UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549




FORM
10-Q


xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the
quarterly period ended June 30, 2009  OR
  oTRANSITION 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes o
    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 Filer o
            Accelerated
      Filer o
            Non-Accelerated
      Filer x
            Smaller
      Reporting Company o





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 August 3, 2009 was 9,419,094.









NEW
YORK MORTGAGE TRUST, INC.




FORM
10-Q




PART
      I. Financial Information
                1Item
      1. Condensed Consolidated Financial Statements
      (unaudited)
                1CONDENSED
      CONSOLIDATED BALANCE SHEETS
                1CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
                2CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
                3CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
                4NOTES
      TO THE CONDENSED CONSOLIDATED STATEMENTS
                5Item
      2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                23Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk
                39Item
      4. Controls and Procedures
                43PART
      II. OTHER INFORMATION
                44Item
      1A.  Risk Factors
                44Item
      6. Exhibits
                44SIGNATURES
                45







PART
I.  FINANCIAL INFORMATION




Item
1.Condensed Consolidated Financial Statements
(unaudited)




NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




(amounts
in thousands, except share and per share amounts)


(unaudited)






June
      30,
              2009
            
            
            December 31,
              2008ASSETSCash
      and cash equivalents
            
            $
            15,797
            
            
            $
            9,387Restricted
      cash
            
            
            3,269
            
            
            
            7,959Investment
      securities - available for sale, at fair value (including pledgedsecurities
      of $202,962 and $456,506, respectively)
            
            
            268,925
            
            
            
            477,416Accounts
      and accrued interest receivable
            
            
            2,765
            
            
            
            3,095Mortgage
      loans held in securitization trusts (net)
            
            
            313,955
            
            
            
            348,337Derivative
      assets
            
            
            18
            
            
            
            22Prepaid
      and other assets
            
            
            2,158
            
            
            
            1,230Assets
      related to discontinued operation
            
            
            4,608
            
            
            
            5,854Total
      Assets
            
            $
            611,495
            
            
            $
            853,300LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Financing
      arrangements, portfolio investments
            
            $
            188,151
            
            
            $
            402,329Collateralized
      debt obligations
            
            
            302,325
            
            
            
            335,646Derivative
      liabilities
            
            
            3,053
            
            
            
            4,194Accounts
      payable and accrued expenses
            
            
            5,252
            
            
            
            3,997Subordinated
      debentures (net)
            
            
            44,755
            
            
            
            44,618Convertible
      preferred debentures (net)
            
            
            19,776
            
            
            
            19,702Liabilities
      related to discontinued operation
            
            
            2,614
            
            
            
            3,566Total
      liabilities
            
            
            565,926
            
            
            
            814,052Commitments
      and ContingenciesStockholders’
      Equity:Common
      stock, $0.01 par value, 400,000,000 authorized,9,320,094
      and 9,320,094, shares issued and outstanding, respectively
            
            
            93
            
            
            
            93Additional
      paid-in capital
            
            
            146,969
            
            
            
            150,790Accumulated
      other comprehensive loss
            
            
            (2,980
            )
            
            
            (8,521
            )Accumulated
      deficit
            
            
            (98,513
            )
            
            
            (103,114
            )Total
      stockholders’ equity
            
            
            45,569
            
            
            
            39,248Total
      Liabilities and Stockholders’ Equity
            
            $
            611,495
            
            
            $
            853,300





See
notes to condensed consolidated financial statements.




1




NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
  (amounts
in thousands, except per share amounts)
 (unaudited)


For
      the Three Months
                    Ended
      June 30,
                  
                  
                  For
      the Six Months
                    Ended
      June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008REVENUE:Interest
      income-investment securities and loans held in securitization
      trusts
                  
                  $
                  7,621
                  
                  
                  $
                  10,755
                  
                  
                  $
                  16,206
                  
                  
                  $
                  24,008Interest
      expense-investment securities and loans held in securitization
      trusts
                  
                  
                  2,047
                  
                  
                  
                  6,791
                  
                  
                  
                  5,177
                  
                  
                  
                  17,305Net interest income
      from investment securities and loans held in securitization
      trusts
                  
                  
                  5,574
                  
                  
                  
                  3,964
                  
                  
                  
                  11,029
                  
                  
                  
                  6,703Interest expense –
      subordinated debentures
                  
                  
                  808
                  
                  
                  
                  896
                  
                  
                  
                  1,632
                  
                  
                  
                  1,855Interest expense –
      convertible preferred debentures
                  
                  
                  608
                  
                  
                  
                  569
                  
                  
                  
                  1,145
                  
                  
                  
                  1,075Net interest
      income
                  
                  
                  4,158
                  
                  
                  
                  2,499
                  
                  
                  
                  8,252
                  
                  
                  
                  3,773OTHER
      EXPENSE:Provision for loan
      losses
                  
                  
                  (259
                  )
                  
                  
                  (22
                  )
                  
                  
                  (888
                  )
                  
                  
                  (1,455
                  )Impairment loss on
      investment securities
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (119
                  )
                  
                  
                  —Realized gain (loss)
      on securities and related hedges
                  
                  
                  141
                  
                  
                  
                  (83
                  )
                  
                  
                  264
                  
                  
                  
                  (19,931
                  )Total other
      expense
                  
                  
                  (118
                  )
                  
                  
                  (105
                  )
                  
                  
                  (743
                  )
                  
                  
                  (21,386
                  )EXPENSE:Salaries and
      benefits
                  
                  
                  472
                  
                  
                  
                  417
                  
                  
                  
                  1,013
                  
                  
                  
                  730Professional
      fees
                  
                  
                  357
                  
                  
                  
                  346
                  
                  
                  
                  698
                  
                  
                  
                  698Management
      fees
                  
                  
                  245
                  
                  
                  
                  184
                  
                  
                  
                  427
                  
                  
                  
                  293Insurance
                  
                  
                  95
                  
                  
                  
                  300
                  
                  
                  
                  187
                  
                  
                  
                  392Other
                  
                  
                  433
                  
                  
                  
                  713
                  
                  
                  
                  847
                  
                  
                  
                  1,278Total
      expenses
                  
                  
                  1,602
                  
                  
                  
                  1,960
                  
                  
                  
                  3,172
                  
                  
                  
                  3,391INCOME
      (LOSS) FROM CONTINUING OPERATIONS
                  
                  
                  2,438
                  
                  
                  
                  434
                  
                  
                  
                  4,337
                  
                  
                  
                  (21,004
                  )Income
      from discontinued operation - net of tax
                  
                  
                  109
                  
                  
                  
                  829
                  
                  
                  
                  264
                  
                  
                  
                  1,009NET
      INCOME (LOSS)
                  
                  $
                  2,547
                  
                  
                  $
                  1,263
                  
                  
                  $
                  4,601
                  
                  
                  $
                  (19,995
                  )Basic
      income (loss) per common share
                  
                  $
                  0.27
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.49
                  
                  
                  $
                  (2.77
                  )Diluted
      income (loss) per common share
                  
                  $
                  0.27
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.49
                  
                  
                  $
                  (2.77
                  )Dividends
      declared per share common share
                  
                  $
                  0.23
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.41
                  
                  
                  $
                  0.28Weighted
      average shares outstanding-basic
                  
                  
                  9,320
                  
                  
                  
                  9,320
                  
                  
                  
                  9,320
                  
                  
                  
                  7,218Weighted
      average shares outstanding-diluted
                  
                  
                  11,820
                  
                  
                  
                  9,320
                  
                  
                  
                  11,820
                  
                  
                  
                  7,218
  See
notes to condensed consolidated financial statements.


2




NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY




For
the six months ended June 30, 2009




(dollar
amounts in thousands)


(unaudited)







Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Accumulated
              Deficit
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Comprehensive
              Income
            
            
            TotalBalance,
      January 1, 2009
            
            $
            93
            
            
            $
            150,790
            
            
            $
            (103,114
            )
            
            $
            (8,521
            )
            
            
            
            
            $
            39,248Net
      income
            
            
            —
            
            
            
            —
            
            
            
            4,601
            
            
            
            —
            
            
            $
            4,601
            
            
            
            4,601Dividends
      declared
            
            
            —
            
            
            
            (3,821
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (3,821)Decrease
      in net unrealized loss investment available for sale
      securities
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,056
            
            
            
            4,056
            
            
            
            4,056Reclassification
      adjustment for sales of investment – available for sale
      securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (141
            )
            
            
            (141)
            
            
            
            (141)Increase
      in derivative instruments utilized for cash flow
hedge
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,626
            
            
            
            1,626
            
            
            
            1,626Comprehensive
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            10,142Balance,
      June 30, 2009
            
            $
            93
            
            
            $
            146,969
            
            
            $
            (98,513
            )
            
            $
            (2,980
            )
            
            
            
            
            
            $
            45,569




See
notes to condensed consolidated financial statements.




3


NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS




(dollar
amounts in thousands)


(unaudited)




For the Six Months
      Ended
              June 30,2009
            
            
            2008Cash
      Flows from Operating Activities:Net
      income (loss)
            
            $
            4,601
            
            
            $
            (19,995
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            710
            
            
            
            721Amortization/accretion
      of premium/discount on investment securities and mortgage loans held in
      securitization trusts
            
            
            193
            
            
            
            498Realized
      (gain) loss on securities and related hedges
            
            
            (264
            )
            
            
            19,931Impairment
      loss on investment securities
            
            
            119
            
            
            
            —Provision
      for loan losses
            
            
            888
            
            
            
            799Loans
      held for sale lower of cost or market adjustments
            
            
            306
            
            
            
            —Changes
      in operating assets and liabilities:Accounts
      and accrued interest receivable
            
            
            306
            
            
            
            193Prepaid
      and other assets
            
            
            (947
            )
            
            
            78Due
      to loan purchasers
            
            
            (152
            )
            
            
            185Accounts
      payable and accrued expenses
            
            
            (1,281
            )
            
            
            (3,323
            )Payments
      received on loans held for sale
            
            
            969
            
            
            
            1,844Net
      cash provided by operating activities
            
            
            5,448
            
            
            
            931Cash
      Flows from Investing Activities:Decrease
      in restricted cash
            
            
            4,690
            
            
            
            6,286Purchases
      of investment securities
            
            
            (20,669
            )
            
            
            (825,933
            )Proceeds
      from sales of investment securities
            
            
            196,252
            
            
            
            601,309Principal
      repayments received on mortgage loans held in securitization
      trusts
            
            
            33,130
            
            
            
            52,293Proceeds
      from the disposal of fixed assets
            
            
            —
            
            
            
            11Principal
      paydowns on investment securities - available for sale
            
            
            37,806
            
            
            
            47,692Net
      cash provided by (used in) investing activities
            
            
            251,209
            
            
            
            (118,342
            )Cash
      Flows from Financing Activities:Proceeds
      from common stock issued (net)
            
            
            —
            
            
            
            56,579Proceeds
      from convertible preferred debentures
 (net)
            
            
            —
            
            
            
            19,553Payments
      made for termination of swaps
            
            
            —
            
            
            
            (8,333
            )(Decrease)
      increase in financing arrangements
            
            
            (214,178
            )
            
            
            102,235Dividends
      paid
            
            
            (2,610
            )
            
            
            (1,118
            )Payments
      made on collateralized debt obligation paydowns
            
            
            (33,459
            )
            
            
            (52,075
            )Net
      cash (used in) provided by financing activities
            
            
            (250,247
            )
            
            
            116,841Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            
            6,410
            
            
            
            (570
            )Cash
      and Cash Equivalents - Beginning of Period
            
            
            9,387
            
            
            
            5,508Cash
      and Cash Equivalents - End of Period
            
            $
            15,797
            
            
            $
            4,938Supplemental
      Disclosure:Cash
      paid for interest
            
            $
            8,537
            
            
            $
            21,244Non-Cash
      Investment Activities:Purchase
      of investment securities not yet settled
            
            $
            683
            
            
            $
            —Non-Cash
      Financing Activities:Dividends
      declared to be paid in subsequent period
            
            $
            2,143
            
            
            $
            1,492




See notes to condensed
consolidated financial statements.




4




NEW
YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES


NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


June
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 United States government-sponsored
enterprise (“GSE” or “Agency”), such as the Federal National Mortgage
Association (“Fannie Mae”),or the Federal Home Loan Mortgage Corporation
(“Freddie Mac”), and 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 “RMBS” and RMBS issued by a GSE as “Agency
RMBS”. We also invest, although to a lesser extent, in certain alternative real
estate related and financial assets that present greater credit risk and less
interest rate risk than our current RMBS investments and prime ARM loans
including, among other things, non-Agency RMBS, certain non-rated residential
mortgage assets, commercial mortgage-backed securities, commercial real estate
loans, collateralized loan obligations and other similar
investments.  We refer to our investment in these alternative assets
as our “alternative investment strategy.” 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 conducts its business through the parent company, NYMT, and several
subsidiaries, including special purpose subsidiaries established for loan
securitization purposes, a taxable REIT subsidiary ("TRS") and a qualified
REIT subsidiary ("QRS").  The Company conducts certain
of its operations related to its alternative investment strategy
through its wholly-owned TRS, Hypotheca Capital, LLC (“HC”), in order to
utilize, to the extent permitted by law, some or all of a net operating loss
carry-forward held in HC that resulted from the Company's exit from
the mortgage lending business.  Prior to March 31, 2007, the
Company conducted substantially all of its mortgage lending business
through HC.   The Company's wholly-owned QRS, New York
Mortgage Funding, LLC (“NYMF”), currently holds certain
mortgage-related assets under our principal investment strategy
for regulatory compliance purposes.  The Company also may conduct
certain of its operations related to its alternative investment strategy through
NYMF.  The Company consolidates all of its subsidiaries under generally
accepted accounting principles in the United States of America
(“GAAP”).





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.





Basis of Presentation - The
condensed consolidated balance sheets at June 30, 2009 and December 31, 2008,
the condensed consolidated statements of operations for the three and six months
ended June 30, 2009 and 2008, and the condensed consolidated statements of cash
flows for the six months ended June 30, 2009 and 2008 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 GAAP 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, 2008,
as filed with the Securities and Exchange Commission (“SEC”).  The
results of operations for the three and six months ended June 30, 2009 are not
necessarily indicative of the operating results for the full year.




The
accompanying condensed consolidated financial statements include our accounts
and those 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.




5




New Accounting Pronouncements -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 Award.  EITF Issue
No. 06-11 requires that the tax benefit related to dividend equivalents
paid on restricted stock units that are expected to vest, be recorded as an
increase to additional paid-in capital.  The Company 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.
The Company adopted the provisions of EITF Issue No. 06-11 during the
first quarter of 2009.  The adoption of EITF Issue No. 06-11 did
not have a material effect on the Company’s condensed consolidated financial
statements.




In
December 2007, the Financial Accounting Statements Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations and
issued SFAS No. 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.  The Company adopted SFAS No.
141(R) as of January 1, 2009 and it did not have a material impact on the
Company’s condensed consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 160,Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No.
51.  SFAS No. 160 requires a non-controlling interest in a
subsidiary to be reported as equity and the amount of consolidated net income
specifically attributable to the non-controlling 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 non-controlling equity
investment retained in a deconsolidation.  SFAS No. 160 is effective
for the Company on January 1, 2009 and most of its provisions apply
prospectively.  The Company adopted SFAS No. 160 as of January 1, 2009
and it did not have an impact on the Company’s condensed 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.  FSP
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.  The
Company adopted FSP No. 140-3 as of January 1, 2009 and it did not have a
material impact on the Company’s condensed consolidated financial
statements.




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.  Because
SFAS No. 161 requires only additional disclosures concerning
derivatives and hedging activities, adoption of SFAS No. 161 did not
affect the Company’s financial condition, results of operations or cash flows.
The Company adopted SFAS No. 161 in the first quarter of 2009 and as a
result expanded the footnote disclosure included in the condensed consolidated
financial statements (see note 4).




In May
2008, the FASB issued FSP No. APB 14-1,Accounting for Convertible Debt
Instruments that may beSettled in Cash upon Conversion
(Including Partial Cash Settlement). 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 asadditional
interest expense.  The FSP No. APB 14-1 is effective for our fiscal
year beginning on January 1, 2009 and requires retrospective application. The
Company adopted FSP as of January 1, 2009 and it had no impact on the Company’s
condensed consolidated financial statements.




6




On
October 10, 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active “FSP
No. 157-3” clarifies the application of SFAS 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 No. 157-3 did not have a significant
impact on the Company’s determination of fair value for its financial
assets.




In April
2009, the FASB issued FSP SFAS No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly(“FSP No.
157-4”), to provide additional guidance for estimating fair value in accordance
with SFAS No. 157 when the volume and level of activity for the asset or
liability have significantly decreased as well as on identifying circumstances
that indicate that a transaction is not orderly. FSP No. 157-4 provides
additional guidance on determining fair value when the volume and level of
activity for the asset or liability have significantly decreased when compared
with normal market activity for the asset or liability (or similar assets or
liabilities). FSP No. 157-4 further amends SFAS No. 157 to require the
disclosure in interim and annual periods of the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period.  FSP No.
157-4 is effective for the Company’s interim and annual reporting periods ending
after June 15, 2009, and should be applied prospectively. The Company adopted
FSP SFAS No. 157-4 as of June 30, 2009 and it did not have a material impact on
the Company’s condensed consolidated financial statements.




In April
2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, which provides additional guidance on
the recognition, presentation and disclosure of losses in earnings for the
impairment of investments in debt securities when changes in fair value of those
securities are not regularly recognized in earnings (other-than-temporary
impairment for debt securities).  This FSP also requires additional
disclosures regarding expected cash flows, credit losses, and aging of
securities with unrealized losses. Under this FSP, an other than temporary
impairment is taken if the Company intends or is forced to sell the related debt
security before its anticipated recovery with any impairment charge recognized
in the statements of operations. Realized credit losses are also recognized in
the statement of operations. The FSP is effective for the Company’s interim and
annual reporting periods ending after June 15, 2009, and should be applied
prospectively. The Company adopted FSP SFAS No. 115-2 and FSP SFAS No. 124-2 as
of June 30, 2009 and it did not have a material impact on the Company’s
condensed consolidated financial statements.




In April
2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value
of Financial Instruments,to require 1) disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements and 2) disclosures in summarized
financial information at interim periods. This FSP does not affect the ongoing
requirement to report non-fair-value amounts on the face of the financial
statements. This FSP further requires that an entity disclose the method(s) and
significant assumptions used to estimate the fair value of financial instruments
and a description of changes in the method(s) and significant assumptions, if
any, during the period. The FSP is effective for the Company’s interim and
annual reporting periods ending after June 15, 2009, and should be applied
prospectively.  The Company adopted FSP SFAS No. 107-1 and APB No.
28-1 as of June 30, 2009 and it has disclosed the required information in note
10.




In June
2009, the FASB issued SFAS No. 165, Subsequent Eventswhich is
effective for interim and annual periods ending after June 15,
2009.  SFAS No. 165 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. The Company adopted SFAS No. 165 in the second
quarter of 2009 and evaluated all events or transactions through the date of
this filing. During this period, we did not have any material subsequent events
that impacted our consolidated financial statements.




In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No. 140,  which
amends the derecognition guidance in SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,
eliminates the concept of a “qualifying special-purpose entity” (“QSPE”) and
requires more information about transfers of financial assets, including
securitization transactions as well as a company’s continuing exposure to the
risks related to transferred financial assets. SFAS No. 166 is effective for
financial asset transfers made by the company beginning of January 1, 2010 and
early adoption is prohibited. Management is currently evaluating the impact of
the adoption of SFAS No. 166 on the consolidated financial
statements.




7





In June
2009, the FASB issued SFAS No. 167, Amendments
to FASB Interpretation No. 46(R), which amends the consolidation guidance
applicable to variable interest entities (VIEs). The amendments will
significantly affect the overall consolidation analysis under FASB
Interpretation No. 46(R), Consolidation
of Variable Interest Entities—an interpretation of ARB No. 51, and
changes the way entities account for secu ritizations and special
purpose entities as a result of the elimination of the QSPE concept in SFAS
No.166. SFAS No. 167 is effective for the Company January 1, 2010 and early
adoption is prohibited. Management is currently evaluating the impact on
the consolidated financial statements of adopting SFAS No. 167.


2.Investment
Securities - Available for Sale




Investment
securities available for sale consist of the following as of June 30, 2009
(dollar amounts in thousands):




Amortized
              Cost
            
            
            Unrealized
              Gains
            
            
            Unrealized
              Losses
            
            
            Carrying
              ValueAgency
      RMBS (1)
            
            $
            232,873
            
            
            $
            5,836
            
            
            $
            —
            
            
            $
            238,709Non-Agency
      RMBS
            
            
            26,266
            
            
            
            4
            
            
            
            (5,042
            )
            
            
            21,228Collateralized
      Loan Obligations
            
            
            8,833
            
            
            
            219
            
            
            
            (64
            )
            
            
            8,988Total
            
            $
            267,972
            
            
            $
            6,059
            
            
            $
            (5,106
            )
            
            $
            268,925





(1)
            -  Agency
      RMBS includes FNMA securities only.




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




Amortized
              Cost
            
            
            Unrealized
              Gains
            
            
            Unrealized
              Losses
            
            
            Carrying
              ValueAgency
      RMBS (1)
            
            $
            454,653
            
            
            $
            1,316
            
            
            $
            (98
            )
            
            $
            455,871Non-Agency
      RMBS
            
            
            25,724
            
            
            
            —
            
            
            
            (4,179
            )
            
            
            21,545Total
            
            $
            480,377
            
            
            $
            1,316
            
            
            $
            (4,277
            )
            
            $
            477,416





(1)
            -  Agency
      RMBS carrying value includes $354.4 million of Fannie Mae and $101.5
      million in Freddie Mac securities.




The
Company commenced its alternative investment strategy by purchasing $46.0
million face amount of CRATOS CLO I collateralized loan obligations (“CLO”) on
March 31, 2009 at a purchase price of approximately $9.0 million. This
transaction closed on April 7, 2009. This marks the Company’s first investment
under its alternative investment strategy.  In addition, during the
second quarter of 2009 the Company initiated a program to opportunistically
purchase approximately $25.0 million of Non-Agency RMBS.  As of June
30, 2009 the Company had accumulated approximately $4.6 million of non-Agency
RMBS at an average cost of 58.17% of current par value.  The $4.6
million of non-Agency RMBS purchased during the second quarter of 2009 were
previously rated AAA (at issuance) and represent the senior cashflows of the
deal structure.




During
March 2009, the Company determined that the Agency CMO floaters in its portfolio
were no longer producing acceptable returns and initiated a program for the
purpose of disposing of these securities. The Company disposed of approximately
$159.5 million in current par value of Agency CMO floaters during March 2009,
with the balance of the Agency CMO floaters, or $34.3 million in current par
value, in its portfolio being sold in April 2009, for an aggregate disposition
of approximately $193.8 million in current par value of Agency CMO floaters and
a net gain of approximately $0.1 million.  As a result of this sale
program, the Company incurred an additional impairment of $0.1 million in the
quarter ended March 31, 2009 as the Company no longer had the intent to hold the
Agency CMO floaters.




8




Moreover,
because the sale of these Agency CMO floaters occurred prior to filing of our
Annual Report on Form 10-K for the year ended December 31, 2008, the Company
determined that the unrealized losses related to our Agency CMO floaters were
considered to be other than temporarily impaired as of December 31, 2008 and
incurred a $4.1 million impairment charge for the year ended December 31, 2008.
 In addition, we also determined that $6.1 million in current par
value of non-agency RMBS, which included $2.5 million in current par value
of retained residual interest, had suffered an other-than-temporary impairment
and, accordingly, recorded an impairment charge of $1.2 million for the year and
year ended December 31, 2008.




All RMBS
securities held in investment securities available for sale, including Agency
RMBS and non-agency RMBS, are based on unadjusted price quotes for similar
securities in active markets and are categorized as Level 2.  The CLO
market valuation is based on management's estimate using market inputs and
market accepted valuation analytics. (see note 10).




The
following tables set forth the stated reset periods and weighted average yields
of our investment securities at June 30, 2009 (dollar amounts in
thousands):




Less than 6 Months
            
            
            More than 6
      Months
              to 24 Months
            
            
            More than 24
      Months
              to 60 Months
            
            
            TotalCarrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              YieldAgency
RMBS
            
            $
            —
            
            
            
            —
            
            
            $
            59,557
            
            
            
            2.51
            %
            
            $
            179,152
            
            
            
            3.22
            %
            
            $
            238,709
            
            
            
            3.04
            %Non-Agency
      RMBS  (1)
            
            
            16,536
            
            
            
            16.35
            %
            
            
            3,559
            
            
            
            18.23
            
            
            
            1,133
            
            
            
            15.07
            %
            
            
            21,228
            
            
            
            16.60
            %CLO
            
            
            8,988
            
            
            
            29.08
            %
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            8,988
            
            
            
            29.08
            %Total/Weighted
      Average
            
            $
            25,524
            
            
            
            20.84
            %
            
            $
            63,116
            
            
            
            3.39
            %
            
            $
            180,285
            
            
            
            3.30
            %
            
            $
            268,925
            
            
            
            4.99
            %




(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, 2008 (dollar amounts in
thousands):
  Less than 6 Months
                
                
                More than 6
      Months
                  to 24 Months
                
                
                More than 24
      Months
                  to 60 Months
                
                
                TotalCarrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  YieldAgency
RMBS
                
                $
                197,675
                
                
                
                8.54
                
                
                $
                66,910
                
                
                
                3.69
                %
                
                $
                191,286
                
                
                
                4.02
                %
                
                $
                455,871
                
                
                
                5.99
                %Non-Agency
      RMBS  (1)
                
                
                21,476
                
                
                
                14.11
                %
                
                
                —
                
                
                
                —
                
                
                
                69
                
                
                
                16.99
                
                
                
                21,545
                
                
                
                14.35
                %Total/Weighted
      Average
                
                $
                219,151
                
                
                
                9.21
                %
                
                $
                66,910
                
                
                
                3.69
                %
                
                $
                191,355
                
                
                
                4.19
                %
                
                $
                477,416
                
                
                
                6.51
                %
 (1)
              The
      NYMT retained securities includes $0.1 million of residual interests
      related to the NYMT 2006-1
transaction.


9




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 June 30, 2009.  (dollar amounts in
thousands):




Less
      than 12 Months
              
              
              Greater
      than 12 Months
              
              
              TotalCarrying
                Value
              
              
              Unrealized
                Losses
              
              
              Carrying
                Value
              
              
              Unrealized
                Losses
              
              
              Carrying
                Value
              
              
              Unrealized
                LossesNon-Agency
      RMBS
              
              $
              —
              
              
              $
              —
              
              
              $
              16,152
              
              
              $
              5,042
              
              
              $
              16,152
              
              
              $
              5,042CLO
              
              
              3,021
              
              
              
              64
              
              
              
              —
              
              
              
              —
              
              
              
              3,021
              
              
              
              64Total
              
              $
              3,021
              
              
              $
              64
              
              
              $
              16,152
              
              
              $
              5,042
              
              
              $
              19,173
              
              
              $
              5,106




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 December 31, 2008.




Less
      than 12 Months
              
              Greater
      than 12 Months
              
              TotalCarrying
                Value
              
              Unrealized
                Losses
              
              Carrying
                Value
              
              Unrealized
                Losses
              
              Carrying
                Value
              
              Unrealized
                LossesAgency
      RMBS
              
              $
              9,406
              
              
              $
              98
              
              
              $
              —
              
              
              $
              —
              
              
              $
              9,406
              
              
              $
              98Non-Agency
      RMBS
              
              
              18,649
              
              
              
              4,179
              
              
              
              —
              
              
              
              —
              
              
              
              18,649
              
              
              
              4,179Total
              
              $
              28,055
              
              
              $
              4,277
              
              
              $
              —
              
              
              $
              —
              
              
              $
              28,055
              
              
              $
              4,277





As of
June 30, 2009 and the date of this filing, we do not have the intent to sell or
we believe that it is more likely than not that we will not have to sell our
portfolio of securities which are currently in unrealized loss positions for the
foreseeable future.  In assessing the Company’s ability to hold its
impaired securities, it considers the significance of each investment and the
amount of impairment, as well as the Company’s current and anticipated leverage
capacity and liquidity position.  In addition, the Company anticipates
collecting principal repayments in amounts sufficient to recover the amortized
cost value of non-Agency RMBS and does not anticpate any credit losses to exceed
the purchased discount. 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.  Accordingly, a majority of the
Company’s Agency RMBS that are classified as investment securities available for
sale are pledged as collateral for borrowings under financing arrangements (see
note 5).




3.Mortgage
Loans Held in Securitization Trusts (net)




Mortgage
loans held in securitization trusts (net) consist of the following as of June
30, 2009 and December 31, 2008 (dollar amounts in thousands):




June
      30,
              2009
            
            
            December
      31,
              2008Mortgage
      loans principal amount  (1)
            
            $
            313,900
            
            
            $
            347,546Deferred
      origination costs – net
            
            
            1,987
            
            
            
            2,197Reserve
      for loan losses
            
            
            (1,932
            )
            
            
            (1,406
            )Total
            
            $
            313,955
            
            
            $
            348,337




(1)
            Includes
      $1.2 million and $1.9 million in real estate owned through foreclosure as
      of June 30,2009 and December 31, 2008,
  respectively.




10




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 six months
ended June 30, 2009 and 2008 (dollar amounts in thousands).




June
      30,2009
            
            
            2008Balance at
      beginning of period
            
            $
            1,406
            
            
            $
            1,647Provisions
      for loan losses
            
            
            888
            
            
            
            1,455Charge-offs
            
            
            (362
            )
            
            
            (364
            )Balance
      at the end of period
            
            $
            1,932
            
            
            $
            2,738





The
reserve for loan losses is maintained at the amount estimated to be sufficient
to cover probable losses inherent in the loans held in securitization
trusts. Estimations involve the consideration of various credit related factors,
including but not limited to, current housing market conditions, current loan to
value ratios, delinquency status, borrower’s current economic and credit status
and other factors deemed to warrant consideration.




All of
the Company’s mortgage loans held in securitization trusts are pledged as
collateral for the collateralized debt obligations (“CDO”) issued by the Company
(see note 6).  As of June 30, 2009, 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’s outstanding, was $11.7
million.




The
following tables set forth delinquent mortgage loans in our securitization
trusts as of June 30, 2009 and December 31, 2008 (dollar amounts in
thousands):
  June
      30, 2009Days
      Late
              
              Number
      of

                Delinquent
                Loans
              
              
              Total

                Dollar
                Amount
              
              
              %
      of
                Loan
                Portfolio30-60
              
              
              4
              
              
              $
              2,309
              
              
              
              0.74
              %61-90
              
              
              5
              
              
              
              1,375
              
              
              
              0.44
              %90+
              
              
              20
              
              
              
              11,590
              
              
              
              3.69
              %Real
      estate owned through foreclosure
              
              
              3
              
              
              
              1,226
              
              
              
              0.39
              %December
      31, 2008Days
      Late
              
              Number
      of

                Delinquent
                Loans
              
              
              Total

                Dollar
                Amount
              
              
              %
      of

                Loan
                Portfolio30-60
              
              
              3
              
              
              $
              1,363
              
              
              
              0.39
              %61-90
              
              
              1
              
              
              
              263
              
              
              
              0.08
              %90+
              
              
              13
              
              
              
              5,734
              
              
              
              1.65
              %Real
      estate owned through foreclosure
              
              
              4
              
              
              
              1,927
              
              
              
              0.55
              %




4.Derivative
Instruments and Hedging Activities




The
Company enters into derivatives instruments to manage its interest rate risk
exposure. These derivative instruments include interest rate swaps and caps
entered into to reduce interest expense costs related to our repurchase
agreements, collateralized debt obligations and our subordinated debentures.
 These derivative instruments are comprised of interest rate swaps and
interest rate caps for the periods presented.  The Company’s interest
rate swaps are designated as cash flow hedges against the benchmark interest
rate risk associated with its short term repurchase agreements.  There
were no costs incurred at the inception of our interest rate swaps, under which
the Company agrees to pay a fixed rate of interest and receive a variable
interest rate based on one month LIBOR, on the notional amount of the interest
rate swaps.  The Company’s interest rate swap notional amounts are
based on an amortizing schedule fixed at the start date of the
transaction.  The Company’s interest rate cap transactions are
designated as cashflow hedges against the benchmark interest rate risk
associated with the collateralized debt obligations and the subordinated
debentures.  The interest rate cap transactions were initiated with an
upfront premium that is being amortized over the life of the
contract.




11




The
Company documents its risk-management policies, including objectives and
strategies, as they relate to its hedging activities, and upon entering into
hedging transactions, documents the relationship between the hedging instrument
and the hedged liability.  The Company assesses, both at inception of
a hedge and on an on-going basis, whether or not the hedge is “highly effective”
when using the matched term basis.




The
Company discontinues hedge accounting on a prospective basis and recognizes
changes in the fair value through earnings when:  (i) it is determined
that the derivative is no longer effective in offsetting cash flows of a hedged
item (including forecasted transactions); (ii) it is no longer probable that the
forecasted transaction will occur; or (iii) it is determined that designating
the derivative as a hedge is no longer appropriate.  The Company’s
derivative instruments are carried on the Company’s balance sheet at fair value,
as assets, if their fair value is positive, or as liabilities, if their fair
value is negative.  Since the Company’s derivative instruments are
designated as “cash flow hedges,” changes in their fair value are recorded in
other comprehensive loss, provided that the hedges are effective.  A
change in fair value for any ineffective amount of the Company’s derivative
instruments would be recognized in earnings.  The Company has not
recognized any change in the value of its existing derivative instruments
through earnings as a result of  ineffectiveness of any of its
hedges.





The
following table presents the fair value of derivative instruments and their
location in the Company’s condensed consolidated balance sheets at June 30, 2009
and December 31, 2008, respectively (amounts in thousands):





Derivative
      Designated as Hedging
            
            Balance
      Sheet Location
            
            June
      30,
              2009
            
            
            December
      31,
              2008Interest
      Rate Caps
            
            Derivative
      Assets
            
            $
            18
            
            
            $
            22Interest
      Rate Swaps
            
            Derivative
      Liabilities
            
            $
            3,053
            
            
            $
            4,194





The
following table presents the impact of the Company’s derivative instruments on
the Company’s accumulated other comprehensive loss for the six months ended June
30, 2009 and 2008 (amounts in thousands):




Six
      Months Ended June 30Derivative
      Designated as Hedging Instruments
              
              2009
              
              
              2008Accumulated
      other comprehensive loss for derivative instruments:Balance
      at beginning of the period
              
              $
              (5,560
              )
              
              $
              (1,951
              )Unrealized
      gain on interest rate caps
              
              
              485
              
              
              
              437Unrealized
      gain on interest rate swaps
              
              
              1,141
              
              
              
              2,086Reclassification
      adjustment for net losses included in net income for
hedges
              
              
              —
              
              
              
              —Balance
      at the end of the period
              
              $
              (3,934
              )
              
              $
              572





The
Company estimates that over the next 12 months, approximately $2.5 million
of the net unrealized losses on the interest rate swaps will be
reclassified from accumulated other comprehensive loss into
earnings.




12




The
following table details the impact of the Company’s interest rate swaps and
interest rate caps included in interest expense for the three and six months
ended June 30, 2009 and 2008 (amounts in thousands):




Three
      Months ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Interest
      Rate Caps:Interest
      expense-investment securities and loans held in securitization
      trusts
            
            $
            168
            
            
            $
            168
            
            
            $
            328
            
            
            $
            357Interest
      expense-subordinated debentures
            
            
            81
            
            
            
            71
            
            
            
            161
            
            
            
            141Interest
      Rate Swaps:Interest
      expense-investment securities and loans held in securitization
      trusts
            
            
            812
            
            
            
            133
            
            
            
            1,665
            
            
            
            118




Interest Rate Swaps-The
Company is required to pledge assets under a bi-lateral margin arrangement,
including either cash or Agency RMBS, as collateral for its interest rate swaps,
whose collateral requirements vary by counterparty and change over time based on
the market value, notional amount, and remaining term of the interest rate swap
(“Swap”).  In the event the Company was unable to meet a margin call
under one of its Swap agreements, thereby causing an event of default or
triggering an early termination event under one of its Swap agreements, the
counterparty to such agreement may have the option to terminate all of such
counterparty’s outstanding Swap transactions with the Company. In addition,
under this scenario, any close-out amount due to the counterparty upon
termination of the counterparty’s transactions would be immediately payable by
the Company pursuant to the applicable agreement.  The Company
believes it was in compliance with all margin requirements under its Swap
agreements as of June 30, 2009 and December 31, 2008.  The Company had
$3.0 million and $4.2 million of restricted cash related to margin posted for
Swaps as of June 30, 2009 and December 31, 2008, respectively.




The use
of interest rate swaps exposes the Company to counterparty credit risks in the
event of a default by a Swap counterparty. If a counterparty defaults under the
applicable Swap agreement the Company may be unable to collect payments to which
it is entitled under its Swap agreements, and may have difficulty collecting the
assets it pledged as collateral against such Swaps.  The Company
currently has in place with all outstanding Swap counterparties bi-lateral
margin agreements thereby requiring a party to post collateral to the Company
for any valuation deficit.  This arrangement is intended to limit the
Company’s exposure to losses in the event of a counterparty
default.




13




The
following table presents information about the Company’s interest rate swaps as
of June 30, 2009 and December 31, 2008 (amounts in thousands):




June
      30, 2009
              
              
              December
      31, 2008Maturity(1)
              
              Notional
                Amount
              
              
              WeightedAverage
                Fixed
      Pay
                Interest
      Rate
              
              
              Notional
                Amount
              
              
              Weighted
      Average
                Fixed
      Pay
                Interest
      RateWithin
      30 Days
              
              $
              2,560
              
              
              
              2.99
              %
              
              $
              2,960
              
              
              
              3.00
              %Over
      30 days to 3 months
              
              
              4,850
              
              
              
              2.99
              
              
              
              5,220
              
              
              
              3.00Over
      3 months to 6 months
              
              
              6,440
              
              
              
              2.99
              
              
              
              7,770
              
              
              
              2.99Over
      6 months to 12 months
              
              
              14,100
              
              
              
              2.99
              
              
              
              13,850
              
              
              
              2.99Over
      12 months to 24 months
              
              
              63,010
              
              
              
              3.01
              
              
              
              48,640
              
              
              
              2.99Over
      24 months to 36 months
              
              
              11,860
              
              
              
              3.02
              
              
              
              34,070
              
              
              
              3.03Over
      36 months to 48 months
              
              
              18,500
              
              
              
              3.07
              
              
              
              7,560
              
              
              
              3.01Over
      48 months
              
              
              —
              
              
              
              —
              
              
              
              17,200
              
              
              
              3.08Total
              
              $
              121,320
              
              
              
              3.01
              %
              
              $
              137,270
              
              
              
              3.00
              %





(1)
            The
      Company enters into scheduled amortizing interest rate swap transactions
      whereby the Company pays a fixed rate of interest and receives one month
      LIBOR.





Interest Rate Caps – Interest
rate caps are designated by the Company as cash flow hedges against interest
rate risk associated with the Company’s collateralized debt obligations and the
subordinated debentures. The interest rate caps associated with the
collateralized debt obligations are amortizing contractual notional schedules
determined at origination and had $408.1 million and $456.9 million outstanding
as of June 30, 2009 and December 31, 2008, respectively.  These
interest rate caps are utilized to cap the interest rate on the collateralized
debt obligations at a fixed-rate when one month LIBOR exceeds a predetermined
rate.  In addition, the Company has an interest rate cap contract on
$25.0 million of subordinated debentures that effectively caps three month LIBOR
at 3.75% until March 31, 2010.




5.Financing
Arrangements, Portfolio Investments




The
Company has entered into repurchase agreements with third party financial
institutions to finance its RMBS portfolio.  The repurchase agreements
are short-term borrowings that bear interest rates typically based on a spread
to LIBOR, and are secured by the securities which they finance.  At
June 30, 2009, the Company had repurchase agreements with an outstanding balance
of $188.2 million and a weighted average interest rate of 0.53%.  As
of December 31, 2008, the Company had repurchase agreements with an outstanding
balance of $402.3 million and a weighted average interest rate of
2.62%.  At June 30, 2009 and December 31, 2008, securities pledged by
the Company as collateral for repurchase agreements had estimated fair values of
$203.0 million and $456.5 million, respectively.  All outstanding
borrowings under our repurchase agreements mature within 30
days.  As of June 30, 2009, the average days to maturity for all
repurchase agreements are 20 days.  The Company had outstanding
repurchase agreements with five different financial institutions as of June 30,
2009 and six as of December 31, 2008.




As of
June 30, 2009, our Agency RMBS are financed with $188.2 million of repurchase
agreement funding with an advance rate of 93% that implies an overall
haircut of 7%.




As of
June 30, 2009, the Company had $15.8 million in cash and $56.3 million in
unencumbered RMBS securities, including $35.7 million in Agency RMBS, 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 June 30, 2009 and December 31, 2008, the
Company had CDOs outstanding of $302.3 million and $335.6 million,
respectively.  As of June 30, 2009 and December 31, 2008, the current
weighted average interest rate on these CDOs was 0.70% and 0.85%,
respectively.  The CDOs are collateralized by ARM loans with a
principal balance of $313.9 million and $347.5 million at June 30, 2009 and
December 31, 2008, respectively.  The Company retained the owner trust
certificates, or residual interest, for three securitizations, and, as of June
30, 2009 and December 31, 2008, had a net investment in the securitizations
trusts after loan loss reserves of $11.6 million and $12.7 million,
respectively.




14




The CDO
transactions include amortizing interest rate cap contracts with an aggregate
notional amount of $408.1 million as of June 30, 2009 and an aggregate notional
amount of $456.9 million as of December 31, 2008, which are recorded as assets
of the Company.  The interest rate caps are carried at fair value and
totaled $17,783 as of June 30, 2009 and $18,575 as of December 31, 2008,
respectively.  The interest rate cap reduces interest rate risk
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.  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
lease facilities not assigned to Indymac Bank, F.S.B. (“Indymac”), are part of
our ongoing operations and accordingly, we have not included these items as part
of the discontinued operation.




Balance
Sheet Data




The
components of assets related to the discontinued operation as of June 30, 2009
and December 31, 2008 are as follows (dollar amounts in thousands):




June
      30,
              2009
            
            
            December
      31,
              2008Accounts
      and accrued interest receivable
            
            $
            50
            
            
            $
            26Mortgage
      loans held for sale (net)
            
            
            4,102
            
            
            
            5,377Prepaid
      and other assets
            
            
            456
            
            
            
            451Total assets
            
            $
            4,608
            
            
            $
            5,854





The
components of liabilities related to the discontinued operation as of June 30,
2009 and December 31, 2008 are as follows (dollar amounts in
thousands):




June
      30,
              2009
            
            
            December
      31,
              2008Due
      to loan purchasers
            
            $
            394
            
            
            $
            708Accounts
      payable and accrued expenses
            
            
            2,220
            
            
            
            2,858Total liabilities
            
            $
            2,614
            
            
            $
            3,566





Statements
of Operations Data




The
statements of operations of the discontinued operation for the three and six
months ended June 30, 2009 and 2008 are as follows (dollar amounts in
thousands):




Three
      Months
                Ended
      June 30,
              
              Six
      Months
                Ended
      June 30,2009
              
              2008
              
              2009
              
              2008Revenues
              
              $
              220
              
              
              $
              762
              
              
              $
              510
              
              
              $
              933Expenses
              
              
              111
              
              
              
              (67
              )
              
              
              246
              
              
              
              (76
              )Income
      from discontinued operation-net of tax
              
              $
              109
              
              
              $
              829
              
              
              $
              264
              
              
              $
              1,009


15




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 six months ended June 30,
2009.




The
Company periodically receives repurchase requests based on alleged violations of
representations and warranties, each of which management reviews to determine,
based on management’s experience, whether such requests may reasonably be deemed
to have merit.  As of June 30, 2009, 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
$0.4 million.  The reserve is based on one or more of the following
factors, including 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. As of June 30, 2009, 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.




Leases - The Company leases
its corporate offices and certain office space related to our discontinued
mortgage lending operation and equipment under short-term lease agreements
expiring at various dates through 2013.  All such leases are accounted
for as operating leases.  Total rental expense for property and
equipment amounted to $96,900 for the six months ended June 30,
2009.




Letters of Credit – The
Company maintains a letter of credit in the amount of $0.2 million 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.




9.Concentrations
of Credit Risk




At June
30, 2009 and December 31, 2008, 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:




June
      30,
              2009
            
            
            December
      31,
              2008New
      York
            
            
            31.0
            %
            
            
            30.7
            %Massachusetts
            
            
            18.1
            %
            
            
            17.2
            %Florida
            
            
            8.0
            %
            
            
            7.8
            %California
            
            
            7.9
            %
            
            
            7.2
            %New
      Jersey
            
            
            6.3
            %
            
            
            6.0
            %




10.Fair
Value of Financial Instruments




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 are defined as
follows:




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




16




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 (RMBS) - Fair value for the RMBS in our portfolio 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 curve
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 quoted prices for a security are not reasonably
available from a dealer, the security will be re-classified as a Level 3
security and, as a result, management will determine 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. Investment Securities Available
for Sale (CLO) - The fair value of the CLO notes, as of June 30, 2009,
was based on management’s valuation determined by using a discounted future cash
flows model that management believes would be used by market participants to
value similar financial instruments. If a reliable market for these assets
develops in the future, management will consider quoted prices provided by
dealers who make markets in similar financial instruments in determining the
fair value of the CLO notes. The CLO notes are classified as Level 3 fair
values.





c. 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.




The
following table presents the Company’s financial instruments carried at fair
value as of June 30, 2009 and December 31, 2008 on the condensed consolidated
balance sheet (dollar amounts in thousands):




Asset
      and Liabilities Measured at Fair Value on a Recurring Basis
              at
      June 30, 2009Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            TotalAssets
      carried at fair value:Investment securities available for sale
            
            $
            —
            
            
            $
            259,937
            
            
            $
            8,988
            
            
            $
            268,925Derivative assets (interest rate caps)
            
            
            —
            
            
            
            18
            
            
            
            —
            
            
            
            18Total
            
            $
            —
            
            
            $
            259,955
            
            
            $
            8,988
            
            
            $
            268,943Liabilities
      carried at fair value:Derivative liabilities (interest rate swaps)
            
            $
            —
            
            
            $
            3,053
            
            
            $
            —
            
            
            $
            3,053Total
            
            $
            —
            
            
            $
            3,053
            
            
            $
            —
            
            
            $
            3,053






17
 
  Asset
      Measured at Fair Value on a Recurring Basis
                    at
      December 31, 2008Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                TotalAssets
      carried at fair value:Investment securities available for sale
                
                $
                —
                
                
                $
                477,416
                
                
                $
                —
                
                
                $
                477,416Derivative assets (interest rate caps)
                
                
                —
                
                
                
                22
                
                
                
                —
                
                
                
                22Total
                
                $
                —
                
                
                $
                477,438
                
                
                $
                —
                
                
                $
                477,438Liabilities
      carried at fair value:Derivative liabilities (interest rate swaps)
                
                $
                —
                
                
                $
                4,194
                
                
                $
                —
                
                
                $
                4,194Total
                
                $
                —
                
                
                $
                4,194
                
                
                $
                —
                
                
                $
                4,194
  The following table
details changes in valuation for the Level 3 assets for the three and six months
ended June 30, 2009 (amounts in thousands):




Investment securities available for sale –
collateralized debt obligations




Three
      Months
              Ended
              June
      30, 2009
            
            
            Six
      Months
              Ended
              June
      30, 2009Beginning
      Balance
            
            $
            8,998
            
            
            $
            —Purchases
            
            
            
            
            
            
            8,998Net
      unrealized gains
            
            
            (10
            )
            
            
            (10
            )Ending
      Balance
            
            $
            8,988
            
            
            $
            8,988




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 each reporting 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.




The
following table presents assets measured at fair value on a non-recurring basis
as of June 30, 2009 and December 31, 2008 on the condensed consolidated balance
sheet (dollar amounts in thousands):




Asset
      Measured at Fair Value on a Non-Recurring Basis
                at
      June 30, 2009Level 1
              
              
              Level 2
              
              
              Level 3
              
              
              TotalMortgage
      loans held for sale (net)
              
              $
              —
              
              
              $
              —
              
              
              $
              4,102
              
              
              $
              4,102Mortgage
      loans held in securitization trusts (net) – impaired loans
    (1)
              
              $
              —
              
              
              $
              —
              
              
              $
              6,648
              
              
              $
              6,648
  (1) Includes
$1.2 million in real estate owned through foreclosure.
  Asset
      Measured at Fair Value on a Non-Recurring Basis
                at
      December 31, 2008Level 1
              
              
              Level 2
              
              
              Level 3
              
              
              TotalMortgage
      loans held for sale (net)
              
              $
              —
              
              
              $
              —
              
              
              $
              5,377
              
              
              $
              5,377Mortgage
      loans held in securitization trusts (net) – impaired loans
    (1)
              
              $
              —
              
              
              $
              —
              
              
              $
              2,958
              
              
              $
              2,958




(1) Includes $1.9 million
in real estate owned through foreclosure.


18




The
following table presents losses incurred for assets measured at fair value on a
non-recurring basis for the three and six months ended June 30, 2009 and June
30, 2008 on the condensed statements of operations (dollar amounts in
thousands):




Three
      Months Ended
              
              
              Six Months EndedJune
      30, 2009
              
              
              June
      30, 2008
              
              
              June
      30, 2009
              
              
              June
      30, 2008Mortgage
      loans held for sale (net)
              
              $
              143
              
              
              $
              1
              
              
              $
              246
              
              
              $
              399Mortgage
      loans held in securitization trusts (net) – impaired loans
              
              $
              259
              
              
              $
              22
              
              
              $
              888
              
              
              $
              1,455





Mortgage Loans Held in
Securitization Trusts (net) – Impaired Loans – Impaired mortgage loans
held in the securitization trusts are recorded at amortized cost less specific
loan loss reserves. Impaired loan value is based on management’s estimate of the
net realizable value taking into consideration local market conditions of the
distressed property, updated appraisal values of the property and estimated
expenses required to remediate the impaired loan.





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.





The
following table presents the carrying value and estimated fair value of the
Company’s financial instruments, at June 30, 2009 and December 31, 2008 (dollar
amounts in thousands):





June
      30, 2009
            
            
            December
      31, 2008Carrying
              Value
            
            
            Estimated
              Fair
      Value
            
            
            Carrying
              Value
            
            
            Estimated
              Fair
      ValueFinancial
      assets:Cash
      and cash equivalents
            
            $
            15,797
            
            
            $
            15,797
            
            
            $
            9,387
            
            
            $
            9,387Restricted
      cash
            
            
            3,269
            
            
            
            3,269
            
            
            
            7,959
            
            
            
            7,959Investment
      securities – available for sale
            
            
            268,925
            
            
            
            268,925
            
            
            
            477,416
            
            
            
            477,416Mortgage
      loans held in securitization trusts (net)
            
            
            313,955
            
            
            
            307,776
            
            
            
            348,337
            
            
            
            343,028Derivative
      assets
            
            
            18
            
            
            
            18
            
            
            
            22
            
            
            
            22Assets
      related to discontinued operation-Mortgage loans held for sale
      (net)
            
            
            4,102
            
            
            
            4,102
            
            
            
            5,377
            
            
            
            5,377Financial
      Liabilities:Financing
      arrangements, portfolio investments
            
            
            188,151
            
            
            
            188,151
            
            
            
            402,329
            
            
            
            402,329Collateralized
      debt obligations
            
            
            302,325
            
            
            
            183,057
            
            
            
            335,646
            
            
            
            199,503Derivative
      liabilities
            
            
            3,053
            
            
            
            3,053
            
            
            
            4,194
            
            
            
            4,194Subordinated
      debentures (net)
            
            
            44,755
            
            
            
            18,147
            
            
            
            44,618
            
            
            
            10,049Convertible
      preferred debentures (net)
            
            
            19,776
            
            
            
            17,855
            
            
            
            19,702
            
            
            
            16,363





In
addition to the methodology to determine the fair value of the Company’s
financial assets and liabilities reported at fair value on a recurring basis and
non-recurring basis, as previously described, the following methods and
assumptions were used by the Company in arriving at the fair value of the
Company’s other financial instruments in the following table:





a.     Cash and cash equivalents and
restricted cash:Estimated fair value approximates the
carrying value of such assets.





b.     Mortgage Loans Held in
Securitization Trusts - Mortgage loans held in the securitization trusts
are recorded at amortized cost. Fair value is estimated using pricing models and
taking into consideration the aggregated characteristics of groups of loans such
as, but not limited to, collateral type, index, interest rate, margin, length of
fixed-rate period, life cap, periodic cap, underwriting standards, age and
credit estimated using the estimated market prices for similar types of
loans. Due to significant market dislocation secondary market prices were given
minimal weighting when arrriving at loan valuations at June 30, 2009 and
December 21, 2008.




19





c.     Financing arrangements, portfolio
investments – The fair value of these financing arrangements approximates
cost as they are short term in nature and mature in 30 days.





d.     Collateralized debt obligations –The fair value of these collateralized debt obligations is based on
discounted cashflows as well as market pricing on comparable
obligations.





e.     Subordinated debentures (net) –The fair value of these subordinated debentures is based on discounted
cashflows using management’s estimate for market yields.





f.     Convertible preferred debentures
(net) –The fair value of the subordinated debentures is based on
discounted cashflows using management’s estimate for market yields.




11.
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 June 30, 2009, and
December 31, 2008, respectively.  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 June 30, 2009 and
December 31, 2008, the Company had issued and outstanding 1,000,000 and
1,000,000 shares, respectively, of Series A Preferred Stock.  Of the
common stock authorized, 103,111 shares were reserved for issuance as
restricted stock awards to employees, officers and directors pursuant to the
2005 Stock Incentive Plan.  As of June 30, 2009, 103,111 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. The Company filed a resale shelf registration statement on
Form S-3 on April 4, 2008, registering for resale the 7.5 million shares issued
in February 2008, which became effective on April 18, 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 then
outstanding to approximately 9.3 million shares. All per share and share amounts
provided in the quarterly report have been restated to give to effect the
reverse stock split.




The
following table presents cash dividends declared by the Company on its common
stock from January 1, 2008 through June 30, 2009.




Period
            
            Declaration
      Date
            
            Record
      Date
            
            Payment
      Date
            
            Cash
              Dividend
              Per
      ShareSecond
      Quarter 2009
            
            June
      15, 2009
            
            June
      26, 2009
            
            July
      27, 2009
            
            $
            0.23First
      Quarter 2009
            
            March
      25, 2009
            
            April
      6, 2009
            
            April
      27, 2009
            
            
            0.18Fourth
      Quarter 2008
            
            December
      23, 2008
            
            January
      7, 2009
            
            January
      26, 2009
            
            $
            0.10Third
      Quarter 2008
            
            September
      29, 2008
            
            October
      10, 2008
            
            October
      27, 2008
            
            
            0.16Second
      Quarter 2008
            
            June
      30, 2008
            
            July
      10, 2008
            
            July
      25, 2008
            
            
            0.16First
      Quarter 2008
            
            April
      21, 2008
            
            April
      30, 2008
            
            May
      15,2008
            
            
            0.12





20





The
following table presents cash dividends declared by the Company on its Series A
Preferred Stock from January 1, 2008 through June 30, 2009.




Period
            
            Declaration
      Date
            
            Record
      Date
            
            Payment
      Date
            
            Cash
              Dividend
              Per
      ShareSecond
      Quarter 2009
            
            June
      15, 2009
            
            June
      30, 2009
            
            July
      31, 2009
            
            $
            0.575First
      Quarter 2009
            
            March
      25, 2009
            
            March
      31, 2009
            
            April
      30, 2009
            
            
            0.50Fourth
      Quarter 2008
            
            December
      23, 2008
            
            December
      31, 2008
            
            January
      30,2009
            
            $
            0.50Third
      Quarter 2008
            
            September
      29, 2008
            
            September
      30, 2008
            
            October
      30, 2008
            
            
            0.50Second
      Quarter 2008
            
            June
      30, 2008
            
            June
      30, 2008
            
            July
      30, 2008
            
            
            0.50First
      Quarter 2008
            
            April
      21, 2008
            
            March
      31, 2008
            
            April
      30,2008
            
            
            0.50





The
Company calculates basic net income (loss) per share by dividing net income
(loss) for the period by the 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.




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
      June 30,
            
            
            For
      the Six Months
              Ended
      June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Numerator:Net
      income (loss) – Basic
            
            $
            2,547
            
            
            $
            1,263
            
            
            $
            4,601
            
            
            $
            (19,995
            )Net
      income (loss) from continuing operations
            
            
            2,438
            
            
            
            434
            
            
            
            4,337
            
            
            
            (21,004
            )Net
      income (loss) from discontinued operations (net of tax)
            
            
            109
            
            
            
            829
            
            
            
            264
            
            
            
            1,009Effect
      of dilutive instruments:Convertible
      preferred debentures (1)
            
            
            608
            
            
            
            569
            
            
            
            1,145
            
            
            
            1,075Net
      income  (loss) – Dilutive
            
            
            3,155
            
            
            
            1,263
            
            
            
            5,746
            
            
            
            (19,995
            )Net
      income (loss) from continuing operations
            
            
            3,046
            
            
            
            434
            
            
            
            5,482
            
            
            
            (21,004
            )Net
      income (loss) from discontinued operations (net of tax)
            
            $
            109
            
            
            $
            829
            
            
            $
            264
            
            
            $
            1,009Denominator:Weighted
      average basis shares outstanding
            
            
            9,320
            
            
            
            9,320
            
            
            
            9,320
            
            
            
            7,218Effect
      of dilutive instruments:Convertible
      preferred debentures (1)
            
            
            2,500
            
            
            
            2,500
            
            
            
            2,500
            
            
            
            2,267Weighted
      average dilutive shares outstanding
            
            
            11,820
            
            
            
            9,320
            
            
            
            11,820
            
            
            
            7,218EPS:Basic
      EPS
            
            $
            0.27
            
            
            $
            0.14
            
            
            $
            0.49
            
            
            $
            (2.77
            )Basic
      EPS from continuing operations
            
            
            0.26
            
            
            
            0.05
            
            
            
            0.46
            
            
            
            (2.91
            )Basic
      EPS from discontinued operations (net of tax)
            
            
            0.01
            
            
            
            0.09
            
            
            
            0.03
            
            
            
            0.14Dilutive
      EPS
            
            $
            0.27
            
            
            $
            0.14
            
            
            $
            0.49
            
            
            $
            (2.77
            )Dilutive
      EPS from continuing operations
            
            
            0.26
            
            
            
            0.05
            
            
            
            0.46
            
            
            
            (2.91
            )Basic
      EPS from discontinued operations (net of tax)
            
            
            0.01
            
            
            
            0.09
            
            
            
            0.03
            
            
            
            0.14


(1) –
Amount excluded from dilutive calculation as it is anti-dilutive for the 2008
calculations.





21




12.Convertible
Preferred Debentures (net)




As of
June 30, 2009, 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 11.5% per year, subject to adjustment.  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.  Because of this mandatory
redemption feature, the Company classifies these securities as a liability
on its balance sheet, and accordingly, the corresponding dividend as an interest
expense.




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 common
stock second quarter dividend rate was $0.23 resulting in an increase in the
dividend rate to 11.5% from 10% 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.




13.Related
Party Transactions




On
January 18, 2008, the Company entered into an advisory agreement with Harvest
Capital Strategies LLC (“HCS”) (formerly known as JMP Asset Management LLC),
pursuant to which HCS is responsible for implementing and managing the Company’s
investments in alternative real estate-related and financial assets, which is
referred to in this report to as the “alternative investment strategy.” The
Company entered into the advisory agreement concurrent and in connection with
its private placement of Series A Preferred Stock to JMP Group Inc. and certain
of it affiliates. HCS is a wholly-owned subsidiary of JMP Group Inc. Pursuant to
Schedule 13D’s filed with the SEC, as of December 31, 2008, HCS and JMP Group
Inc. beneficially owned approximately 16.8% and 12.2%, respectively, of the
Company’s common stock, and 100%, collectively, of it Series A Preferred
Stock.




Pursuant
to the advisory agreement, HCS is responsible for managing investments made by
HC and NYMF, as well as any additional subsidiaries acquired or formed in the
future to hold investments made on the Company’s behalf by HCS. The Company
refers to these subsidiaries in its periodic reports filed with the Securities
and Exchange Commission as the “Managed Subsidiaries.” On March 31, 2009, the
Company commenced its alternative investment strategy by purchasing
approximately $9.0 million in collateralized loan obligations. The Company’s
investment in these assets was completed in connection with the acquisition by
JMP Group Inc. of the investment adviser of the collateralized loan obligations.
The Company expects that, from time to time in the future, certain of its
alternative investments will take the form of a co-investment alongside or in
conjunction with JMP Group Inc. or certain of its affiliates. In accordance with
investment guidelines adopted by the Company’s Board of Directors, any
subsequent alternative investments by the Managed Subsidiaries must be approved
by the Board of Directors and must adhere to investment guidelines adopted by
the Board of Directors. The advisory agreement provides that HCS will be paid a
base advisory fee that is a percentage of the “equity capital” (as defined in
the advisory agreement) of the Managed Subsidiaries, which may include the net
asset value of assets held by the Managed Subsidiaries as of any fiscal quarter
end, and an incentive fee upon the Managed Subsidiaries achieving certain
investment hurdles. For the year ended December 31, 2008, HCS earned a base
advisory fee of approximately $0.7 million on the net proceeds to the Company
from its private offerings in each of January 2008 and February 2008. For the
three and six months ended June 30, 2009, HCS earned a base advisory fee of
approximately $0.2 million and $0.4 million, respectively.  In
addition, in the three months ended June 30, 2009, HCS earned an incentive fee
of approximately $44,000.  As of June 30, 2009, HCS was managing
approximately $13.5 million of assets on the Company’s behalf.




14.Income
Taxes




At June
30, 2009, the Company had approximately $65.8 million of net operating loss
carryforwards which may be used to offset future taxable income. The
carryforwards will expire in 2024 through 2028. The Internal Revenue Code places
certain limitations on the annual amount of net operating loss carryforwards
that can be utilized if certain changes in the Company’s ownership occur. The
Company may have undergone an ownership change within the meaning of IRC section
382 that would impose such a limitation, but a final conclusion has not been
made. At this time, based on management’s initial assessment of the limitations,
management does not believe that the limitation would cause a significant amount
of the Company's net operating losses to expire unused.  The Company
continues to maintain a reserve for 100% of the deferred tax
benefits.




15.  Subsequent
Event




The
Company initiated a $25 million investment strategy in the second quarter by
investing approximately $4.6 million in non-Agency RMBS which were previously
rated in the highest rating categories by one or more of the rating
agencies.  Between June 30, 2009 and the date of this filing, the Company
has invested an additional $19.3 million in non-agency RMBS, bringing its total
investment in non-Agency RMBS to $23.9 million year to date.




22




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 real estate-related and certain alternative assets 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;
  ·
                our
      ability to successfully implement and grow our alternative investment
      strategy and to identify suitable alternative
  assets;
  ·
                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 interest-earning assets and our borrowings
      used to fund such purchases;
  ·
                changes
      in interest rates and mortgage prepayment
rates;
  ·
                increased
      rates of default and/or decreased recovery rates on our
      assets;
  ·
                changes
      in the financial markets and economy generally, including the continued or
      accelerated deterioration of the U.S.
economy;
  23
 ·
                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 operation including, among other things, litigation,
      repurchase obligations on the sales of mortgage loans and property
      leases;
  ·
                actions
      taken by the U.S. and foreign governments, central banks and other
      governmental and regulatory bodies for the purpose of stabilizing the
      financial credit and housing markets, and economy generally, including
      loan modification programs;
  ·
                changes
      to the nature of the guarantees provided by Fannie Mae and Freddie Mac;
      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 – “Risk Factors” of our
      Annual Report on Form 10-K for the year ended December 31, 2008, and the
      various other factors identified in any other documents filed by us with
      the SEC.
  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
SEC.
  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 primarily in residential
adjustable-rate, hybrid adjustable-rate and fixed-rate mortgage-backed
securities (“RMBS”), for which the principal and interest payments are
guaranteed by a U.S. Government agency or a U.S. Government-sponsored entity
(“GSE” or “Agency”), such as the Federal National Mortgage Association (“Fannie
Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), which we
refer to as “Agency RMBS,” and prime credit quality residential
adjustable-rate mortgage (“ARM”) loans, or prime ARM loans.  We also
invest, although to a lesser extent, in certain alternative real estate-related
and financial assets that present greater credit risk and less interest rate
risk than our investments in Agency RMBS and prime ARM loans, such as non-Agency
RMBS and certain non-rated residential mortgage assets, commercial
mortgage-backed securities (“CMBS”), commercial real estate loans,
collateralized loan obligations (“CLO”) and other similar
investments.  We refer to our investments in Agency RMBS and prime ARM
loans as our “principal investment strategy” and investments in certain
alternative real estate-related and financial assets that present a greater
credit risk as our “alternative investment strategy” and such assets as our
“alternative assets.”  We elected to be taxed as a REIT for federal
income tax purposes commencing with our taxable year ending on December 31,
2004. Therefore, we generally will not be subject to federal income tax on our
taxable income that is distributed to our stockholders.
 
 Our investment strategy historically
has focused on holding a portfolio comprised of Agency RMBS, prime ARM loans
held in securitization trusts, and, to a lesser extent, on certain non-agency
RMBS rated in the highest rating category by two rating agencies. The prime ARM
loans in our portfolio were originated by us through Hypotheca Capital, LLC
(“HC,” then doing business as The New York Mortgage Company LLC), our
wholly-owned subsidiary and former mortgage lending business, or purchased from
third parties, and were subsequently securitized by us and are held in our four
securitization trusts.
 
 24
  In
connection with a $20.0 million private investment in our Series A Cumulative
Convertible Redeemable preferred stock (the “Series A Preferred Stock”) by JMP
Group Inc. and certain of its affiliates (collectively, the “JMP Group”) on
January 18, 2008, we entered into an advisory agreement with Harvest Capital
Strategies LLC (“HCS,” formerly known as JMP Asset Management LLC), an affiliate
of the JMP Group, on the same date, pursuant to which HCS manages the assets
held by HC, other than certain Agency RMBS held in these entities for regulatory
compliance purposes, as well as any additional subsidiaries acquired or formed
in the future to hold investments made on the Company’s behalf.  We
expect these assets to include certain types of alternative assets described
above. We formed this relationship with HCS and the JMP Group for the purpose of
improving our capitalization and diversifying our investment strategy away from
a strategy focused exclusively on investments in Agency RMBS, in part to achieve
attractive risk-adjusted returns, and to potentially utilize all or part of an
approximately $65.8 million net operating loss carry-forward at June 30, 2009
held by HC.  As described more fully below, on March 31, 2009, we
initiated our first investment under the alternative investment
strategy.
 
 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 intend
to achieve this objective by investing in a broad class of real estate-related
and financial assets to construct an investment portfolio that is designed to
achieve attractive risk-adjusted returns and that is structured to comply with
the various federal income tax requirements for REIT status and to maintain our
exemption from registration under the Investment Company Act of 1940, as amended
(the “Investment Company Act”).  Because we intend to continue to
qualify as a REIT and to maintain our exemption from registration under the
Investment Company Act, we will be required to invest a substantial majority of
our assets in qualifying real estate assets, such as Agency RMBS, mortgage loans
and other liens on and interests in real estate.
  Recent
Events
  Continued
Deployment of Capital Under Alternative Investment Strategy
  As noted
above, on March 31, 2009, we commenced our alternative investment strategy by
purchasing $9 million of discounted notes issued by Cratos CLO I, Ltd. a
CLO.  The purchase of these assets closed on April 7, 2009.  As
of June 30, 2009, the CLO’s portfolio was comprised of approximately $479.6
million par amount of senior secured corporate loans, extended to more than 79
different borrowers and was diversified by industry, geography and borrower
classification.  Our investment in this CLO was completed in
connection with the acquisition of the CLO’s investment adviser by JMP Group
Inc.
 
 In
addition, during the 2009 second quarter, the Company continued to deploy
capital under its alternative investment strategy by investing approximately
$4.6 million in non-Agency RMBS which were previously rated in the highest
rating categories by one or more of the rating agencies.  The Company
purchased these securities for an average purchase price equal to 58.17% of
current par value and estimates a risk adjusted average yield of approximately
17.4% for these securities.  Between June 30, 2009 and the date of
this filing, the Company has invested an additional $19.3 million in non-Agency
RMBS, bringing its total investment in non-Agency RMBS to $23.9 million year to
date.
 
 Each of
the assets described under this caption is held in HC and managed by
HCS.
 
 Restructuring
of Principal Investment Portfolio
 
 As of
December 31, 2008, the Company’s principal investment portfolio included
approximately $197.7 million of collateralized mortgage obligation floating rate
securities issued by Fannie Mae or Freddie Mac, referred to as “Agency CMO
floaters”.  Following a review of its principal investment portfolio, the
Company determined in March 2009 that the Agency CMO floaters held in
its portfolio were no longer producing acceptable returns, and as a result,
we decided to initiate a program to dispose of these securities
opportunistically over time.  The Company disposed of approximately $159.5
million in current par value of Agency CMO floaters in March 2009, with the
balance of the Agency CMO floaters in its portfolio, or approximately $34.3
million in current par value, being sold in April 2009, for an aggregate
disposition of approximately $193.8 million in current par value of Agency CMO
floaters and a net gain of approximately $0.1 million.
 
 25
 
 Known
Material Trends and Commentary
  General.The well
publicized disruptions in the credit markets that began in 2007 escalated
throughout 2008 and spread to the financial markets and the greater
economy.  The financial and credit markets continued to experience
difficulties during most of the 2009 first half, but have shown signs of
improvement more recently.
  As discussed under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of
Operations―Current Market Conditions and Known Material Trends”in our
Annual Report on Form 10-K for the year ended December 31, 2008, U.S. and
foreign governments, central banks and other governmental and regulatory bodies
have taken or are considering taking numerous actions to address the financial
and credit crisis and the global recession, such as the U.S. government’s
passage of a $787 billion economic stimulus plan and the Troubled Asset Relief
Program, the Homeowner Affordability and Stability Plan (“HASP”), and the
Federal Reserve Bank’s (“Federal Reserve”) commitment to purchase up to $1.25
trillion of Agency RMBS.  We refer you to the caption in our Form 10-K
noted in the immediately preceding sentence for more information regarding these
initiatives.
  In
addition to the initiatives referred to in the immediately preceding paragraph
and described in our Annual Report on Form 10-K for the year ended December 31,
2008, as a further response to the continued challenges in the credit and
financial markets, the U.S. Government and the Federal Reserve, as applicable,
have announced the creation of new initiatives and modifications to certain
existing initiatives supported or backed by the U.S. Government or the Federal
Reserve. The Term Asset-Backed Securities Loan Facility, or TALF, was first
announced by the U.S. Treasury on November 25, 2008, and has been expanded
in size and scope since its initial announcement. Under the TALF, the Federal
Reserve Bank of New York makes non-recourse loans to borrowers to fund their
purchase of eligible assets, currently certain ABS but not RMBS. Currently, TALF
loans have three-year terms, have interest due monthly, are exempt from
mark-to-market accounting rules and margin calls related to a decrease in the
underlying collateral value, are pre-payable in whole or in part, and prohibit
the substitution of any underlying collateral. It is expected that the TALF
loans will require that any payments of principal made on the underlying
collateral will reduce the principal amount of the TALF loan pro rata based upon
the original loan-to-value ratio.
  The
nature of the eligible assets under TALF has been expanded several times. The
U.S. Treasury has stated that through its expansion of the TALF, non-recourse
loans will be made available to investors to fund certain purchases of legacy
securitization assets. In May 2009, the Federal Reserve announced that certain
types of CMBS are now eligible for TALF financing. The TALF-eligibility
requirements for CMBS include, but are not limited to, the following:
(i) at closing, the CMBS must have been rated in the highest long-term
investment-grade rating category of an eligible rating agency, (ii) the
CMBS must not have been junior to other securities with claims on the same pool
of loans, and (iii) payments on the CMBS must be applied to both principal
and interest (no interest only or principal only). Other types of TALF-eligible
assets are expected to include certain non-Agency RMBS. To date, neither the
Federal Reserve Bank of New York nor the U.S. Treasury has announced how the
TALF will be expanded to cover non-Agency RMBS; however, on June 4, 2009,
William Dudley, president of the Federal Reserve Bank of New York, stated that
the Federal Reserve Bank of New York was still assessing whether or not to
include non-Agency RMBS as eligible assets to be financed under the TALF and was
still in the process of assessing the feasibility and potential impact of such a
program. The TALF is presently scheduled to run through December 31, 2009,
unless the Federal Reserve agrees to extend it. Additionally, certain terms of
the TALF loans may be modified.
  While we
are considering utilizing the TALF program to the extent feasible, we can
provide no assurance that we will be eligible to do so, or if eligible, will be
able to utilize it successfully.
  In
addition, on March 23, 2009 the U.S. Government announced that the U.S.
Treasury in conjunction with the Federal Deposit Insurance Corporation, and the
Federal Reserve, would create the Public-Private Investment Program, or PPIP.
The PPIP aims to recreate a market for specific illiquid residential and
commercial loans and securities through a number of joint public and private
investment funds. The PPIP is designed to draw new private capital into the
market for these securities and loans by providing government equity
co-investment and attractive public financing.
  Although
these aggressive steps are intended to protect and support the U.S. housing and
mortgage market, we continue to operate under very difficult market conditions.
As a result, the outcome of these events remain highly uncertain and 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.
  26
  Mortgage asset values. The Federal Reserve’s
announcement on January 9, 2009 that it had begun to buy Agency RMBS, combined
with the Federal Reserve’s announcement in March 2009 of an increase of up to
$750 billion in its commitment to purchase Agency RMBS has resulted in a
substantial increase in the sale prices of Agency RMBS.  We believe
that the stronger backing for the guarantors of Agency RMBS, resulting from the
conservatorship of Fannie Mae and Freddie Mac, along with the U.S. Treasury’s
commitment to purchase senior preferred stock in these companies and the Federal
Reserve’s Agency RMBS purchase program has positively impacted the value of our
Agency RMBS.  However, we expect this positive impact to be partially
offset in future months due to expected increases in prepayment rates resulting
from greater refinancing activity.
  With
respect to non-Agency RMBS and other alternative assets, available leverage has
decreased significantly in the past few years, which has negatively affected the
liquidity of these assets and has contributed to the significant rise in market
yields on these types of assets. As described above, there has been significant
government action aimed at increasing the liquidity of various types of
non-Agency RMBS and certain other alternative assets. However, non-Agency RMBS
and certain other alternative assets have continued to experience significant
price volatility, which has made it more difficult to accurately value these
assets.  The TALF (if implemented for RMBS) and PPIP programs have the
potential to increase available leverage to finance the purchase of non-Agency
RMBS and certain other alternative assets; however, many of these government
programs have not been fully rolled out yet or are still relatively new and the
effect of these programs on the liquidity of non-Agency RMBS and certain other
alternative assets is currently unknown.
 
 Financing markets and
liquidity. Financing and liquidity markets continued to show signs of
improvement during the second quarter.  As of June 30, 2009, we had
outstanding repurchase borrowings from five counterparties, as compared to six
counterparties at December 31, 2008 and five counterparties at September 30,
2008.  The Company does not anticipate difficulty financing their
Agency RBMS portfolio.
  As noted
above, available leverage for non-Agency RMBS and certain other alternative
assets has remained scarce due to the recent conditions in the credit markets
and reductions in the value of various types of RMBS.  As of June 30,
2009, our investment in CLO and non-Agency RMBS was unlevered.  We
expect financing for these types of assets to remain challenging in the near
future.
 
 Financing costs and interest
rates. As of June 30, 2009, 30-day LIBOR was 0.31 % while the Fed Funds
effective rate was 0.22%, as compared to 30-day LIBOR of 0.44% and a Fed Funds
effective rate of 0.14% at December 31, 2008.  Because of continued
uncertainty in the credit markets and difficult U.S. economic conditions, we
expect that interest rates are likely to remain at these historically low levels
until such time as the economic data begin to confirm an improvement in the
overall economy.
 
 Prepayment rates.
   As a result of various government initiatives, including HASP
and the reduction in intermediate and longer-term treasury yields, rates on
conforming mortgages have declined, nearing historical lows during the first six
months of the year.  Hybrid and adjustable-rate mortgage originations
have declined substantially, as rates on these types of mortgages are comparable
with rates available on 30-year fixed-rate mortgages.  Not
unexpectedly, we experienced an increase in prepayment rates on both our Agency
RMBS and prime ARM loans during the quarter ended June 30, 2009 as compared to
the quarter ended March 31, 2009.  We expect that the constant
prepayment rate, or CPR, will remain in a range of between 15%-20% CPR during
the remainder of 2009 based on current market interest rates, however, future
CPRs may affected by current and future government initiatives, if any, and the
resulting impact on borrowers’ ability to refinance, mortgage interest rates in
the market and home values.
 
 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 Bank, F.S.B, have become part of the ongoing operations of NYMT and
accordingly, we have not classified such assets or liabilities as a discontinued
operation in accordance with the provisions of SFAS No. 144.
  27
  The
Company completed a one for two reverse stock split of its common stock in May
2008.  All share amounts and earnings per share disclosures have been
restated to reflect this reverse stock split.
  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, 2008 and “Note 1 – Significant
Accounting Policies” to the condensed consolidated financial statements
included therein.  There have been no significant changes to those
policies during 2009.
  Summary
of Operations
  Net Interest Spread. For the
three and six months ended June 30, 2009, 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 RMBS, CLO 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 361 basis points for the quarter ended June 30, 2009, as compared
to 252 basis points for the quarter ended March 31, 2009, and 143 basis points
for the quarter ended June 30, 2008.
  Financing. During the quarter
ended June 30, 2009, we continued to employ a balanced and diverse funding mix
to finance our assets.  At June 30, 2009, our Agency RMBS portfolio
was funded with approximately $188.2 million of repurchase agreement borrowing,
or approximately 33.2% of our total liabilities, at a weighted average interest
rate of 0.53%.  The Company’s average haircut on its repurchase
borrowings was approximately 6.5% at June 30, 2009. As of June 30, 2009, the
loans held in securitization trusts were permanently financed with approximately
$302.3 million of CDOs, or approximately 53.4% of our total liabilities, at June
30, 2009, at an average interest rate of 0.70%.  The Company has a net
equity investment of $11.7 million in the securitization trusts.
 
 At June
30, 2009 our leverage ratio for our RMBS investment portfolio, which we define
as our outstanding indebtedness under repurchase agreements divided by the sum
of stockholders’ equity and our convertible preferred debentures, was 3 to 1.
Excluding the convertible preferred debentures, the leverage ratio for our RMBS
investment portfolio was 4.5 to 1.  Given the continued uncertainty in
the credit markets, we believe that maintaining a maximum leverage ratio in the
range of 6 to 8 times for our Agency RMBS portfolio and an overall Company
leverage of 4 to 5 times is appropriate at this time.  To date, the
Company has used cash from operating activities to purchase its alternative
assets.
  Prepayment Experience.The
cumulative prepayment rate (“CPR”) on our overall mortgage portfolio
averaged approximately 21% during the three months ended June 30, 2009, as
compared to 12% for the three months ended March 31, 2009.  CPRs on
our purchased portfolio of investment securities averaged approximately 20% for
the three months ended June 30, 2009, as compared to 12% for the three months
ended March 31, 2009.  The CPRs on our mortgage loans held in our
securitization trusts averaged approximately 22% during the three months ended
June 30, 2009, as compared to 12% for the three months ended March 31,
2009.  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.
  28
  Financial
Condition
  As of
June 30, 2009, we had approximately $611.5 million of total assets, as compared
to approximately $853.3 million of total assets as of December 31,
2008.  The decrease in total assets resulted primarily from the sale
of substantially all of the CMO Agency floaters totaling approximately $193.8
million, as discussed above.
  Balance
Sheet Analysis - Asset Quality
  Investment Securities - Available
for Sale - The following tables set forth the credit characteristics of
our securities portfolio as of June 30, 2009 and December 31, 2008 (dollar
amounts in thousands):
  June
      30, 2009
                                                              
                                                              Sponsor
      or Rating
                                                                S&P/Moodys/Fitch
                                                              
                                                              
                                                              Par
                                                                Value
                                                              
                                                              
                                                              Carrying
                                                                Value
                                                              
                                                              
                                                              %
      of
                                                                Portfolio
                                                              
                                                              
                                                              Coupon
                                                              
                                                              
                                                              YieldAgency
      RMBS
                                                              
                                                              FNMA
                                                              
                                                              
                                                              $
                                                              228,177
                                                              
                                                              
                                                              $
                                                              238,709
                                                              
                                                              
                                                              
                                                              88.7
                                                              %
                                                              
                                                              
                                                              
                                                              5.15
                                                              %
                                                              
                                                              
                                                              
                                                              3.04
                                                              %Non-Agency
      RMBS
                                                              
                                                              AA/Aa
                                                              
                                                              
                                                              
                                                              17,140
                                                              
                                                              
                                                              
                                                              12,340
                                                              
                                                              
                                                              
                                                              4.6
                                                              %
                                                              
                                                              
                                                              
                                                              1.32
                                                              %
                                                              
                                                              
                                                              
                                                              18.77
                                                              %A/A
                                                              
                                                              
                                                              
                                                              3,648
                                                              
                                                              
                                                              
                                                              2,627
                                                              
                                                              
                                                              
                                                              1.0
                                                              %
                                                              
                                                              
                                                              
                                                              1.21
                                                              %
                                                              
                                                              
                                                              
                                                              9.29
                                                              %BBB/Baa
                                                              
                                                              
                                                              
                                                              3,553
                                                              
                                                              
                                                              
                                                              2,100
                                                              
                                                              
                                                              
                                                              0.8
                                                              %
                                                              
                                                              
                                                              
                                                              5.35
                                                              %
                                                              
                                                              
                                                              
                                                              18.06
                                                              %B/B
                                                              
                                                              
                                                              
                                                              2,443
                                                              
                                                              
                                                              
                                                              1,533
                                                              
                                                              
                                                              
                                                              0.6
                                                              %
                                                              
                                                              
                                                              
                                                              5.23
                                                              %
                                                              
                                                              
                                                              
                                                              15.25
                                                              %CCC
      or Below
                                                              
                                                              
                                                              
                                                              6,480
                                                              
                                                              
                                                              
                                                              2,628
                                                              
                                                              
                                                              
                                                              1.0
                                                              %
                                                              
                                                              
                                                              
                                                              4.38
                                                              %
                                                              
                                                              
                                                              
                                                              13.34
                                                              %Not
      Rated
                                                              
                                                              
                                                              
                                                              286
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              0.0
                                                              %
                                                              
                                                              
                                                              
                                                              5.64
                                                              %
                                                              
                                                              
                                                              
                                                              0.00
                                                              %CLO
                                                              
                                                              BBB/Baa
                                                              
                                                              
                                                              
                                                              10,400
                                                              
                                                              
                                                              
                                                              2,543
                                                              
                                                              
                                                              
                                                              0.9
                                                              %
                                                              
                                                              
                                                              
                                                              1.93
                                                              %
                                                              
                                                              
                                                              
                                                              22.00
                                                              %BB/Ba
                                                              
                                                              
                                                              
                                                              15,300
                                                              
                                                              
                                                              
                                                              3,424
                                                              
                                                              
                                                              
                                                              1.3
                                                              %
                                                              
                                                              
                                                              
                                                              3.23
                                                              %
                                                              
                                                              
                                                              
                                                              30.00
                                                              %B/B
                                                              
                                                              
                                                              
                                                              20,250
                                                              
                                                              
                                                              
                                                              3,021
                                                              
                                                              
                                                              
                                                              1.1
                                                              %
                                                              
                                                              
                                                              
                                                              5.83
                                                              %
                                                              
                                                              
                                                              
                                                              34.00
                                                              %Total/Weighted
      average
                                                              
                                                              
                                                              $
                                                              307,677
                                                              
                                                              
                                                              $
                                                              268,925
                                                              
                                                              
                                                              
                                                              100.0
                                                              %
                                                              
                                                              
                                                              
                                                              4.72
                                                              %
                                                              
                                                              
                                                              
                                                              4.99
                                                              %
 
 December
      31, 2008
                                              
                                              Sponsor
      or Rating
                                                S&P/Moodys/Fitch
                                              
                                              
                                              Par
                                                Value
                                              
                                              
                                              Carrying
                                                Value
                                              
                                              
                                              %
      of
                                                Portfolio
                                              
                                              
                                              Coupon
                                              
                                              
                                              YieldAgency
      RMBS
                                              
                                              FNMA/FHLMC
                                              
                                              
                                              $
                                              455,447
                                              
                                              
                                              $
                                              455,871
                                              
                                              
                                              
                                              95
                                              %
                                              
                                              
                                              
                                              3.67
                                              %
                                              
                                              
                                              
                                              5.99
                                              %Non-Agency
      RMBS
                                              
                                              AAA/Aaa
                                              
                                              
                                              
                                              23,289
                                              
                                              
                                              
                                              18,118
                                              
                                              
                                              
                                              4
                                              %
                                              
                                              
                                              
                                              1.27
                                              %
                                              
                                              
                                              
                                              15.85
                                              %AA/Aa
                                              
                                              
                                              
                                              609
                                              
                                              
                                              
                                              530
                                              
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              
                                              1.22
                                              %
                                              
                                              
                                              
                                              4.32
                                              %A/A
                                              
                                              
                                              
                                              3,648
                                              
                                              
                                              
                                              2,828
                                              
                                              
                                              
                                              1
                                              %
                                              
                                              
                                              
                                              2.30
                                              %
                                              
                                              
                                              
                                              4.08
                                              %CCC/Caa
      or Below
                                              
                                              
                                              
                                              2,058
                                              
                                              
                                              
                                              69
                                              
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              
                                              5.67
                                              %
                                              
                                              
                                              
                                              20.33
                                              %Not
      Rated
                                              
                                              
                                              
                                              404
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              
                                              5.67
                                              %
                                              
                                              
                                              
                                              0.00
                                              %Total/Weighted
      average
                                              
                                              
                                              $
                                              485,455
                                              
                                              
                                              $
                                              477,416
                                              
                                              
                                              
                                              100
                                              %
                                              
                                              
                                              
                                              3.55
                                              %
                                              
                                              
                                              
                                              6.51
                                              %
  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 were initially classified as “mortgage
loans held for investment” during a period of aggregation and until the
portfolio reached a size sufficient for us to securitize such
loans.  Once the securitization of these loans qualified as a
financing for SFAS No. 140 purposes, the loans were 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
June 30, 2009 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 June 30,
2009 (dollar amounts in thousands):
  Par Value
                          
                          Coupon
                          
                          
                          Carrying Value
                          
                          YieldJune
      30, 2009
                          
                          $
                          313,900
                          
                          
                          
                          5.26
                          %
                          
                          $
                          313,955
                          
                          
                          
                          5.63
                          %
 
 At June
30, 2009, mortgage loans held in securitization trusts totaled approximately
$314.0 million, or 51.4% of our total assets.  Of this mortgage loan
investment portfolio, 100% are traditional ARMs or hybrid ARMs, 81% 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 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 payment option-ARMs or ARMs with negative amortization.
  29
  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 June 30, 2009 (dollar amounts in
thousands):
  #
      of Loans
                    
                    Par
      Value
                    
                    Carrying
                      ValueLoan
      Characteristics:Mortgage
      loans held in securitization trusts
                    
                    
                    730
                    
                    
                    $
                    313,900
                    
                    
                    $
                    313,955Retained
      interest in securitization (included in investment securities
      available for sale)
                    
                    
                    298
                    
                    
                    
                    158,582
                    
                    
                    
                    66Total
      loans held
                    
                    
                    1,028
                    
                    
                    $
                    472,482
                    
                    
                    $
                    314,024
 
 Average
                      
                      
                      High
                      
                      
                      LowGeneral
      Loan Characteristics:Original
      Loan Balance (dollar amounts in thousands)
                      
                      $
                      486
                      
                      
                      $
                      2,950
                      
                      
                      $
                      48Coupon
      Rate
                      
                      
                      5.57
                      %
                      
                      
                      7.63
                      %
                      
                      
                      1.63
                      %Gross
      Margin
                      
                      
                      2.34
                      %
                      
                      
                      5.00
                      %
                      
                      
                      1.13
                      %Lifetime
      Cap
                      
                      
                      11.19
                      %
                      
                      
                      13.25
                      %
                      
                      
                      9.13
                      %Original
      Term (Months)
                      
                      
                      360
                      
                      
                      
                      360
                      
                      
                      
                      360Remaining
      Term (Months)
                      
                      
                      313
                      
                      
                      
                      321
                      
                      
                      
                      277Average
      Months to Reset
                      
                      
                      13
                      
                      
                      
                      46
                      
                      
                      
                      1Original
      Average FICO Score
                      
                      
                      735
                      
                      
                      
                      820
                      
                      
                      
                      593Original
      Average LTV
                      
                      
                      70.3
                      
                      
                      
                      95.0
                      
                      
                      
                      13.9
 
 The
following table sets forth the composition of our portfolio of
mortgage loans held in securitization trusts as of June 30, 2009 (dollar
amounts in thousands):
  Loans
Held in SecuritizationTrusts:
 Average
                      
                      
                      High
                      
                      
                      LowGeneral
      Loan Characteristics:Original
      Loan Balance (dollar amounts in thousands)
                      
                      $
                      459
                      
                      
                      $
                      2,950
                      
                      
                      $
                      48Coupon
      Rate
                      
                      
                      5.41
                      %
                      
                      
                      7.63
                      %
                      
                      
                      1.63
                      %Gross
      Margin
                      
                      
                      2.36
                      %
                      
                      
                      5.00
                      %
                      
                      
                      1.13
                      %Lifetime
      Cap
                      
                      
                      11.22
                      %
                      
                      
                      13.25
                      %
                      
                      
                      9.13
                      %Original
      Term (Months)
                      
                      
                      360
                      
                      
                      
                      360
                      
                      
                      
                      360Remaining
      Term (Months)
                      
                      
                      310
                      
                      
                      
                      318
                      
                      
                      
                      277Average
      Months to Reset
                      
                      
                      10
                      
                      
                      
                      18
                      
                      
                      
                      1Original
      Average FICO Score
                      
                      
                      734
                      
                      
                      
                      820
                      
                      
                      
                      593Original
      Average LTV
                      
                      
                      69.8
                      
                      
                      
                      95.0
                      
                      
                      
                      14.0
 
 Index
/ Reset  Characteriestics:
 Index
      Type
                        
                        
                        Weighted
      Average Gross Margin (%)General
      Loan Characteristics:One
      Month Libor
                        
                        
                        2.9
                        %
                        
                        
                        1.73
                        %Six
      Month Libor
                        
                        
                        72.4
                        %
                        
                        
                        2.38
                        %One
      Year Libor
                        
                        
                        24.7
                        %
                        
                        
                        2.41
                        %Total
      / Weighted Average
                        
                        
                        100.0
                        %
                        
                        
                        2.36
                        %
 
 30
  The
following table details loan summary information for loans held in
securitization trusts at June 30, 2009 (dollar amounts in
thousands):
  Description
                          Interest
      Rate %
                          Final
      Maturity
                          Periodic
      Payment Terms (months)
                          Prior
      Liens
                          Original
      Principal of Mortgage
                          Current
      Principal of Mortgage
                          Principal
      Amount of Loans Subject to Delinquent Principal or
      InterestProperty
                              Type
                          Balance
                          Loan
                              Count
                          Max
                          Min
                          Avg
                          Min
                          MaxSingle
                          <=
      $100
                          11
                          5.88
                          4.00
                          5.01
                          12/01/34
                          11/01/35
                          360
                          NA
                          $     
      1,524
                          $
              770
                          $   
             -Family
                          <=$250
                          82
                          7.25
                          4.38
                          5.54
                          09/01/32
                          12/01/35
                          360
                          NA
                          16,687
                          14,620
                          288<=$500
                          130
                          7.13
                          2.75
                          5.48
                          10/01/32
                          01/01/36
                          360
                          NA
                          48,858
                          45,846
                          3,815<=$1,000
                          59
                          6.38
                          1.88
                          5.31
                          07/01/33
                          12/01/35
                          360
                          NA
                          44,045
                          42,055
                          1,676>$1,000
                          29
                          6.25
                          1.75
                          5.52
                          01/01/35
                          01/01/36
                          360
                          NA
                          49,402
                          48,821
                          6,247Summary
                          311
                          7.25
                          1.75
                          5.45
                          09/01/32
                          01/01/36
                          360
                          NA
                          $160,516
                          $152,112
                          $12,0262-4
                          <=
      $100
                          1
                          6.63
                          6.63
                          6.63
                          02/01/35
                          02/01/35
                          360
                          NA
                          $          
      80
                          $     
           76
                          $   
             -FAMILY
                          <=$250
                          6
                          6.75
                          4.38
                          5.75
                          12/01/34
                          07/01/35
                          360
                          NA
                          1,115
                          1,005
                          -<=$500
                          20
                          7.25
                          2.38
                          5.50
                          09/01/34
                          01/01/36
                          360
                          NA
                          7,456
                          7,229
                          513<=$1,000
                          4
                          6.88
                          5.38
                          5.91
                          12/01/34
                          08/01/35
                          360
                          NA
                          3,068
                          3,043
                          ->$1,000
                          -
                          -
                          -
                          -
                          -
                          -
                          360
                          NA
                          -
                          -
                          -Summary
                          31
                          7.25
                          2.38
                          5.64
                          09/01/34
                          01/01/36
                          360
                          NA
                          $
      11,719
                          $ 11,353
                          $    513Condo
                          <=
      $100
                          16
                          6.00
                          4.00
                          5.35
                          01/01/35
                          12/01/35
                          360
                          NA
                          $    
      2,119
                          $1,120
                          $  
             -<=$250
                          91
                          6.50
                          4.50
                          5.57
                          08/01/32
                          01/01/36
                          360
                          NA
                          18,008
                          16,265
                          426<=$500
                          81
                          6.88
                          1.75
                          5.35
                          09/01/32
                          12/01/35
                          360
                          NA
                          28,051
                          27,002
                          914<=$1,000
                          33
                          6.13
                          1.88
                          5.20
                          08/01/33
                          11/01/35
                          360
                          NA
                          24,567
                          22,748
                          546>$1,000
                          13
                          6.13
                          4.88
                          5.49
                          07/01/34
                          09/01/35
                          360
                          NA
                          20,373
                          19,716
                          -Summary
                          234
                          6.88
                          1.75
                          5.43
                          08/01/32
                          01/01/36
                          360
                          NA
                          $
      93,118
                          $ 86,851
                          $ 1,886CO-OP
                          <=
      $100
                          4
                          5.63
                          4.75
                          5.25
                          10/01/34
                          12/01/35
                          360
                          NA
                          $    
      1,350
                          $   
          300
                          $  
             -<=$250
                          24
                          6.25
                          4.00
                          5.29
                          10/01/34
                          12/01/35
                          360
                          NA
                          4,710
                          4,287
                          212<=$500
                          39
                          6.38
                          1.63
                          5.29
                          08/01/34
                          12/01/35
                          360
                          NA
                          16,415
                          14,690
                          -<=$1,000
                          23
                          5.63
                          4.75
                          5.30
                          12/01/34
                          11/01/35
                          360
                          NA
                          16,424
                          15,777
                          ->$1,000
                          5
                          6.00
                          2.50
                          4.83
                          11/01/34
                          12/01/35
                          360
                          NA
                          7,544
                          7,021
                          -Summary
                          95
                          6.38
                          1.63
                          5.27
                          08/01/34
                          12/01/35
                          360
                          NA
                          $
      46,443
                          $ 42,075
                          $    
      212PUD
                          <=
      $100
                          3
                          5.63
                          5.25
                          5.38
                          07/01/35
                          08/01/35
                          360
                          NA
                          $       
      938
                          $   
          133
                          $           -<=$250
                          24
                          6.50
                          2.75
                          5.36
                          01/01/35
                          12/01/35
                          360
                          NA
                          5,090
                          4,479
                          183<=$500
                          21
                          7.63
                          2.75
                          5.49
                          08/01/32
                          12/01/35
                          360
                          NA
                          7,409
                          7,147
                          455<=$1,000
                          7
                          5.88
                          4.14
                          5.20
                          05/01/34
                          12/01/35
                          360
                          NA
                          4,746
                          4,562
                          ->$1,000
                          4
                          6.13
                          4.22
                          5.46
                          04/01/34
                          12/01/35
                          360
                          NA
                          5,233
                          5,188
                          -Summary
                          59
                          7.63
                          2.75
                          5.40
                          08/01/32
                          01/01/36
                          360
                          NA
                          $
      23,416
                          $ 21,509
                          $     638Summary
                          <=
      $100
                          35
                          6.63
                          4.00
                          5.27
                          10/01/34
                          12/01/35
                          360
                          NA
                          $    
      6,011
                          $2,399
                          $           -<=$250
                          227
                          7.25
                          2.75
                          5.51
                          08/01/32
                          01/01/36
                          360
                          NA
                          45,610
                          40,656
                          1,109<=$500
                          291
                          7.63
                          1.63
                          5.48
                          08/01/32
                          01/01/36
                          360
                          NA
                          108,189
                          101,914
                          5,697<=$1,000
                          126
                          6.88
                          1.88
                          5.29
                          07/01/33
                          12/01/35
                          360
                          NA
                          92,850
                          88,185
                          2,222>$1,000
                          51
                          6.25
                          1.75
                          5.44
                          04/01/34
                          01/01/36
                          360
                          NA
                          82,552
                          80,746
                          6,247Grand
      Total
                          730
                          7.63
                          1.63
                          5.42
                          08/01/32
                          01/01/36
                          360
                          NA
                          $335,212
                          $313,900
                          $15,275
  31
  The
following table details activity for loans held in securitization trusts for the
six months ended June 30, 2009.
  Current
      Principal
                          
                          
                          Premium
                          
                          
                          Loan
      Reserve
                          
                          
                          Net
      Carrying ValueBalance,
      January 1, 2009
                          
                          $
                          347,546
                          
                          
                          $
                          2,197
                          
                          
                          $
                          (1,406
                          )
                          
                          $
                          348,337Additions
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Principal
      repayments
                          
                          
                          (33,646
                          )
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (33,646
                          )Provision
      for loan losses
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (888
                          )
                          
                          
                          (888
                          )Charge-offs
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          362
                          
                          
                          
                          362Amortization
      for premium
                          
                          
                          —
                          
                          
                          
                          (210
                          )
                          
                          
                          —
                          
                          
                          
                          (210
                          )Balance,
      June 30, 2009
                          
                          $
                          313,900
                          
                          
                          $
                          1,987
                          
                          
                          $
                          (1,932
                          )
                          
                          $
                          313,955
 
 Cash and cash equivalents -
We had unrestricted cash and cash equivalents of $15.8 million at June 30, 2009
versus $9.4 million at December 31, 2008.
  Restricted Cash - Restricted
cash of $3.3 million at June 30, 2009 includes $3.0 million held by
counterparties as collateral for hedging instruments and 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 $8.0
million at December 31, 2008, includes amounts held by counterparties as
collateral for hedging instruments and a repurchase agreement and amounts held
as collateral for two letters of credit related to the Company’s lease of office
space, including its corporate headquarters.
  Accounts and accrued interest
receivable - Accounts and accrued interest receivable includes accrued
interest receivable for the investment securities and mortgage loans held in
securitization trusts.
  Prepaid and other assets -
Prepaid and other assets totaled $2.2 million as of June 30, 2009 and $1.2
million as of December 31, 2008.  Prepaid and other assets consist
mainly of $0.5 million of capitalization expenses related to equity and bond
issuance costs, $0.7 million related to insurance costs and $0.2 million of
capitalized servicing costs related to our securitization accounted for as a
sale.
  Assets
Related to Discontinued Operation:
  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
$4.1 million at June 30, 2009 as compared to $5.4 million at December 31,
2008.
  Balance
Sheet Analysis - Financing Arrangements
  Financing Arrangements, Portfolio
Investments - As of June 30, 2009 and December 31 2008, there were
approximately $188.2 million and $402.3 million of repurchase borrowings
outstanding, respectively.  Our repurchase agreements typically have
terms of 30 days or less.  As of June 30, 2009, the current weighted
average borrowing rate on these financing facilities was 0.53% as compared to
2.62% as of December 31, 2008.
  Collateralized Debt
Obligations - As of June 30, 2009 and December 31, 2008, we have CDOs
outstanding of approximately $302.3 million and $335.6 million, respectively,
with an average interest rate of 0.70% and 0.85%, respectively.
  Subordinated Debentures - As
of June 30, 2009, we have trust preferred securities outstanding of $44.8
million with an average interest rate of 6.13%.  As of December 31,
2008, we had trust preferred securities outstanding of $44.6 million with an
average interest rate of 6.61%. 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 consolidated balance
sheet.
  32
  Convertible Preferred Debentures
- As of June 30, 2009 and December 31, 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 Company declared a 2009 second quarter common stock dividend rate of
$0.23 resulting in an increase in the Series A Preferred Stock dividend rate to
11.5% in the second quarter.  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.
  Derivative Assets and
Liabilities - We generally attempt to hedge only the risk related to
changes in the interest rates, usually a London 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 limiting our counterparties to major financial
institutions with good credit ratings.  The Company regularly monitors
the potential risk of loss with any one party resulting from this type of credit
risk.  In addition, the Company has in place with all outstanding swap
counterparties bi-lateral margin agreements thereby requiring a party to post
collateral to the Company for any valuation deficit.  This arrangement
is intended to limit the Company’s exposure to losses in the event of a
counterparty default. 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 cashflow 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 to minimize ineffectiveness.  We closely monitor the hedge’s
effectiveness and record the related ineffectiveness into earnings.
  The
following table summarizes the estimated fair value of derivative assets and
liabilities as of June 30, 2009 and December 31, 2008 (dollar amounts in
thousands):
  June
      30,
                          2009
                        
                        
                        December
      31,
                          2008Derivative
      Assets:Interest
      rate caps
                        
                        $
                        18
                        
                        
                        $
                        22Total
                        
                        $
                        18
                        
                        
                        $
                        22Derivative
      Liabilities:Interest
      rate swaps
                        
                        $
                        3,053
                        
                        
                        $
                        4,194Total
                        
                        $
                        3,053
                        
                        
                        $
                        4,194
 
 Balance
Sheet Analysis - Stockholders’ Equity
  Stockholders’
equity at June 30, 2009 was $45.6 million and included $3.0 million of net
unrealized losses on available for sale securities and cashflow hedges presented
as accumulated other comprehensive loss.
  33
  Results
of Operations
  Overview
of Performance
  For the
three and six months ended June 30, 2009 we reported net income of $2.5 million
and $4.6 million, respectively, as compared to a net income of $1.3 million and
a net loss of 20.0 million, for the same periods in 2008.
  The main
components of the change in net income (loss) for the three and six months ended
June 30, 2009 as compared to the same period for the prior year are
detailed in the following table (dollar amounts in thousands, except per share
data):
  For
      the Three months
                            Ended
      June 30,
                        
                        
                        For
      the Six months
                          Ended
      June 30,2009
                        
                        
                        2008
                        
                        
                        Difference
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        DifferenceNet interest income from
      investment securities and loans held in securitization
      trusts
                        
                        $
                        5,574
                        
                        
                        $
                        3,964
                        
                        
                        $
                        1,610
                        
                        
                        $
                        11,029
                        
                        
                        $
                        6,703
                        
                        
                        $
                        4,325Net
      interest income
                        
                        
                        4,158
                        
                        
                        
                        2,499
                        
                        
                        
                        1,659
                        
                        
                        
                        8,252
                        
                        
                        
                        3,773
                        
                        
                        
                        4,479Provision
      for loan losses
                        
                        
                        (259
                        )
                        
                        
                        (22
                        )
                        
                        
                        (237
                        )
                        
                        
                        (888
                        )
                        
                        
                        (1,455
                        )
                        
                        
                        567Realized
      gain (loss) on securities and related hedges
                        
                        
                        141
                        
                        
                        
                        (83
                        )
                        
                        
                        224
                        
                        
                        
                        264
                        
                        
                        
                        (19,931
                        )
                        
                        
                        20,195Total
      expenses
                        
                        
                        1,602
                        
                        
                        
                        1,960
                        
                        
                        
                        358
                        
                        
                        
                        3,172
                        
                        
                        
                        3,391
                        
                        
                        
                        (219
                        )Income
      (loss) from continuing operations
                        
                        
                        2,438
                        
                        
                        
                        434
                        
                        
                        
                        2,004
                        
                        
                        
                        4.,337
                        
                        
                        
                        (21,004
                        )
                        
                        
                        25,341Income
      from discontinued operation - net of tax
                        
                        
                        109
                        
                        
                        
                        829
                        
                        
                        
                        (720
                        )
                        
                        
                        264
                        
                        
                        
                        1,009
                        
                        
                        
                        (745
                        )Net
      income (loss)
                        
                        $
                        2,547
                        
                        
                        $
                        1,263
                        
                        
                        $
                        1,284
                        
                        
                        $
                        4,601
                        
                        
                        $
                        (19,995
                        )
                        
                        $
                        24,596Basic
      income (loss) per common share
                        
                        $
                        0.27
                        
                        
                        $
                        0.14
                        
                        
                        $
                        0.13
                        
                        
                        $
                        0.49
                        
                        
                        $
                        (2.77
                        )
                        
                        $
                        3.26Diluted
      income (loss) per common share
                        
                        $
                        0.27
                        
                        
                        $
                        0.14
                        
                        
                        $
                        0.13
                        
                        
                        $
                        0.49
                        
                        
                        $
                        (2.77
                        )
                        
                        $
                        3.26
 
 The
increase in net income of $1.3 million for the quarter ended June 30, 2009 as
compared to the same period in the previous year was due mainly to an increase
in net interest margin on the Agency RMBS portfolio and on the loans held in
securitization trusts. The improved net interest margin for our portfolio was
due mainly to the sale of the lower yielding Agency CMO floaters in March and
April of 2009 as well as improved borrowing costs for the Company’s
borrowings.
  The $24.6
million improvement in net income was due primarily to significantly improved
operating conditions and a lower interest rate environment during the six months
ended June 30, 2009 as compared to the previous year.  Lower interest
rates during the six months ended June 30, 2009 resulted in an a $4.5 million
improvement in net interest margin as compared to the six months ended June 30,
2008.  The large loss recorded in the 2008 first quarter was primarily
a result of the March 2008 market disruption and the Company’s response to such
disruption.  The Company sold an aggregate of $592.8 million of Agency
RMBS in its portfolio during March 2008 in an effort to reduce its leverage and
improve its 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 June 30, 2008, resulting in a realized loss of $4.8
million.
  Comparative
Net Interest Income
  Our
results of operations for our investment portfolio during a given period
typically reflect the net interest spread earned on our investment portfolio of
Agency RMBS, non-Agency RBMS, residential mortgage loans, and to a lesser
extent, CLOs.  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.
  34
  The
following tables set forth the changes in net interest income, yields earned on
securities and mortgage loans and rates on financial arrangements for the three
and six months ended June 30, 2009 and 2008 (dollar amounts in thousands, except
as noted):
  For the Three Months Ended
      June 30,2009
                    
                    
                    2008Average
                        Balance
                    
                    
                    Amount
                    
                    
                    Yield/
                        Rate
                    
                    
                    Average
                        Balance
                    
                    
                    Amount
                    
                    
                    Yield/
                        Rate($
      Millions)
                    
                    
                    ($
      Millions)Interest
      income:Investment
      securities and loans held in the securitization trusts
                    
                    $
                    629.0
                    
                    
                    $
                    7,819
                    
                    
                    
                    4.97
                    %
                    
                    $
                    897.5
                    
                    
                    $
                    10,912
                    
                    
                    
                    4.86
                    %Amortization
      of net premium
                    
                    
                    (28.5
                    )
                    
                    
                    (198
                    )
                    
                    
                    0.12
                    %
                    
                    
                    1.8
                    
                    
                    
                    (157
                    )
                    
                    
                    (0.08
                    )%Interest
      income/weighted average
                    
                    $
                    600.5
                    
                    
                    $
                    7,621
                    
                    
                    
                    5.09
                    %
                    
                    $
                    899.3
                    
                    
                    $
                    10,755
                    
                    
                    
                    4.78
                    %Interest
      expense:Investment
      securities and loans held in the securitization trusts
                    
                    $
                    545.8
                    
                    
                    $
                    2,047
                    
                    
                    
                    1.48
                    %
                    
                    $
                    800.9
                    
                    
                    $
                    6,791
                    
                    
                    
                    3.35
                    %Subordinated
      debentures
                    
                    
                    45.0
                    
                    
                    
                    808
                    
                    
                    
                    7.10
                    %
                    
                    
                    45.0
                    
                    
                    
                    896
                    
                    
                    
                    7.88
                    %Convertible
      preferred debentures
                    
                    
                    20.0
                    
                    
                    
                    608
                    
                    
                    
                    12.03
                    %
                    
                    
                    20.0
                    
                    
                    
                    569
                    
                    
                    
                    11.25
                    %Interest
      expense/weighted average
                    
                    $
                    610.8
                    
                    
                    $
                    3,463
                    
                    
                    
                    2.24
                    %
                    
                    $
                    865.9
                    
                    
                    $
                    8,256
                    
                    
                    
                    3.77
                    %Net
      interest income/weighted average
                    
                    
                    
                    
                    
                    $
                    4,158
                    
                    
                    
                    2.85
                    %
                    
                    
                    
                    
                    
                    $
                    2,499
                    
                    
                    
                    1.01
                    %
 
 
 For the Six Months Ended
      June 30,2009
                    
                    
                    2008Average
                        Balance
                    
                    
                    Amount
                    
                    
                    Yield/
                        Rate
                    
                    
                    Average
                        Balance
                    
                    
                    Amount
                    
                    
                    Yield/
                        Rate($
      Millions)
                    
                    
                    ($
      Millions)Interest
      income:Investment
      securities and loans held in the securitization trusts
                    
                    $
                    713.8
                    
                    
                    $
                    16,255
                    
                    
                    
                    4.55
                    %
                    
                    $
                    958.5
                    
                    
                    $
                    24,258
                    
                    
                    
                    5.06
                    %Amortization
      of net premium
                    
                    
                    (15.0
                    )
                    
                    
                    (49
                    )
                    
                    
                    0.09
                    %
                    
                    
                    0.8
                    
                    
                    
                    (250
                    )
                    
                    
                    (0.05
                    )%Interest
      income/weighted average
                    
                    $
                    698.8
                    
                    
                    $
                    16,206
                    
                    
                    
                    4.64
                    %
                    
                    $
                    959.3
                    
                    
                    $
                    24,008
                    
                    
                    
                    5.01
                    %Interest
      expense:Investment
      securities and loans held in the securitization trusts
                    
                    $
                    618.3
                    
                    
                    $
                    5,177
                    
                    
                    
                    1.67
                    %
                    
                    $
                    879.1
                    
                    
                    $
                    17,305
                    
                    
                    
                    3.89
                    %Subordinated
      debentures
                    
                    
                    45.0
                    
                    
                    
                    1,632
                    
                    
                    
                    7.25
                    %
                    
                    
                    45.0
                    
                    
                    
                    1,855
                    
                    
                    
                    8.15
                    %Convertible
      preferred debentures
                    
                    
                    20.0
                    
                    
                    
                    1,145
                    
                    
                    
                    11.45
                    %
                    
                    
                    20.0
                    
                    
                    
                    1,075
                    
                    
                    
                    10.63
                    %Interest
      expense/weighted average
                    
                    $
                    683.3
                    
                    
                    $
                    7,954
                    
                    
                    
                    2.33
                    %
                    
                    $
                    944.1
                    
                    
                    $
                    20,235
                    
                    
                    
                    4.24
                    %Net
      interest income/weighted average
                    
                    
                    
                    
                    
                    $
                    8,252
                    
                    
                    
                    2.31
                    %
                    
                    
                    
                    
                    
                    $
                    3,773
                    
                    
                    
                    0.77
                    %
  35
  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 and
convertible preferred 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)June
      30, 2009
                  
                  $
                  600.5
                  
                  
                  
                  4.99
                  %
                  
                  
                  
                  5.09
                  %
                  
                  
                  
                  1.48
                  %
                  
                  
                  
                  3.61
                  %
                  
                  
                  
                  21.4
                  %March
      31, 2009
                  
                  $
                  797.2
                  
                  
                  
                  4.22
                  %
                  
                  
                  
                  4.31
                  %
                  
                  
                  
                  1.79
                  %
                  
                  
                  
                  2.52
                  %
                  
                  
                  
                  12.3
                  %December
      31, 2008
                  
                  $
                  841.7
                  
                  
                  
                  4.77
                  %
                  
                  
                  
                  4.65
                  %
                  
                  
                  
                  3.34
                  %
                  
                  
                  
                  1.31
                  %
                  
                  
                  
                  9.2
                  %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
                  %
 
 Comparative Expenses(dollar
amounts in thousands)
 For
      the Three Months Ended June 30
                                                                            
                                                                            
                                                                            For
      the Six Months Ended June 30Expenses:
                                                                            
                                                                            2009
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            %
      Change
                                                                            
                                                                            
                                                                            2009
                                                                            
                                                                            
                                                                            2008
                                                                            
                                                                            
                                                                            %
      ChangeSalaries
      and benefits
                                                                            
                                                                            $
                                                                            472
                                                                            
                                                                            
                                                                            $
                                                                            417
                                                                            
                                                                            
                                                                            
                                                                            13.2
                                                                            %
                                                                            
                                                                            
                                                                            $
                                                                            1,013
                                                                            
                                                                            
                                                                            $
                                                                            730
                                                                            
                                                                            
                                                                            
                                                                            38.8
                                                                            %Professional
      fees
                                                                            
                                                                            
                                                                            357
                                                                            
                                                                            
                                                                            
                                                                            346
                                                                            
                                                                            
                                                                            
                                                                            3.2
                                                                            %
                                                                            
                                                                            
                                                                            
                                                                            698
                                                                            
                                                                            
                                                                            
                                                                            698
                                                                            
                                                                            
                                                                            
                                                                            —Management
      fees
                                                                            
                                                                            
                                                                            245
                                                                            
                                                                            
                                                                            
                                                                            184
                                                                            
                                                                            
                                                                            
                                                                            33.2
                                                                            %
                                                                            
                                                                            
                                                                            
                                                                            427
                                                                            
                                                                            
                                                                            
                                                                            293
                                                                            
                                                                            
                                                                            
                                                                            45.7
                                                                            %Insurance
                                                                            
                                                                            
                                                                            95
                                                                            
                                                                            
                                                                            
                                                                            300
                                                                            
                                                                            
                                                                            
                                                                            (68.3
                                                                            )%
                                                                            
                                                                            
                                                                            
                                                                            187
                                                                            
                                                                            
                                                                            
                                                                            392
                                                                            
                                                                            
                                                                            
                                                                            (52.3
                                                                            )%Other
                                                                            
                                                                            
                                                                            433
                                                                            
                                                                            
                                                                            
                                                                            713
                                                                            
                                                                            
                                                                            
                                                                            (39.3
                                                                            )%
                                                                            
                                                                            
                                                                            
                                                                            847
                                                                            
                                                                            
                                                                            
                                                                            1,278
                                                                            
                                                                            
                                                                            
                                                                            (33.7
                                                                            )%Total
      Expenses
                                                                            
                                                                            $
                                                                            1,602
                                                                            
                                                                            
                                                                            $
                                                                            1,960
                                                                            
                                                                            
                                                                            
                                                                            (18.3
                                                                            )%
                                                                            
                                                                            
                                                                            $
                                                                            3,172
                                                                            
                                                                            
                                                                            $
                                                                            3,391
                                                                            
                                                                            
                                                                            
                                                                            (6.5
                                                                            )%
 
 The
decrease in expenses of approximately $0.4 million for the three months ended
June 30, 2009 as compared to the same period in 2008 is primarily due to $0.5
million in non-recurring charges in the three months ended June 30, 2008 related
to a penalty fee paid to certain holders of the Company’s common stock pursuant
to common stock registration rights agreement with such
holders.  Expenses for the six months ended June 30, 2008 include
non-recurring penalty fees paid totaling approximately $0.7 million related to
certain holders of the Company’s common stock pursuant to the Common Stock
Registration Rights Agreement.
  The
Company currently has four employees.
  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.
  36
  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 such as the recently completed disposition of
the Agency CMO floaters from our portfolio, 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.  At June 30, 2009, we had cash balances
of $15.8 million, $56.3 million in unencumbered securities, including $35.7
million in Agency RMBS, and borrowings of $188.2 million under outstanding
repurchase agreements.  At June 30, 2009, we also utilized longer-term
capital resources, including CDOs outstanding of $302.3
million, subordinated debt of $44.8 million and $19.8 million of
convertible preferred debentures.  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
RMBS 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 RMBS investment portfolio, we generally seek to borrow between six
and eight times the amount of our equity.  At June 30, 2009, our
leverage ratio for our RMBS 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 3:1;
excluding the convertible preferred debentures our leverage ratio was 4.5:1. As
of June 30, 2009, our investment in CLO and non-Agency RMBS was
unlevered.  We currently intend to finance our alternative assets with
cash from operations, as we expect financing for these types of assets to remain
challenging in the near future.
  We had
outstanding repurchase agreements, a form of collateralized short-term
borrowing, with five different financial institutions as of June 30,
2009.  These agreements are secured by our RMBS 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 RMBS 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 could incur a
significant loss.
  We enter
into interest rate swap agreements as a mechanism to reduce the interest rate
risk of the RMBS portfolio.  At June 30, 2009, we had $121.3 million
in notional interest rate swaps outstanding.  Should market rates for
similar term interest rate swaps drop below the fixed 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 3.1 years at June 30, 2009.
  Our
inability to sell approximately $4.1 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.
  37
  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; during the past year 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 requests, each of which management
reviews to determine, based on management’s experience, whether such request may
reasonably be deemed to have merit.  As of June 30, 2009, the amount
of repurchase requests outstanding was approximately $1.5 million, against which
we had a reserve of approximately $0.4 million.  We cannot assure
you that we will be successful in settling the remaining repurchase demands
on favorable terms, or at all.  If we are unable to continue to
resolve our current repurchase demands through negotiated net cash settlements,
our liquidity could be adversely affected.  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 a
fourth quarter 2008 cash dividend of $0.10 in January 2009, a first quarter 2009
cash dividend of $0.18 per common share in April 2009 and a second quarter 2009
dividend of $0.23 per common shares in July 2009 to common stockholders of
record as of June 30, 2009.
  On
January 31, 2009 we paid the 2008 fourth quarter $0.50 per share cash dividend,
or $0.5 million in the aggregate, on shares of the Series A Preferred Stock to
holders of record on December 31, 2008.  On April 30, 2009, we paid a
$0.50 per share cash dividend, or $0.5 million in the aggregate, on shares of
our Series A Preferred Stock to holders of record as of March 31, 2009 and on
July 30, 2009, we paid a $0.575 per share cash dividend, or $0.6 million in the
aggregate, on shares of our Series A Preferred Stock to holders of record as of
June 30, 2009.  As described above, pursuant to the terms of the
Series A Preferred Stock, we are required to increase the quarterly dividend on
the Series A Preferred Stock, on a pro rata basis, to the extent our future
quarterly common stock dividends exceed $0.20 per share. 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.
  Advisory
Agreement
  On
January 18, 2008, we entered into an advisory agreement with HCS, pursuant to
which HCS will advise, manage and make investments on behalf the Managed
Subsidiaries. Pursuant to the advisory agreement, HCS is entitled to receive the
following compensation:
  ·
                base
      advisory fee equal to 1.50% per annum of the “equity capital” (as defined
      in advisory agreement) of the Managed Subsidiaries is payable by us to HCS
      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 HCS 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
      HCS 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.
  38
  For the
three and six months ended June 30, 2009, we paid HCS a base advisory fee of
$0.2 million and $0.4 million, respectively, and  incentive
compensation of $43,925 and $43,925, respectively.
  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 business:
 
 ·
                  Interest
      rate risk
 
 ·
                  Liquidity
      risk
 
 ·
                  Prepayment
      risk
 
 ·
                  Credit
      risk
 
 ·
                  Market
      (fair value) 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 RMBS 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 portfolio interest
market risk sensitive assets, liabilities and related derivative positions are
managed with a long term perspective and are not for trading
purposes.
 
 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
adjustable-rate 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 adjustable rate assets. Second, interest rates on adjustable rate
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 adjustable
rate 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.
  39
  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 speeds 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 June 30, 2009, changes in interest rates would
have the following effect on net interest income: (dollar amounts in
thousands)
  Changes in Net Interest IncomeChanges in Interest Rates
                      
                      Changes in Net Interest
                        Income+200
                      
                      $
                      (5,365)+100
                      
                      $
                      (2,656)-100
                      
                      $
                      (5,314)
 
 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 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. However, 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.
 
 Liquidity
Risk
  Liquidity
is a measure of our ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, fund and maintain investments, pay
dividends to our stockholders and other general business needs. We recognize the
need to have funds available to operate our business. 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.
  Our
principal sources of liquidity are the repurchase agreements on our RMBS, the
CDOs we have issued to finance our loans held in securitization trusts, the
principal and interest payments from mortgage assets and cash proceeds from the
issuance of equity securities. We believe our existing cash balances and cash
flows from operations will be sufficient for our liquidity requirements for at
least the next 12 months.
 
 40
  As it
relates to our investment portfolio, derivative financial instruments we use to
hedge interest rate risk subject us to “margin call” risk. If the value of our
pledged assets decreases, due to a change in interest rates, credit
characteristics, or other pricing factors, we may be required to post additional
cash or asset collateral, or reduce the amount we are able to borrower versus
the collateral. Under our interest rate swaps typically we pay a fixed rate to
the counterparties while they pay us a floating rate. If interest rates drop
below the fixed rate we are paying on an interest rate swap, we may be required
to post cash margin.
  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 yield for mortgage assets
purchased at a premium to their then current balance, as with the majority of
our assets. Conversely, mortgage assets purchased for less than their then
current balance exhibit higher yields due to faster prepayments. Furthermore,
prepayment speeds exceeding or lower than our modeled prepayment speeds 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, thereby increasing
prepayments.
  Our
prepayment model will help determine the amount of hedging we use to off-set
changes in interest rates. If actual prepayment rates are higher than modeled,
the yield will be less than modeled in cases where we paid a premium for the
particular mortgage asset. Conversely, when we have paid a premium, if actual
prepayment rates experienced are slower than modeled, we would amortize the
premium over a longer time period, resulting in a higher yield to
maturity.
 
 In an
increasing prepayment environment, the timing difference between the actual cash
receipt of principal paydowns and the announcement of the principal paydown may
result in additional margin requirements from our repurchase agreement
counterparties.
 
 We
mitigate prepayment risk by constantly evaluating our mortgage assets relative
to prepayment speeds observed for assets with a similar structure, quality and
characteristics. Furthermore, we stress-test the portfolio as to prepayment
speeds and interest rate risk in order to further develop or make modifications
to our hedge balances. Historically, we have not hedged 100% of our liability
costs due to prepayment risk.
 
 Credit
Risk
 
 Credit
risk is the risk that we will not fully collect the principal we have invested
in mortgage loans or other assets due to either borrower defaults, or a
counterparty failure. Our portfolio of loans held in securitization trusts as of
June 30, 2009 consisted of approximately $314.0 million of securitized first
liens originated in 2005 and earlier. The securitized first liens were
principally originated by our subsidiary, HC, prior to our exit from the
mortgage lending business. These are predominately high-quality loans with
average loan-to-value (“LTV”) ratio at origination of approximately 69.7%, and
average borrower FICO score of approximately 734. In addition approximately
70.0% of these loans were originated with full income and asset verification.
While we feel that our origination and underwriting of these loans will help to
mitigate the risk of significant borrower default, on these loans, we
cannot assure you that all borrowers will continue to satisfy their payment
obligations under these loans and thereby avoid default.
 
 As of
June 30, 2009, we owned approximately $21.2 million on non-Agency RMBS senior
securities. The non-Agency RMBS has a weighted average amortized price of
approximately 63% of par.  The price discount coupled with the credit
support within the bond structure protects the Company from principal loss under
most stress scenarios.  In addition, we own approximately $9.0 million
of collateralized loan obligations at a discounted price of approximately 20% of
par.  The securities are backed by a portfolio of middle market
corporate loans.
 
 Market
(Fair Value) Risk
  Changes
in interest rates also expose us to market risk that the market value (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 June 30, 2009, and do not take into
consideration the effects of subsequent interest rate fluctuations.
  41
  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 describes the methods and assumptions we use in estimating fair values
of our financial instruments:
  Fair
value estimates are made as of a specific point in time based on estimates using
present value or other valuation techniques. These techniques involve
uncertainties and are significantly affected by the assumptions used and the
judgments made regarding risk characteristics of various financial instruments,
discount rates, estimate of future cashflows, future expected loss experience
and other factors.
  Changes
in assumptions could significantly affect these estimates and the resulting fair
values. Derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in an immediate
sale of the instrument. Also, because of differences in methodologies and
assumptions used to estimate fair values, the fair values used by us should not
be compared to those of other companies.
  The fair
values of the Company's residential mortgage-backed securities are generally
based on market prices provided by five to seven dealers who make markets in
these financial instruments. If the fair value of a 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 on
available market information.
  The fair
value of mortgage loans held for in securitization trusts is estimated using
pricing models and taking into consideration the aggregated characteristics of
groups of loans such as, but not limited to, collateral type, index, interest
rate, margin, length of fixed-rate period, life cap, periodic cap, underwriting
standards, age and credit estimated using the estimated market prices for
similar types of loans. Due to significant market dislocation secondary market
prices were given minimal weighting when arriving at loan valuations at June 30,
2009 and December 31, 2008.
 
 The fair
value of these collateralized debt obligations is based on discounted cashflows
as well as market pricing on comparable collateralized debt
obligations.
 
 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.
  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.
The management of interest rate risk attempts to maximize earnings and to
preserve capital by minimizing the negative impacts of changing market rates,
asset and liability mix, and prepayment activity.
 
 The table
below presents the sensitivity of the market value and net duration
changes of our portfolio as of June 30, 2009, 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.
 
 42
  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.
  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 ChangesChanges in
                                                                      Interest Rates
                                                                    
                                                                    Changes in
                                                                      Market Value
                                                                    
                                                                    Net
                                                                      Duration(Amount in thousands)+200
                                                                    
                                                                    $
      (5,058
                                                                    )
                                                                    
                                                                    1.00 years+100
                                                                    
                                                                    $
      (2,506
                                                                    )
                                                                    
                                                                    0.75 yearsBase
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    0.36 years-100
                                                                    
                                                                    $  1,274
                                                                    
                                                                    
                                                                    0.24 years
  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.
 
 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 Chief
Executive Officer and 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 June 30,
2009.  Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of June 30, 2009.
  Changes in Internal Control over
Financial Reporting - There has been no change in our internal control
over financial reporting during the quarter ended June 30, 2009 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
 
 43
  PART
II.  OTHER INFORMATION
  Item
1A.  Risk Factors
  There
have been no material changes to the risk factors disclosed in Item 1A. “Risk
Factors” in the Company’s Annual Report on Form 10-K for the year ended December
31, 2008.
  Item
4.  Submission of Matters to a Vote of Security Holders
  Results
of 2009 Annual Meeting of Stockholders
 
 The
Company’s 2009 Annual Meeting of Stockholders (the “Annual Meeting”) was held in
New York, New York on Tuesday, June 9, 2009. The information below is a summary
of the voting results for the three proposals that were considered and voted
upon at the meeting.
 
 Election
of Directors
 
 Each of
the individuals listed below was duly elected as a director of the Company to
serve until the 2010 Annual Meeting of Stockholders or until his successor is
duly elected and qualified.  Set forth below are the results of the
vote for the election of directors:
 
 Name
                  
                  Votes For
                  
                  Votes WithheldSteven
      M. Abreu
                  
                  9,626,529
                  
                  16,533James
      J. Fowler
                  
                  9,627,579
                  
                  16,483Alan
      L. Hainey
                  
                  9,627,182
                  
                  16,880Steven
      R. Mumma
                  
                  9,627,003
                  
                  17,059Steven
      G. Norcutt
                  
                  9,627,180
                  
                  16,882
 
 Other
Business
 
 At the
Annual Meeting, the Company’s stockholders approved an amendment to the
Company’s charter and ratified the appointment of Deloitte & Touche LLP as
the Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2009. A complete description of each of these proposals is
included in the Company’s definitive proxy statement filed with the SEC on April
28, 2009.  Set forth below are the results of the shareholder vote on
these proposals.
 
 Proposal
                    
                    Votes For
                    
                    Votes
      Against
                    
                    AbstentionsCharter
      Amendment
                    
                    8,094,394
                    
                    1,372,061
                    
                    177,601Ratification
      of Accountants for 2009
                    
                    9,634,048
                    
                    3,551
                    
                    6,462
  Item
6. Exhibits
  The
information set forth under “Exhibit Index” below is incorporated herein by
reference.
  44
  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:
      August 7, 2009
                    By:
                    /s/
      Steven R. MummaSteven
      R. Mumma
                      Chief
      Executive Officer, President and Chief Financial Officer
                      (Principal
      Executive Officer and Principal Financial
  Officer)
  45
  EXHIBIT
INDEX
  Exhibit
                  
                  Description3.1(a)
                  
                  Articles
      of Amendment and Restatement of New York Mortgage Trust, Inc.
      (Incorporated by reference to Exhibit 3.1 to the Company’s Registration
      Statement on Form S-11 as filed with the Securities and Exchange
      Commission (Registration No. 333-111668), effective June 23,
      2004).3.1(b)
                  
                  Articles
      of Amendment of the Registrant (Incorporated by reference to Exhibit 3.1
      to the Company’s 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 the Company’s 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 the Company’s 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 the Company’s Current Report on Form 8-K filed on May 16,
      2008).3.1(f)
                  
                  Articles
      of Amendment of the Registrant (Incorporated by reference to Exhibit
      3.1(f) to the Company’s Current Report on Form 8-K filed on June 15,
      2009).3.2(a)
                  
                  Bylaws
      of New York Mortgage Trust, Inc. (Incorporated by reference to Exhibit 3.2
      to the Company’s Registration Statement on Form S-11 as filed with the
      Securities and Exchange Commission (Registration No. 333-111668),
      effective June 23, 2004).3.2(b)
                  
                  Amendment
      No. 1 to Bylaws of New York Mortgage Trust, Inc. (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 4.1 to
      the Company’s Registration Statement on Form S-11 as filed with the
      Securities and Exchange Commission (Registration No. 333-111668),
      effective June 23, 2004).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 the
      Company’s Current Report on Form 8-K as filed with the Securities and
      Exchange Commission 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 the
      Company’s Current Report on Form 8-K as filed with the Securities and
      Exchange Commission 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
                  
                  Section
      302 Certification of Chief Executive Officer and Chief Financial
      Officer.*32.1
                  
                  Section
      906 Certification of Chief Executive Officer and Chief Financial
      Officer.*