to borrow money to acquire Agency MBS or continue
      to
      fund our investment portfolio on a leveraged basis, on favorable terms or at
      all, which could adversely affect our profitability.***




We
      rely
      on the availability of financing to acquire Agency MBS and to fund our
      investment portfolio on a leveraged basis. Since March 2008, there have been
      several announcements of proposed mergers, acquisitions or bankruptcies of
      investment banks and commercial banks that have historically acted as repurchase
      agreement counterparties. This has resulted in a fewer number of potential
      repurchase agreement counterparties operating in the market. In addition, many
      commercial banks, investment banks and insurance companies have announced
      extensive losses from exposure to the residential mortgage market. These losses
      have reduced financial industry capital, leading to reduced liquidity for some
      institutions. Institutions from which we seek to obtain financing may have
      owned
      or financed MBS which have declined in value and caused them to suffer losses
      as
      a result of the recent downturn in the residential mortgage market. If these
      conditions persist, these institutions may be forced to exit the repurchase
      market, become insolvent or further tighten their lending standards or increase
      the amount of equity capital or haircut required to obtain financing, and in
      such event, could make it more difficult for us to obtain financing on favorable
      terms or at all. Our profitability will be adversely affected if we were unable
      to obtain cost-effective financing for our investments.





***The
      conservatorship of Fannie Mae and Freddie Mac and related efforts, along with
      any changes in laws and regulations affecting the relationship between Fannie
      Mae and Freddie Mac and the federal government, may adversely affect our
      business.***




Payments
      on the Agency MBS in which we invest are guaranteed by Fannie Mae and Freddie
      Mac. Since 2007, Freddie Mac and Fannie Mae have reported substantial losses
      and
      a need for substantial amounts of additional capital. In response to the
      deteriorating financial condition of Fannie Mae and Freddie Mac and the credit
      market disruption, Congress and the U.S. Treasury undertook a series of actions.
      The Regulatory Reform Act was signed into law on July 30, 2008, and
      established a new regulator for Fannie Mae and Freddie Mac called the Federal
      Housing Finance Authority, or FHFA, with enhanced regulatory authority over,
      among other things, the business activities of Fannie Mae and Freddie Mac,
      including over the size of their portfolio holdings, and also expanded the
      circumstances under which Fannie Mae and Freddie Mac could be placed into
      conservatorship. On September 7, 2008, the Federal Housing Finance Agency,
      or FHFA, placed Fannie Mae and Freddie Mac into conservatorship and, together
      with the U.S. Treasury, established a program designed to boost investor
      confidence in Fannie Mae’s and Freddie Mac’s debt and mortgage-backed
      securities. As the conservator of Fannie Mae and Freddie Mac, the FHFA controls
      and directs the operations of Fannie Mae and Freddie Mac and may (1) take
      over the assets of and operate Fannie Mae and Freddie Mac with all the powers
      of
      the shareholders, the directors, and the officers of Fannie Mae and Freddie
      Mac
      and conduct all business of Fannie Mae and Freddie Mac; (2) collect all
      obligations and money due to Fannie Mae and Freddie Mac; (3) perform all
      functions of Fannie Mae and Freddie Mac which are consistent with the
      conservator’s appointment; (4) preserve and conserve the assets and
      property of Fannie Mae and Freddie Mac; and (5) contract for assistance in
      fulfilling any function, activity, action or duty of the conservator.




In
      addition to FHFA becoming the conservator of Fannie Mae and Freddie Mac,
      (i) the U.S. Treasury and FHFA have entered into preferred stock purchase
      agreements between the U.S. Department of Treasury and Fannie Mae and Freddie
      Mac pursuant to which the U.S. Department of Treasury will ensure that each
      of
      Fannie Mae and Freddie Mac maintains a positive net worth; (ii) the U.S.
      Department of Treasury has established a new secured lending credit facility
      which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan
      Banks, which is intended to serve as a liquidity backstop, which will be
      available until December 2009; and (iii) the U.S. Department of Treasury
      has initiated a temporary program to purchase agency securities issued by Fannie
      Mae and Freddie Mac. Given the highly fluid and evolving nature of these events,
      it is unclear how our business will be impacted.




Although
      the federal government has committed capital to Fannie Mae and Freddie Mac,
      there can be no assurance that these credit facilities and other capital
      infusions will be adequate for their needs. If the financial support is
      inadequate, these companies could continue to suffer losses and could fail
      to
      honor their guarantees and other obligations. The future roles of Fannie Mae
      and
      Freddie Mac could be significantly reduced and the nature of their guarantees
      could be considerably limited relative to historical measurements. Any changes
      to the nature of the guarantees provided by Fannie Mae and Freddie Mac could
      redefine what constitutes Agency MBS and could have broad adverse market
      implications.




The
      size
      and timing of the federal government’s agency security purchase program is
      subject to the discretion of the Secretary of the Treasury, who has indicated
      that the scale of the program will be based on developments in the capital
      markets and housing markets. Purchases under this program have already begun,
      but there is no certainty that the U.S. Treasury will continue to purchase
      additional agency securities in the future. The U.S. Treasury can hold its
      portfolio of agency securities to maturity, and, based on mortgage market
      conditions, may make adjustments to the portfolio. This flexibility may
      adversely affect the pricing and availability for our target assets. It is
      also
      possible that the U.S. Treasury’s commitment to purchase Agency MBS in the
      future could create additional demand that would negatively affect the pricing
      of Agency MBS that we seek to acquire.




49





The
      U.S.
      Treasury could also stop providing credit support to Fannie Mae and Freddie
      Mac
      in the future. The U.S. Treasury’s authority to purchase agency securities and
      to provide financial support to Fannie Mae and Freddie Mac under the Housing
      and
      Economic Recovery Act of 2008 expires on December 31, 2009. The problems
      faced by Fannie Mae and Freddie Mac resulting in their being placed into
      conservatorship have stirred debate among some federal policy makers regarding
      the continued role of the federal government in providing liquidity for mortgage
      loans. Following expiration of the current authorization, each of Fannie Mae
      and
      Freddie Mac could be dissolved and the federal government could determine to
      stop providing liquidity support of any kind to the mortgage market. If Fannie
      Mae or Freddie Mac were eliminated, or their structures were to change
      radically, we would not be able to acquire Agency MBS from these companies,
      which would eliminate the major component of our current business model.





Our
      income could be negatively affected in a number of ways depending on the manner
      in which related events unfold. For example, the current credit support provided
      by the U.S. Treasury to Fannie Mae and Freddie Mac, and any additional credit
      support it may provide in the future, could have the effect of lowering the
      interest rate we expect to receive from Agency MBS that we seek to acquire,
      thereby tightening the spread between the interest we earn on our portfolio
      of
      targeted assets and our cost of financing that portfolio. A reduction in the
      supply of Agency MBS could also negatively affect the pricing of Agency MBS
      we
      seek to acquire by reducing the spread between the interest we earn on our
      portfolio of investment securities and our cost of financing that portfolio.




As
      indicated above, recent legislation has changed the relationship between Fannie
      Mae and Freddie Mac and the federal government and requires Fannie Mae and
      Freddie Mac to reduce the amount of mortgage loans they own or for which they
      provide guarantees on Agency MBS. Future legislation could further change the
      relationship between Fannie Mae and Freddie Mac and the federal government,
      and
      could also nationalize or eliminate such entities entirely. Any law affecting
      these federally chartered corporations may create market uncertainty and have
      the effect of reducing the actual or perceived credit quality of securities
      issued or guaranteed by Fannie Mae or Freddie Mac. As a result, such laws could
      increase the risk of loss on investments in Fannie Mae and/or Freddie Mac Agency
      MBS. It also is possible that such laws could adversely impact the market for
      such securities and spreads at which they trade. All of the foregoing could
      materially adversely affect our business, operations and financial
      condition.





***There
      can be no assurance that the actions of the U.S. government, Federal Reserve
      and
      other governmental and regulatory bodies for the purpose of stabilizing the
      financial markets, or market response to those actions, will achieve the
      intended effect, our business may not benefit from these actions and further
      government or market developments could adversely impact us.***




In
      response to the financial issues affecting the banking system and financial
      and
      credit markets and going concern threats to investment banks and other financial
      institutions, the Emergency Economic Stabilization Act of 2008, or EESA, was
      enacted on October 3, 2008. The EESA provides the U.S. Secretary of the
      Treasury with the authority to establish a Troubled Asset Relief Program, or
      TARP, to purchase from financial institutions up to $700 billion of residential
      or commercial mortgages and any securities, obligations, or other instruments
      that are based on or related to such mortgages, that in each case was originated
      or issued on or before March 14, 2008, as well as any other financial
      instrument that the U.S. Secretary of the Treasury, after consultation with
      the
      Chairman of the Board of Governors of the Federal Reserve System, determines
      the
      purchase of which is necessary to promote financial market stability, upon
      transmittal of such determination, in writing, to the appropriate committees
      of
      the U.S. Congress. The EESA also provides for a program that would allow
      companies to insure their troubled assets.




On
      October 14, 2008, the U.S. Treasury announced the voluntary Capital
      Purchase Program (“CPP”), which was implemented under authority provided in the
      EESA. Under the CPP, the U.S. Treasury will purchase up to $250 billion of
      senior preferred shares in qualifying U.S. controlled banks, savings
      associations, and certain bank and savings and loan holding companies engaged
      only in financial activities, that elect to participate by November 14,
      2008. Nine of the largest banks in the United States, as well as other financial
      institutions, have accepted investments under the CPP. The U.S. Treasury has
      also taken under consideration the expansion of the CPP to non-financial
      institutions, including life or other insurance companies.





There
      can
      be no assurance that the EESA will have a beneficial impact on the financial
      markets, including current extreme levels of volatility. To the extent the
      market does not respond favorably to the TARP or CPP initiatives or the TARP
      or
      CPP initiatives do not function as intended, our business may not receive the
      anticipated positive impact from the legislation. In addition, the U.S.
      Government, Federal Reserve and other governmental and regulatory bodies have
      taken or are considering taking other actions to address the financial crisis.
      We cannot predict whether or when such actions may occur or what impact, if
      any,
      such actions could have on our business, results of operations and financial
      condition.


50





***We
      currently leverage our equity, which will exacerbate any losses we incur on
      our
      current and future investments and may reduce cash available for distribution
      to
      our stockholders.***




We
      currently leverage our equity through borrowings, generally through the use
      of
      repurchase agreements and CDOs, which are obligations issued in multiple classes
      secured by an underlying portfolio of securities, and we may, in the future,
      utilize other forms of borrowing. The amount of leverage we incur varies
      depending on our ability to obtain credit facilities and our lenders’ estimates
      of the value of our portfolio’s cash flow. The return on our investments and
      cash available for distribution to our stockholders may be reduced to the extent
      that changes in market conditions cause the cost of our financing to increase
      relative to the income that can be derived from the assets we hold in our
      investment portfolio. Further, the leverage on our equity may exacerbate any
      losses we incur.




Our
      debt
      service payments will reduce the net income available for distributions to
      our
      stockholders. We may not be able to meet our debt service obligations and,
      to
      the extent that we cannot, we risk the loss of some or all of our assets
      to sale to satisfy our debt obligations. A decrease in the value of the
      assets may lead to margin calls under our repurchase agreements which we will
      have to satisfy. Significant decreases in asset valuation, such as occurred
      during March 2008, could lead to increased margin calls, and we may not
      have the funds available to satisfy any such margin calls. We have a target
      overall leverage amount for our MBS investment portfolio of seven to 10
      times our equity, but there is no established limitation, other than may be
      required by our financing arrangements, on our leverage ratio or on the
      aggregate amount of our borrowings.





***If
      we are unable to leverage our equity to the extent we currently anticipate,
      the
      returns on our MBS portfolio could be diminished, which may limit or
      eliminate our ability to make distributions to our
      stockholders.***




If
      we are
      limited in our ability to leverage our assets, the returns on our portfolio
      may
      be harmed. A key element of our strategy is our use of leverage to increase
      the
      size of our MBS portfolio in an attempt to enhance our returns. To finance
      our
      MBS investment portfolio, we generally seek to borrow between seven and 10
      times
      the amount of our equity. At September 30, 2008 our leverage ratio for our
      MBS
      investment portfolio, which we define as our outstanding indebtedness under
      repurchase agreements divided by total stockholders’ equity and the convertible
      preferred debentures, was seven to one. This definition of the leverage ratio
      is
      consistent with the manner in which the credit providers under our repurchase
      agreement calculate our leverage. Our repurchase agreements are not currently
      committed facilities, meaning that the counterparties to these agreements may
      at
      any time choose to restrict or eliminate our future access to the facilities
      and
      we have no other committed credit facilities through which we may leverage
      our
      equity. If we are unable to leverage our equity to the extent we currently
      anticipate, the returns on our portfolio could be diminished, which may limit
      or
      eliminate our ability to make distributions to our stockholders.




51





**Item
      6. Exhibits**




The
      information set forth under “Exhibit Index” below is incorporated herein by
      reference.


52





**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




NEW
                YORK MORTGAGE TRUST, INC.Date:
                November 12, 2008
            By:
            /s/ David
                A. AkreDavid
                A. Akre
              Co-Chief
                Executive Officer




Date:
                November 12, 2008
            By:
            /s/
                Steven R. MummaSteven
                R. Mumma
              Chief
                Financial Officer


53




**EXHIBIT
      INDEX**


**No.**
              
              **Description**3.1(a)
              
              Articles
                  of Amendment and Restatement of the Registrant (incorporated by
                  reference
                  to Exhibit 3.01 to our Registration Statement on Form S-11/A filed
                  on
                  June 18, 2004 (Registration No. 333-111668)).3.1(b)
              
              Articles
                  of Amendment of the Registrant (incorporated by reference to Exhibit
                  3.1
                  to our Current Report on Form 8-K filed on October 4,
                  2007.)3.1(c)
              
              Articles
                  of Amendment of the Registrant (incorporated by reference to Exhibit
                  3.2
                  to our Current Report on Form 8-K filed on October 4,
                  2007.)3.1(d)
              
              Articles
                  of Amendment of the Registrant (incorporated by reference to Exhibit
                  3.1(d) to our Current Report on Form 8-K filed on May 16,
                  2008.)3.1(e)
              
              Articles
                  of Amendment of the Registrant (incorporated by reference to Exhibit
                  3.1(e) to our Current Report on Form 8-K filed on May 16,
                  2008.)3.2(a)
              
              Bylaws
                  of the Registrant (incorporated by reference to Exhibit 3.02 to
                  our
                  Registration Statement on Form S-11/ A filed on June 18, 2004
                  (Registration No. 333-111668)).3.2(b)
              
              Amendment
                  No. 1 to Bylaws of Registrant (incorporated by reference to Exhibit
                  3.2(b)
                  to Registrant's Annual Report on Form 10-K filed on March 16,
                  2006)4.1
              
              Form
                  of Common Stock Certificate (incorporated by reference to Exhibit
                  4.01 to
                  our Registration Statement on Form S-11/ A filed on June 18, 2004
                  (Registration No. 333-111668)).4.2(a)
              
              Junior
                  Subordinated Indenture between The New York Mortgage Company, LLC
                  and
                  JPMorgan Chase Bank, National Association, as trustee, dated
                  September 1, 2005 (incorporated by reference to Exhibit 4.1 to our
                  Current Report on Form 8-K filed on September 6,
                  2005).4.2(b)
              
              Amended
                  and Restated Trust Agreement among The New York Mortgage Company,
                  LLC,
                  JPMorgan Chase Bank, National Association, Chase Bank USA, National
                  Association and the Administrative Trustees named therein, dated
                  September 1, 2005 (incorporated by reference to Exhibit 4.2 to our
                  Current Report on Form 8-K filed on September 6,
                  2005).4.3(a)
              
              Articles
                  Supplementary Establishing and Fixing the Rights and Preferences
                  of
                  Series A Cumulative Redeemable Convertible Preferred Stock of the
                  Company (Incorporated by reference to Exhibit 4.1 to the Company’s
                  Current Report on Form 8-K filed on January 25, 2008).4.3(b)
              
              Form
                  of Series A Cumulative Redeemable Convertible Preferred Stock Certificate
                  (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report
                  on Form 8-K filed on January 25, 2008).31.1
              
              Certification
                  of Co-Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.*31.2
              
              Certification
                  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.*32.1
              
              Certification
                  of Co-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.*




*
            Filed
                herewith




54