**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**







x QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR
      15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      quarterly period ended September 30, 2007




OR




o TRANSITION
      REPORT PURSUANT TO SECTION 13 OR
      15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      transition period from  to




Commission
      file number **001-32216**





**NEW
      YORK MORTGAGE TRUST, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




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




**1301
      Avenue of the Americas, New York, New York 10019**


(Address
      of Principal Executive Office) (Zip Code)




**(212)
      792-0107**


(Registrant's
      Telephone Number, Including Area Code)







Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No o




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




Large
                Accelerated Filero
            Accelerated
                Filerx
            Non-Accelerated
                Filero




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


Yes o No x




The
      number of shares of the registrant's common stock, par value $.01 per share,
      outstanding on November 5, 2007 was 3,640,209.










**NEW
      YORK MORTGAGE TRUST, INC.**


**FORM
      10-Q**





**Page****Part
                I. Financial Information**
            
            
            3Item
                1. Consolidated Financial Statements (unaudited):
            
            
            3Consolidated
                Balance Sheets
            
            
            3Consolidated
                Statements of Operations
            
            
            4Consolidated
                Statements of Stockholders' Equity
            
            
            5Consolidated
                Statements of Cash Flows
            
            
            6Notes
                to Consolidated Financial Statements
            
            
            8Item
                2. Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations
            
            
            29Forward
                Looking Statement Effects
            
            
            29General
            
            
            30Presentation
                Format
            
            
            31Strategic
                Overview
            
            
            31Financial Overview
            
            
            32Description
                of Business
            
            
            33Known
                Material Trends and Commentary
            
            
            33Significance
                of Estimates and Critical Accounting Policies
            
            
            34Overview
                of Performance
            
            
            37Summary
                of Operations and Key Performance Measurements
            
            
            37Financial
                Condition
            
            
            37Balance
                Sheet Analysis - Asset Quality
            
            
            38Balance
                Sheet Analysis - Financing Arrangements
            
            
            44Balance
                Sheet Analysis - Stockholders' Equity
            
            
            45Securitizations
            
            
            45Prepayment
                Experience
            
            
            46Results
                of Operations
            
            
            46Results
                of Operations - Comparison of nine months ended September 30, 2007
                and
                September 30, 2006
            
            
            47Off-
                Balance Sheet Arrangements
            
            
            50Liquidity
                and Capital Resources
            
            
            50Inflation
            
            
            51Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            
            
            52Interest
                Rate Risk
            
            
            52Market
                (Fair Value) Risk
            
            
            54Credit
                Spread Risk
            
            
            56Liquidity
                and Funding Risk
            
            
            56Prepayment
                Risk
            
            
            57Credit
                Risk
            
            
            57Item
                4. Controls and Procedures
            
            
            57**Part
                II. Other Information**
            
            
            58Item
                1. Legal Proceedings
            
            
            58Item
                1A. Risk Factors
            
            
            58Item
                6. Exhibits
            
            
            60Signatures
            
            
            61





2




**PART
      I: FINANCIAL INFORMATION**


Item
      1.
      Financial Statements


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


**CONSOLIDATED
      BALANCE SHEETS**


(dollar
      amounts in thousands)




**September 30,2007**
            
            **December 31,**
              **2006****(unaudited)**
            
            ******ASSETS**Cash
                and cash equivalents
            
            $
            11,144
            
            $
            969Restricted
                cash
            
            
            6,030
            
            
            3,151Investment
                securities - available for sale
            
            
            359,872
            
            
            488,962Accounts
                and accrued interest receivable
            
            
            4,915
            
            
            5,189Mortgage
                loans held in securitization trusts
            
            
            458,968
            
            
            588,160Prepaid
                and other assets
            
            
            2,411
            
            
            20,951Derivative
                assets
            
            
            977
            
            
            2,632Property
                and equipment (net)
            
            
            76
            
            
            89Assets
                related to discontinued operation
            
            
            9,883
            
            
            212,805**Total
                Assets**
            
            $
            854,276
            
            $
            1,322,908**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Liabilities:**Financing
                arrangements, portfolio investments
            
            $
            327,877
            
            $
            815,313Collateralized
                debt obligations
            
            
            444,204
            
            
            197,447Derivative
                liabilities
            
            
            1,601
            
            
            -Accounts
                payable and accrued expenses
            
            
            5,003
            
            
            5,871Subordinated
                debentures
            
            
            45,000
            
            
            45,000Liabilities
                related to discontinued operation
            
            
            5,600
            
            
            187,705Total
                liabilities
            
            
            829,285
            
            
            1,251,336**Commitments
                and Contingencies**(note 9)**Stockholders'
                Equity:**Common
                stock, $0.01 par value, 400,000,000 shares authorized, 3,635,854
                sharesissued
                and outstanding at September 30, 2007 and 3,665,037 sharesissued
                and 3,615,576 outstanding at December 31, 2006
            
            
            36
            
            
            37Additional
                paid-in capital
            
            
            99,277
            
            
            99,655Accumulated
                other comprehensive loss
            
            
            (10,930
            )
            
            (4,381
            )Accumulated
                deficit
            
            
            (63,392
            )
            
            (23,739
            )Total
                stockholders' equity
            
            
            24,991
            
            
            71,572**Total
                Liabilities and Stockholders' Equity**
            
            $
            854,276
            
            $
            1,322,908




*See
      notes to consolidated financial statements.*




3





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




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(amounts
      in thousands, except per share data)





**For the Three Months Ended**
              **September 30,**
            
            **For the Nine Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**REVENUE:Interest
                income investment securities and loans held in securitization
                trusts
            
            $
            12,376
            
            $
            16,998
            
            $
            38,987
            
            $
            50,050Interest
                expense investment securities and loans held in securitization
                trusts
            
            
            11,212
            
            
            15,882
            
            
            36,188
            
            
            42,320Net
                interest income from investment securities and loans held in
                securitization trusts
            
            
            1,164
            
            
            1,116
            
            
            2,799
            
            
            7,730Interest
                expense - subordinated debentures
            
            
            895
            
            
            877
            
            
            2,671
            
            
            2,656Net
                interest income
            
            
            269
            
            
            239
            
            
            128
            
            
            5,074OTHER
                EXPENSE:Realized
                (loss)/gain on sale of investment securities
            
            
            (1,013
            )
            
            440
            
            
            (4,834
            )
            
            (529
            )Loan
                loss reserve on loans held in securitization trusts
            
            
            (99
            )
            
            -
            
            
            (1,039
            )Total
                other (expense) income
            
            
            (1,112
            )
            
            440
            
            
            (5,873
            )
            
            (529
            )EXPENSES:Salaries
                and benefits
            
            
            178
            
            
            166
            
            
            674
            
            
            618Marketing
                and promotion
            
            
            37
            
            
            20
            
            
            99
            
            
            54Data
                processing and communications
            
            
            50
            
            
            58
            
            
            143
            
            
            177Professional
                fees
            
            
            266
            
            
            82
            
            
            471
            
            
            447Depreciation
                and amortization
            
            
            93
            
            
            131
            
            
            242
            
            
            398Allowance
                for deferred tax asset
            
            
            18,352
            
            
            -
            
            
            18,352
            
            
            -Other
            
            
            222
            
            
            (46
            )
            
            393
            
            
            177Total
                expenses
            
            
            19,198
            
            
            411
            
            
            20,374
            
            
            1,871(LOSS)
                INCOME FROM CONTINUING OPERATIONS
            
            
            (20,041
            )
            
            268
            
            
            (26,119
            )
            
            2,674Loss
                from discontinued operation - net of tax
            
            
            (675
            )
            
            (4,136
            )
            
            (13,534
            )
            
            (8,160
            )NET
                LOSS
            
            $
            (20,716
            )
            $
            (3,868
            )
            $
            (39,653
            )
            $
            (5,486
            )Basic
                and diluted loss per share
            
            $
            (5.70
            )
            $
            (1.07
            )
            $
            (10.94
            )
            $
            (1.53
            )Weighted
                average shares outstanding-basic and diluted
            
            
            3,636
            
            
            3,605
            
            
            3,625
            
            
            3,595




*See
      notes to consolidated financial statements.*




4




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




**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY**


**For
                    the Nine Months Ended September 30, 2007****Common
                    Stock**
                
                **Additional
                    Paid-In Capital**
                
                **Stockholders'
                    Deficit**
                
                **Accumulated
                    Other Comprehensive Loss**
                
                **Comprehensive
                    Loss**
                
                **Total**(dollar
                    amounts in thousands)(unaudited)**Balance, January
                    1, 2007 -**Stockholders'
                    Equity
                
                $
                37
                
                $
                99,655
                
                $
                (23,739
                )
                $
                (4,381
                )
                
                
                
                $
                71,572Net
                    loss
                
                
                
                
                
                
                
                
                (39,653
                )
                
                
                
                $
                (39,653
                )
                
                (39,653
                )Dividends
                    declared
                
                
                
                
                
                (909
                )
                
                
                
                
                
                
                
                
                
                
                (909
                )Vested
                    restricted stock
                
                
                (1
                )
                
                531
                
                
                
                
                
                
                
                
                
                
                
                530Increase
                    in net unrealized loss onavailable
                    for sale securities
                
                
                
                
                
                
                
                
                
                
                
                (3,891
                )
                
                (3,891
                )
                
                (3,891
                )Increase in
                    net unrealized gain on derivative instruments
                
                
                
                
                
                
                
                
                
                
                
                (2,658
                )
                
                (2,658
                )
                
                (2,658
                )Comprehensive
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                (46,202
                )**Balance,
                    September 30, 2007 -**Stockholders'
                    Equity
                
                $
                36
                
                $
                99,277
                
                $
                (63,392
                )
                $
                (10,930
                )
                
                
                
                $
                24,991




*See
      notes to consolidated financial statements.*




5


)




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




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**For
                  the Nine Months Ended**
                **September
                  30,****2007**
              
              **2006**(dollar
                  amounts in thousands)
                (unaudited)**Cash
                  Flows from Operating Activities:**Net
                  loss
              
              $
              (39,653
              )
              $
              (5,486
              )Adjustments
                  to reconcile net loss to net cash provided by (used
                  in) operating activities:Depreciation
                  and amortization
              
              
              683
              
              
              1,625Amortization
                  of premium on investment securities and mortgage loans
              
              
              1,602
              
              
              1,962Purchase
                  of mortgage loans held for sale
              
              
              -
              
              
              (222,907
              )Origination
                  of mortgage loans held for sale
              
              
              (300,863
              )
              
              (1,402,457
              )Proceeds
                  from sales of mortgage loans
              
              
              398,807
              
              
              1,621,438Restricted
                  stock compensation expense
              
              
              529
              
              
              734Loss
                  on sale of securities and related hedges
              
              
              4,834
              
              
              529Loss
                  on sale of securitized loans
              
              
              -
              
              
              747Gain
                  on sale of retail lending segment
              
              
              (4,525
              )
              
              -Allowance
                  for deferred tax asset / tax (benefit)
              
              
              18,352
              
              
              (8,494
              )Change
                  in value of derivatives
              
              
              550
              
              
              110Minority
                  interest expense
              
              
              12
              
              
              (30
              )Loan
                  losses
              
              
              6,648
              
              
              3,289Loss
                  on disposal of fixed assets
              
              
              505
              
              
              -Changes
                  in operating assets and liabilities:Due
                  from loan purchasers
              
              
              88,351
              
              
              (11,137
              )Escrow
                  deposits - pending loan closings
              
              
              3,814
              
              
              (188
              )Accounts
                  and accrued interest receivable
              
              
              2,183
              
              
              5,610Prepaid
                  and other assets
              
              
              2,526
              
              
              (3,036
              )Due
                  to loan purchasers
              
              
              (11,721
              )
              
              8,875Accounts
                  payable and accrued expenses
              
              
              (4,116
              )
              
              (6,802
              )Other
                  liabilities
              
              
              (131
              )
              
              (385
              )Net
                  cash provided by (used in) operating activities:
              
              
              168,387
              
              
              (16,003
              )**Cash
                  Flows from Investing Activities:**Restricted
                  cash
              
              
              (2,879
              )
              
              3,489Net
                  purchase of investment securities
              
              
              14,942
              
              
              (388,398
              )Proceeds
                  from sale of retail lending platform
              
              
              12,936
              
              
              452,780Principal
                  repayments received on mortgage loans held in securitization
                  trusts
              
              
              127,301
              
              
              151,450Principal
                  paydown on investment securities
              
              
              104,875
              
              
              126,203Purchases
                  of property and equipment
              
              
              (396
              )
              
              (1,373
              )Disposal
                  of fixed assets
              
              
              485
              
              
              -Net
                  cash provided by investing activities
              
              
              257,264
              
              
              344,151**Cash
                  Flows from Financing Activities:**Repurchase
                  of common stock
              
              
              -
              
              
              (300
              )Change
                  in financing arrangements
              
              
              (413,650
              )
              
              (321,120
              )Dividends
                  paid
              
              
              (1,826
              )
              
              (8,947
              )Capital
                  Contributions from minority interest member
              
              
              -
              
              
              42Net
                  cash used in financing activities
              
              
              (415,476
              )
              
              (330,325
              )




*See
      notes to consolidated financial statements.*




6




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




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




****
              
              **For
                  the Nine Months Ended September 30,****2007**
              
              **2006**(dollar
                  amounts in thousands)(unaudited)**Net
                  Increase (Decrease) in Cash and Cash
                  Equivalents**
              
              
              10,175
              
              
              (2,177
              )**Cash
                  and Cash Equivalents - Beginning of Period**
              
              
              969
              
              
              9,056**Cash
                  and Cash Equivalents - End of Period**
              
              $
              11,144
              
              $
              6,879**Supplemental
                  Disclosure**Cash
                  paid for interest
              
              $
              41,338
              
              $
              68,398**Non
                  Cash Financing Activities**Dividends
                  declared to be paid in subsequent period
              
              $
              -
              
              $
              2,566




*See
      notes to consolidated financial statements.*




7


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2007**
 **(unaudited)**





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





*Organization* -
      New
      York Mortgage Trust, Inc. (“NYMT” or the “Company”) is a self-advised real
      estate investment trust ("REIT") that invests in and manages a portfolio of
      mortgage loans and mortgage-backed securities.





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.





Until
      March 31, 2007, the company operated a mortgage lending business through its
      wholly-owned subsidiary, Hypotheca Capital, LLC (formerly known as The New
      York
      Mortgage Company, LLC) (“HC”).





On
      March
      31, 2007, we completed the sale of substantially all of the operating assets
      related to HC's retail mortgage lending platform to IndyMac Bank, F.S.B.
      (“Indymac”), a wholly-owned subsidiary of Indymac Bancorp, Inc. On February 22,
      2007, we completed the sale of substantially all of the operating assets related
      to HC's wholesale mortgage lending platform to Tribeca Lending Corp.
      (“Tribeca Lending”), a wholly-owned subsidiary of Franklin Credit Management
      Corporation.




Subsequent
          to its exit from the mortgage origination business, the Company has continued
          the process of exploring strategic alternatives while continuing its passive
          REIT strategy. There can be no assurances that the Company will be successful
          in
          entering into a strategic alternative. Should the Company be unsuccessful
          in
          doing so, it will operate at a higher expense ratio relative to its peers,
          and
          will have to reevaluate its long term viability.


In
      connection with the sale of the assets of our wholesale mortgage origination
      platform assets on February 22, 2007 and the sale of the assets of our retail
      mortgage lending platform on March 31, 2007, during the fourth quarter of 2006,
      we classified our mortgage lending segment as a discontinued operation in
      accordance with the provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived
      Assets”. As a result, we have reported revenues and expenses related to the
      segment as a discontinued operation and the related assets and liabilities
      as
      assets and liabilities related to the discontinued operation for all periods
      presented in the accompanying consolidated financial statements. Certain assets,
      such as the deferred tax asset, and certain liabilities, such as subordinated
      debt and liabilities related to leased facilities not assigned to Indymac or
      Tribeca Lending, will become part of the ongoing operations of NYMT and
      accordingly, have not been classified as a discontinued operation in accordance
      with the provisions of SFAS No. 144. (See note 8)





While
      the
      Company sold substantially all of the assets of its wholesale and retail
      mortgage lending platforms and exited the mortgage lending business as of March
      31, 2007, it retains certain liabilities associated with that former line of
      business. Among these liabilities are the costs associated with the disposal
      of
      the mortgage loans held for sale, potential repurchase and
      indemnification obligations (including early payment defaults) on
      previously sold mortgage loans and remaining lease payment obligations on real
      and personal property not assigned as part of those transactions.




*Basis
      of Presentation* -
      The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries. All inter-company accounts and transactions are eliminated in
      consolidation. Certain prior period amounts have been reclassified to conform
      to
      current period classifications. In addition, certain previously reported
      discontinued operation balances have been reclassified to continuing operations,
      including $1.1 million in restricted cash, a $1.0 million derivative asset
      balance related to interest rate caps, $0.1 million in property and equipment
      net and $0.3 million in accounts payable and accrued expenses.




The
        accompanying financial statements should be read in conjunction with the
        financial statements and notes thereto included in the Company’s Annual Report
        on Form 10-K for the year ended December 31, 2006. In the opinion of management,
        all normal and recurring adjustments necessary to present fairly the financial
        condition of the Company at September 30, 2007 and results of operations
        for all
        periods presented have been made. The results of operations for the nine-month
        period ended September 30, 2007 should not be construed as indicative of
        the
        results to be expected for the full year.




As
      used
      herein, references to the “Company,” “NYMT,” “we,” “our” and “us” refer to New
      York Mortgage Trust, Inc., collectively with its subsidiaries.





The
      Board
      of Directors declared a one for five reverse stock split of our common
      stock, providing shareholders of record as of October 9, 2007, with one share
      of
      common stock for each five shares owned of record as of October 7, 2007 (the
      "Reverse Stock Split"). The reduction in shares resulting from the reverse
      stock
      split was effective on October 9, 2007, decreasing the number of common shares
      outstanding to approximately 3.6 million. Prior year share amounts and earnings
      per share disclosures have been restated to reflect the reverse stock
      split.




8


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2007**
 **(unaudited)**




*Use
      of Estimates* -
      The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America (“GAAP”) requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent liabilities at the date of the
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. The Company's estimates and assumptions primarily arise
      from risks and uncertainties associated with interest rate volatility,
      prepayment volatility and credit exposure. Although management is not currently
      aware of any factors that would significantly change its estimates and
      assumptions in the near term, future changes in market conditions may occur
      which could cause actual results to differ materially.





*Cash
      and Cash Equivalents* -
      Cash
      and cash equivalents include cash on hand, amounts due from banks and overnight
      deposits. The Company maintains its cash and cash equivalents in highly rated
      financial institutions, and at times these balances exceed insurable
      amounts.





*Restricted
      Cash* -
      Restricted cash includes amounts held by counterparties as collateral for
      hedging instruments, amounts held as collateral for two letters of credit
      related to the Company's lease of office space, including its corporate
      headquarters and amounts held in an escrow account to support warranties and
      indemnifications related to the sale of the retail mortgage lending platform
      to
      Indymac.





*Investment
      Securities - Available for Sale* -
      The
      Company's investment securities are residential mortgage-backed securities
      comprised of Fannie Mae (“FNMA”), Freddie Mac (“FHLMC” and together with
      FNMA, referred to as “Agency”)
      securities and “AAA”- rated adjustable-rate securities, including
      adjustable-rate loans that have an initial fixed-rate period. Investment
      securities are classified as available for sale securities and are reported
      at
      fair value with unrealized gains and losses reported in other comprehensive
      income (“OCI”). Realized gains and losses recorded on the sale of investment
      securities available for sale are based on the specific identification method
      and included in gain on sale of securities and related hedges. Purchase premiums
      or discounts on investment securities are accreted or amortized to interest
      income over the estimated life of the investment securities using the interest
      method. Investment securities may be subject to interest rate, credit and/or
      prepayment risk.




When
      the
      fair value of an available for sale security is less than amortized cost,
      management considers whether there is an other-than-temporary impairment in
      the
      value of the security (e.g., whether the security will be sold prior to the
      recovery of fair value). Management considers at a minimum the following factors
      that, both individually or in combination, could indicate the decline is
“other-than-temporary:” 1) the length of time and extent to which the market
      value has been less than book value; 2) the financial condition and near-term
      prospects of the issuer; or 3) the intent and ability of the Company to
      retain the investment for a period of time sufficient to allow for any
      anticipated recovery in market value. If, in management's judgment, an
      other-than-temporary impairment exists, the cost basis of the security is
      written down to the then-current fair value, and the unrealized loss is
      transferred from accumulated other comprehensive income as an immediate
      reduction of current earnings (i.e., as if the loss had been realized in the
      period of impairment). Even though no credit concerns exist with respect to
      an
      available for sale security, an other-than-temporary impairment may be evident
      if management determines that the Company does not have the intent and ability
      to hold an investment until a forecasted recovery of the value of the
      investment.




*Accounts
      and Accrued Interest Receivable* -
      Accounts and accrued interest receivable includes accrued interest receivable
      for investment securities and mortgage loans held in securitization
      trusts.





*Mortgage
      Loans Held in Securitization Trusts* -
      Mortgage loans held in securitization trusts are certain first-lien adjustable
      rate mortgage (“ARM”) loans transferred to New York Mortgage Trust 2005-1, New
      York Mortgage Trust 2005-2 and New York Mortgage Trust 2005-3 that have been
      securitized into sequentially rated classes of beneficial interests. Mortgage
      loans held in securitization trusts are recorded at amortized cost, using the
      same accounting principles as those used for mortgage loans held for
      investment.  (see note 3)  From time to time the Company may sell
      certain securities from its securitizations resulting in a permanent financing.
      See Collateralized Debt Obligations below for further description.




9


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2007**
 **(unaudited)**




Interest
      income is accrued and recognized as revenue when earned according to the terms
      of the mortgage loans and when, in the opinion of management, it is collectible.
      The accrual of interest on loans is discontinued when, in management's opinion,
      the interest is not collectible in the normal course of business, but in no
      case
      when payment becomes greater than 90 days delinquent. Loans return to accrual
      status when principal and interest become current and are anticipated to be
      fully collectible.





*Loan
      Loss Reserves on Mortgage Loans Held in Securitization Trusts-* We establish a reserve for loan losses based on management's judgment and
      estimate of credit losses inherent in our portfolio of mortgage loans held
      in
      securitization trusts.




Loss
      estimations involve the consideration of various credit-related factors
      including but not limited to, macro-economic conditions, the current housing
      market conditions, loan-to-value ratios, delinquency status, historical credit
      loss severity rates, purchased mortgage insurance, the borrower's credit and
      other factors deemed to warrant consideration. Additionally, we look at the
      balance of any delinquent loan and compare that to the value of the property.
      We
      utilize various internet based property data services to look at comparable
      properties in the same area or consult with a realtor in the property's area
      to
      determine the property’s value.




Comparing
      the current loan balance to the property value determines the current
      loan-to-value (“LTV”) ratio of the loan. Generally, we estimate that a first
      lien loan on a property that goes into a foreclosure process and becomes real
      estate owned (“REO”), results in the property being disposed of at approximately
      68% of the property's value. This estimate is based on management's long term
      experience in similar market conditions. Thus, for a first lien loan that is
      delinquent, we will adjust the property value down to approximately 68% of
      the
      property value and compare that to the current balance of the loan. The
      difference, determines the base reserve taken for that loan. This base reserve
      for a particular loan may be adjusted if we are aware of specific circumstances,
      including the uncertain market conditions that may affect the outcome of
      the loss mitigation process for that loan. Predominately, however, we use the
      base reserve number for our reserve.




At
      September 30, 2007, we had a loan loss reserve of $1.0 million on mortgage
      loans
      held in securitization trusts. (see note 3)





*Property
      and Equipment (Net)* -
      Property and equipment have lives ranging from three to ten years, and are
      stated at cost less accumulated depreciation and amortization. Depreciation
      is
      determined in amounts sufficient to charge the cost of depreciable assets to
      operations over their estimated service lives using the straight-line method.
      Leasehold improvements are amortized over the lesser of the life of the lease
      or
      service lives of the improvements using the straight-line method. (see note
      4)




*Financing
      Arrangements, Portfolio Investments* -
      Portfolio investments are typically financed with repurchase agreements, a
      form
      of collateralized borrowing which is secured by portfolio securities on the
      balance sheet. Such financings are recorded at their outstanding principal
      balance with any accrued interest due recorded as an accrued expense. (see
      note
      6)





*Collateralized
      Debt Obligations* -
      CDOs
      are securities that are issued and secured by first-lien ARM loans. For
      financial reporting purposes, the first-lien ARM loans held as collateral are
      recorded as assets of the Company and the CDO is recorded as the Company's
      debt.
      Our CDO securitization transactions include interest rate caps which are held
      by
      the securitization trust and recorded as an asset or liability of the Company.
      (see note 7)





The
      Company, as transferor, securitizes mortgage loans and securities by
      transferring the loans or securities to entities (“Transferees”) which generally
      qualify under GAAP as “qualifying special purpose entities” (“QSPE's”) as
      defined under SFAS No. 140, “Accounting for Transfers and Servicing of
      Financial Assets and Extinguishment of Liabilities-a replacement of FASB
      Statement No. 125 (“Off Balance Sheet Securitizations”)”. The QSPEs issue
      investment grade and non-investment grade securities. Generally, the investment
      grade securities are sold to third party investors, and the Company retains
      the
      non-investment grade securities. If a transaction meets the requirements for
      sale recognition under GAAP, and the Transferee meets the requirements to be
      a
      QSPE, the assets transferred to the QSPE are considered sold, and gain or loss
      is recognized. The gain or loss is based on the price of the securities sold
      and
      the estimated fair value of any securities and servicing rights retained over
      the cost basis of the assets transferred net of transaction costs. If
      subsequently the Transferee fails to continue to qualify as a QSPE, or the
      Company obtains the right to purchase assets out of the Transferee, then the
      Company may have to include in its financial statements such assets, or
      potentially, all the assets of such Transferee.





*Derivative
      Financial Instruments* -
      The
      Company has developed risk management programs and processes, which include
      investments in derivative financial instruments designed to manage market risk
      associated with its mortgage-backed securities investment
      activities.




10


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2007**
 **(unaudited)**






Derivative
        instruments contain an element of risk in the event that the counterparties
        may
        be unable to meet the terms of such agreements. The Company minimizes its
        risk
        exposure by limiting the counterparties with which it enters into contracts
        to
        banks, investment banks and certain private investors who meet established
        credit and capital guidelines. Management does not expect any counterparty
        to
        default on its obligations and, therefore, does not expect to incur any loss
        due
        to counterparty default. These commitments and option contracts are considered
        in conjunction with the Company's valuation of its mortgage loans held for
        sale.
  The
        Company uses other derivative instruments, including treasury, Agency or
        mortgage-backed securities forward sale contracts which are also classified
        as
        free-standing, undesignated derivatives and thus are recorded at fair value
        with
        the changes in fair value recognized in current earnings.
  *Interest
        Rate Risk* -
        The
        Company hedges the aggregate risk of interest rate fluctuations with respect
        to
        its borrowings, regardless of the form of such borrowings, which require
        payments based on a variable interest rate index. The Company generally intends
        to hedge only the risk related to changes in the benchmark interest rate
        (London
        Interbank Offered Rate (“LIBOR”) or a Treasury rate).
 
 In
        order
        to reduce such risks, the Company enters into swap agreements whereby the
        Company receives floating rate payments in exchange for fixed rate payments,
        effectively converting the borrowing to a fixed rate. The Company also enters
        into cap agreements whereby, in exchange for a fee, the Company is reimbursed
        for interest paid in excess of a certain capped rate.




11


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2007**
 **(unaudited)**




To
      qualify for cash flow hedge accounting, interest rate swaps and caps must meet
      certain criteria, including:




·
            the
                items to be hedged expose the Company to interest rate risk;
                and




·
            the
                interest rate swaps or caps are expected to be and continue to be
                highly
                effective in reducing the Company's exposure to interest rate
                risk.




The
      fair
      values of the Company's interest rate swap agreements and interest rate cap
      agreements are based on market values provided by dealers who are familiar
      with
      the terms of these instruments. Correlation and effectiveness are periodically
      assessed at least quarterly based upon a comparison of the relative changes
      in
      the fair values or cash flows of the interest rate swaps and caps and the items
      being hedged.





For
      derivative instruments that are designated and qualify as a cash flow hedge
      (i.e. hedging the exposure to variability in expected future cash flows that
      is
      attributable to a particular risk), the effective portion of the gain or loss
      on
      the derivative instruments are reported as a component of OCI and reclassified
      into earnings in the same period or periods during which the hedged transaction
      affects earnings. The remaining gain or loss on the derivative instruments
      in
      excess of the cumulative change in the present value of future cash flows of
      the
      hedged item, if any, is recognized in current earnings during the period of
      change.





With
      respect to interest rate swaps and caps that have not been designated as hedges,
      any net payments under, or fluctuations in the fair value of, such swaps and
      caps, will be recognized in current earnings.





*Termination
      of Hedging Relationships* -
      The
      Company employs a number of risk management monitoring procedures to ensure
      that
      the designated hedging relationships are demonstrating, and are expected to
      continue to demonstrate, a high level of effectiveness. Hedge accounting is
      discontinued on a prospective basis if it is determined that the hedging
      relationship is no longer highly effective or expected to be highly effective
      in
      offsetting changes in fair value of the hedged item.





Additionally,
      the Company may elect to un-designate a hedge relationship during an interim
      period and re-designate upon the rebalancing of a hedge profile and the
      corresponding hedge relationship. When hedge accounting is discontinued, the
      Company continues to carry the derivative instruments at fair value with changes
      recorded in current earnings.





*Other
      Comprehensive Income* -
      Other
      comprehensive income is comprised primarily of the impact of changes in value
      of
      the Company's available for sale securities, and the impact of deferred gains or
      losses on changes in the fair value of derivative contracts hedging future
      cash
      flows.




*Employee
        Benefits Plans* -
        The
        Company sponsors a defined contribution plan (the “Plan”) for all eligible
        domestic employees. The Plan qualifies as a deferred salary arrangement under
        Section 401(k) of the Internal Revenue Code. Under the Plan, participating
        employees may defer up to 15% of their pre-tax earnings, subject to the annual
        Internal Revenue Code contribution limit. The plan provides that
        the Company may match contributions up to a maximum of 25% of the
        first 5% of salary. Employees vest immediately in their contribution and
        vest in
        the Company's contribution at a rate of 25% after two full years and then
        an
        incremental 25% per full year of service until fully vested at 100% after
        five
        full years of service. The Company's total contributions to the Plan were
        $18,495 and $0.3 million for the nine month periods ended September 30, 2007
        and
        2006 respectively.
  *Stock
        Based Compensation* -
        The
        Company accounts for its stock options and restricted stock grants in accordance
        with SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”) which requires
        all companies to measure compensation costs for all share-based payments,
        including employee stock options, at fair value. (see note 14)


12




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**




*Income
      Taxes* -
      The
      Company operates so as to qualify as a REIT under the requirements of the
      Internal Revenue Code. Requirements for qualification as a REIT include various
      restrictions on ownership of the Company's stock, requirements concerning
      distribution of taxable income and certain restrictions on the nature of assets
      and sources of income. A REIT must distribute at least 90% of its taxable income
      to its stockholders of which 85% plus any undistributed amounts from the prior
      year must be distributed within the taxable year in order to avoid the
      imposition of an excise tax. The remaining balance may extend until timely
      filing of the Company's tax return in the subsequent taxable year. Qualifying
      distributions of taxable income are deductible by a REIT in computing taxable
      income.  (see note 12)





HC is
      a taxable REIT subsidiary and therefore, is subject to corporate Federal income
      taxes. Accordingly, deferred tax assets and liabilities are recognized for
      the
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax base upon the change in tax status. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date. The Company has fully reserved its deferred tax asset at
      September 30, 2007 due to the uncertainty surrounding the asset's
      utilization.





*Earnings
      Per Share* -
      Basic
      earnings per share excludes dilution and is computed by dividing net income
      available to common stockholders by the weighted-average number of shares of
      common stock outstanding for the period. Diluted earnings per share reflects
      the
      potential dilution that could occur if securities or other contracts to issue
      common stock were exercised or converted into common stock or resulted in the
      issuance of common stock that then shared in the earnings of the Company. (see
      note 15)




*Loan
        Loss Reserves on Repurchase Requests and Mortgage Under Indemnification
        Agreements- (Discontinued operation**-
        See note 8)* We
        establish reserves for loans we have been requested to repurchase from investors
        and for loans subject to indemnification agreements. Generally loans wherein
        the
        borrowers do not make each of all the first three payments to the new investor
        once the loan has been sold, require us, under the terms of purchase and
        sale
        agreement entered into with the investor, to repurchase the
        loan. During the three month period ended September 30, 2007, we
        received $1.0 million of new repurchase requests, while $0.5 million of existing
        repurchase requests were rescinded.
  During
          the three months ended September 30, 2007, we eliminated $18.4 million
          in
          repurchase requests by entering into settlement and release agreements
          with the
          parties requesting the repurchases. The settlements provided for a payment
          of a
          negotiated amount taking into account the loss incurred or otherwise borne
          by
          the loan purchaser in return for the elimination of the repurchase request,
          and
          in a majority of the cases, a release from all future claims due to EPDs,
          quality control issues, and indemnification obligations. As of September
          30,
          2007, we had $7.3 million in outstanding repurchase requests and a reserve
          of
          $0.6 million.
 
 From
          time
          to time, as an alternative to repurchasing loans, we sign indemnification
          agreements with loan investors. Generally these agreements specify that
          if a
          loan goes delinquent and the investor realizes a loss as a result of
          foreclosure, the Company will reimburse the investor for their loss. As
          of June
          30, 2007, we had outstanding indemnification agreements on $7.4 million
          of
          mortgage loans, against which the Company had taken a reserve of $0.4 million.
          During the three months ended September 30, 2007, we entered into no new
          indemnification agreements and eliminated $5.3 million in existing
          indemnification obligations by entering into settlement and release agreements
          with the parties pertaining to repurchase requests. As of September 30,
          2007, we
          had outstanding indemnification agreements on $2.1 million of mortgage
          loans,
          against which the Company maintained a reserve of $0.4
          million.
  At
        September 30, 2007, we
        had
        $9.6 million of loans held for sale of whichwe had a loan loss reserve
        of $1.6 million. All of these items are included in discontinued operations.
        We
        had incurred $8.4 million of loan losses for the nine months ended
        September 30, 2007 as compared to $4.1 million for the same period for 2006.
        In
        addition, the Company incurred $0.2 million of loan losses for the three
        months
        ended September 30, 2007 as compared to $4.1 million for the same period
        in
        2006.




*Recent
      Accounting Pronouncements* -
      In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No.157”). SFAS No.157 defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles and expands disclosures
      about fair value measurements. SFAS No.157 will be applied under other
      accounting principles that require or permit fair value measurements, as this
      is
      a relevant measurement attribute. This statement does not require any new fair
      value measurements. We will adopt the provisions of SFAS No.157 beginning
      January 1, 2008. We are currently evaluating the impact of the adoption of
      this
      statement on our consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS No. 159”), which provides
      companies with an option to report selected financial assets and liabilities
      at
      fair value. The objective of SFAS No. 159 is to reduce both complexity in
      accounting for financial instruments and the volatility in earnings caused
      by
      measuring related assets and liabilities differently. SFAS No. 159 establishes
      presentation and disclosure requirements and requires companies to provide
      additional information that will help investors and other users of financial
      statements to more easily understand the effect of the Company's choice to
      use
      fair value on its earnings. SFAS No. 159 also requires entities to display
      the
      fair value of those assets and liabilities for which the Company has chosen
      to
      use fair value on the face of the balance sheet. SFAS No. 159 is effective
      for
      financial statements issued for fiscal years beginning after November 15, 2007.
      The Company is in the process of analyzing the impact of the adoption of SFAS
      No. 159 on our consolidated financial statements.




In
      June
      2007, the EITF reached consensus on Issue No. 06-11, *Accounting for Income Tax Benefits of Dividends on Share-Based Payment
      Awards* ("EITF
      06-11"). EITF 06-11 requires that the tax benefit related to dividend
      equivalents paid on restricted stock units, which are expected to vest, be
      recorded as an increase to additional paid-in capital. EITF 06-11 is to be
      applied prospectively for tax benefits on dividends declared in fiscal years
      beginning after December 15, 2007, and the Company expects to adopt the
      provisions of EITF 06-11 beginning in the first quarter of 2008. The Company
      is
      currently evaluating the potential effect on the consolidated financial
      statements of adopting EITF 06-11.




13


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





In
      June 2007, the AICPA issued SOP No. 07-1, *Clarification
      of the Scope of the Audit and Accounting Guide* *Investment
      Companies* *and
      Accounting by Parent Companies and Equity Method Investors for Investments
      in
      Investment Companies* (“SOP
      07-1”). SOP 07-1 addresses whether the accounting principles of the AICPA Audit
      and Accounting Guide **Investment
      Companies may
      be applied to an entity by clarifying the definition of an investment
      company and whether those accounting principles may be retained by a
      parent company in consolidation or by an investor in the application of the
      equity method of accounting. In October of 2007, the provisions of SOP 07-1
      were
      deferred indefinitely. The Company has not determined whether or not SOP 07-1
      will have an impact if it is ultimately implemented.




**2.
      Investment Securities Available for Sale**




Investment
      securities available for sale consist of the following as of September 30,
      2007
      and December 31, 2006 (dollar amounts in thousands):




****
            
            **September 30,**
              **2007**
            
            **December 31,**
              **2006******
            
            ****Amortized
                cost
            
            $
            367,578
            
            $
            492,777Gross
                unrealized gains
            
            
            47
            
            
            623Gross
                unrealized losses
            
            
            (7,753
            )
            
            (4,438
            )Fair
                value
            
            $
            359,872
            
            $
            488,962




The
      Company sold approximately $246.9 million of non-Agency ARM securities,
      including $225.4 million of lower yielding non-Agency ARM securities
      previously designated as impaired, with a reserve of $3.8 million. The Company
      incurred an additional net loss of $1.0 million in the sale of the incremental
      $21.5 million in securities.





As
      of
      September 30, 2007 and the date of this filing, we have the intent, and believe
      we have the ability, to hold our portfolio of securities which are currently
      in
      unrealized loss positions until recovery of their amortized cost,
      which  may be until maturity.  Given the uncertain state of the market
      for such securities, should conditions change that would require us to sell
      securities at a loss, we may no longer be able to assert that we have the
      ability to hold our remaining securities until recovery, and we would then
      be
      required to record impairment charges related to these securities. Substantially
      all of the Company's investment securities available for sale are pledged as
      collateral for borrowings under financing arrangements. (see note
      6)





All
      securities held in Investment Securities Available for Sale, including Agency,
      investment and non-investment grade securities, are based on unadjusted price
      quotes for similar securities in active markets obtained from independent
      dealers.




The
      following table sets forth the stated reset periods and weighted average yields
      of our investment securities at September 30, 2007 (dollar amounts in
      thousands):


**September 30, 2007****Less than 6 Months**
              
              **More than 6Months**
                **to 24 Months**
              
              **More than 24**
                **Months**
                **to 60 Months**
              
              **Total****Carrying**
                **Value**
              
              **Weighted**
                **Average**
                **Yield**
              
              **Carrying**
                **Value**
              
              **Weighted**
                **Average**
                **Yield**
              
              **Carrying**
                **Value**
              
              **Weighted**
                **Average**
                **Yield**
              
              **Carrying**
                **Value**
              
              **Weighted**
                **Average**
                **Yield**Agency
                  REMIC CMO floaters
              
              $
              326,422
              
              
              6.53
              %
              $
              -
              
              
              -
              
              $
              -
              
              
              -
              
              $
              326,422
              
              
              6.53
              %Non-Agency
                  floaters
              
              
              29,813
              
              
              6.01
              %
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              29,813
              
              
              6.01
              %NYMT
                  retained securities
              
              
              2,175
              
              
              6.37
              %
              
              -
              
              
              -
              
              
              1,462
              
              
              14.32
              %
              
              3,637
              
              
              10.82
              %Total/Weighted
                  average
              
              $
              358,410
              
              
              6.48
              %
              $
              -
              
              
              -
              
              $
              1,462
              
              
              14.32
              %
              $
              359,872
              
              
              6.54
              %




The
      NYMT
      retained securities includes $1.5 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, 2006 (dollar amounts in
      thousands):


14


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**


**December 31, 2006****Less than 6 Months**
                
                **More than 6**
                  **Months**
                  **To 24 Months**
                
                **More than 24**
                  **Months**
                  **To 60 Months**
                
                **Total****CarryingValue**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **WeightedAverage**
                  **Yield**
                
                **CarryingValue**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **CarryingValue**
                
                **Weighted**
                  **Average**
                  **Yield**Agency
                    REMIC CMO floaters
                
                $
                163,898
                
                
                6.40
                %
                $
                -
                
                
                -
                
                $
                -
                
                
                -
                
                $
                163,898
                
                
                6.40
                %Non-Agency floaters
                
                
                22,284
                
                
                6.46
                %
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                22,284
                
                
                6.46
                %Non-Agency
                    ARMs
                
                
                16,673
                
                
                5.60
                %
                
                78,565
                
                
                5.80
                %
                
                183,612
                
                
                5.64
                %
                
                278,850
                
                
                5.68
                %NYMT
                    retained securities
                
                
                6,024
                
                
                7.12
                %
                
                -
                
                
                -
                
                
                17,906
                
                
                7.83
                %
                
                23,930
                
                
                7.66
                %Total/Weighted
                    average
                
                $
                208,879
                
                
                6.37
                %
                $
                78,565
                
                
                5.80
                %
                $
                201,518
                
                
                5.84
                %
                $
                488,962
                
                
                6.06
                %




The
      following tables present the Company's investment securities available for
      sale
      in an unrealized loss position, aggregated by investment category and length
      of
      time that individual securities have been in a continuous unrealized loss
      position at September 30, 2007 and December 31, 2006 (dollar amounts in
      thousands):


**September
                  30, 2007**
              ********
              ****
              **Less
                  than 12 Months**
              ****
              **12
                  Months or More**
              ****
              **Total**
              ********
              ****
              **Fair**
                **Value**
              ****
              **Gross**
                **Unrealized**
                **Losses**
              ****
              **Fair**
                **Value**
              ****
              **Gross**
                **Unrealized**
                **Losses**
              ****
              **FairValue**
              ****
              **Gross**
                **Unrealized**
                **Losses**Agency
                  REMIC CMO floaters
              
              $
              262,161,
              
              $
              5,064
              
              $
              57,925
              
              $
              1,533
              
              $
              320,086
              
              $
              6,597Non-Agency
                  floaters
              
              
              26,231
              
              
              514
              
              
              3,582
              
              
              56
              
              
              29,813
              
              
              570Non-Agency
                  ARMs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -NYMT
                  retained securities
              
              
              -
              
              
              -
              
              
              3,637
              
              
              586
              
              
              3,637
              
              
              586Total
              
              $
              288,392
              
              $
              5,578
              
              $
              65,144
              
              $
              2,175
              
              $
              353,536
              
              $
              7,753





**December
                31, 2006****Less
                than 12 Months**
            
            **12
                Months or More**
            
            **Total****Fair**
              **Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair**
              **Value**
            
            **Gross**
              **Unrealized**
              **Losses**
            
            **Fair**
              **Value**
            
            **Gross**
              **Unrealized**
              **Losses**Agency
                REMIC CMO floaters
            
            $
            966
            
            $
            2
            
            $
            1,841
            
            $
            4
            
            $
            2,807
            
            $
            6Non-Agency
                floaters
            
            
            22,284
            
            
            80
            
            
            -
            
            
            -
            
            
            22,284
            
            
            80Non-Agency
                ARMs
            
            
            30,385
            
            
            38
            
            
            248,465
            
            
            4,227
            
            
            278,850
            
            
            4,265NYMT
                retained securities
            
            
            7,499
            
            
            87
            
            
            -
            
            
            -
            
            
            7,499
            
            
            87Total
            
            $
            61,134
            
            $
            207
            
            $
            250,306
            
            $
            4,231
            
            $
            311,440
            
            $
            4,438




**3** . **Mortgage Loans Held in Securitization Trusts**




Mortgage
      loans held in securitization trusts consist of the following as of September
      30,
      2007 and December 31, 2006 (dollar amounts in thousands):




**September 30,**
              **2007**
            
            **December
                31,**
              **2006**Mortgage
                loans principal amount
            
            $
            457,057
            
            $
            584,358Deferred
                origination costs – net
            
            
            2,922
            
            
            3,802Reserve
                for loan
                losses
            
            
            (1,011
            )
            
            -Total
                mortgage loans held in securitization
                trusts
            
            $
            458,968
            
            $
            588,160




15


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





All
      of
      the Company's mortgage loans held in securitization trusts are pledged as
      collateral for the collateralized debt obligation (see note 7). The
      Company’s net investment in the loans held in securitization trusts, or the
      difference between the purchase cost of the loans and the amount of
      collateralized debt obligations outstanding, was $15.8 million, of which the
      Company had a $1.0 million reserve.




The
      following tables set forth delinquent loans in our portfolio as of September
      30,
      2007 and December 31, 2006 (dollar amounts in thousands):





**September
                30, 2007****Days
                Late**
            
            **Number
                of**
              **Delinquent**
              **Loans**
            
            **Total**
              **Dollar
                Amount**
            
            **%
                of Loan**
              **Portfolio**30-60
            
            
            1
            
            $
            246
            
            
            0.05
            %61-90
            
            
            2
            
            
            1,131
            
            
            0.25
            %90+
            
            
            10
            
            $
            7,604
            
            
            1.66
            %




As
      of
      September 30, 2007, we had no real estate owned through foreclosure
      (REO).




**December
                31, 2006****Days
                Late**
            
            **Number
                of**
              **Delinquent**
              **Loans**
            
            **Total**
              **Dollar
                Amount**
            
            **%
                of Loan**
              **Portfolio**30-60
            
            
            1
            
            $
            166
            
            
            0.03
            %61-90
            
            
            1
            
            
            193
            
            
            0.03
            %90+
            
            
            4
            
            
            5,819
            
            
            0.99
            %REO
            
            
            1
            
            $
            625
            
            
            0.11
            %




Delinquencies
      on loans held in securitization trusts increased from December 31, 2006 to
      September 30, 2007 by approximately 0.91%, while REO decreased to
      zero during the same period. This trend is primarily due to the increasing
      age of the loans held in securitization trusts, a deteriorating real estate
      market as evidenced by increased number of homes listed for sale, decreased
      appreciation rates for home prices, and in certain markets, deteriorating home
      prices.




**4.
      Property and Equipment - Net**




Property
      and equipment - net consists of the following as of September 30, 2007 and
      December 31, 2006 (dollar amounts in thousands):





****
            
            **September 30,**
              **2007**
            
            **December 31,**
              **2006**Office
                and computer equipment
            
            $
            175
            
            $
            156Furniture
                and fixtures
            
            
            152
            
            
            147Total
                equipment, furniture and fixtures
            
            
            327
            
            
            303Less:
                accumulated depreciation
            
            
            (251
            )
            
            (214
            )Property
                and equipment - net
            
            $
            76
            
            $
            89




**5** . **Derivative Instruments and Hedging Activities**





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


16


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





The
      following table summarizes the estimated fair value of derivative assets and
      liabilities as of September 30, 2007 and December 31, 2006 (dollar amounts
      in
      thousands):


**September 30,**
                **2007**
              
              **December
                  31,**
                **2006****Derivative
                  Assets:**Interest
                  rate caps
              
              $
              977
              
              $
              2,011Interest
                  rate swaps
              
              
              -
              
              
              621**Total
                  derivative assets**
              
              $
              977
              
              $
              2,632**Derivative
                  Liabilities:**Interest
                  rate swaps
              
              $
              1,601
              
              $
              -**Total
                  derivative assets**
              
              $
              1,601
              
              $
              -




The
      notional amounts of the Company's interest rate swaps and interest rate caps
      as
      of September 30, 2007 were $220.0 million and $783.3 million,
      respectively.




The
      notional amounts of the Company's interest rate swaps and interest rate caps
      as
      of December 31, 2006 were $285.0 million and $1.5 billion,
      respectively.




The
      Company estimates that over the next twelve months, approximately $0.2 million
      of the net unrealized losses on the interest rate swaps will be
      reclassified from accumulated OCI into earnings.




**6** . **Financing Arrangements, Portfolio Investments**





The
      Company has entered into repurchase agreements with third party financial
      institutions to finance its residential mortgage-backed securities and certain
      mortgage loans held in the securitization trusts not financed by collateralized
      debt obligations. The repurchase agreements are short-term borrowings that
      bear
      interest rates based on a spread to LIBOR, and are secured by the residential
      mortgage-backed securities and mortgage loans held in the securitization trusts
      which they finance. At September 30, 2007, the Company had repurchase agreements
      with an outstanding balance of $327.9 million and a weighted average interest
      rate of 5.28%. As of December 31, 2006, the Company had repurchase agreements
      with an outstanding balance of $815.3 million and a weighted average interest
      rate of 5.37%. At September 30, 2007 and December 31, 2006, securities and
      mortgage loans pledged as collateral for repurchase agreements had estimated
      fair values of $349.6 million and $850.6 million, respectively. In August 2007,
      t he
      Company entered into a six month repurchase agreement with Credit Suisse
      totaling approximately $102.2 million. The repurchase agreement will mature
      in
      February 22, 2008 with interest rates to reset monthly. All outstanding
      borrowings under other repurchase agreements mature within 30 days. The
      average days to maturity for all repurchase agreements is 56 days. In the
      event we are unable to obtain sufficient short-term financing through repurchase
      agreements or otherwise, or our lenders start to require additional collateral,
      we may have to liquidate our investment securities at a disadvantageous time,
      and result in losses. Any
      losses resulting from the disposition of our investment securities in this
      manner could have a material adverse effect on our operating results and net
      profitability.




The
      follow table summarizes outstanding repurchase agreement borrowings secured
      by
      portfolio investments as of September 30, 2007 and December 31, 2006 (dollars
      amounts in thousands):




**Repurchase
      Agreements by Counterparty**





**Counterparty
                Name**
            
            **September 30,**
              **2007**
            
            **December
                31,**
              **2006**Barclays
            
            $
            105,489
            
            $
            -Countrywide
                Securities Corporation
            
            
            -
            
            
            168,217Credit
                Suisse
            
            
            102,242
            
            
            -Goldman,
                Sachs & Co.
            
            
            68,601
            
            
            121,824HSBC
            
            
            51,545
            
            
            -J.P.
                Morgan Securities Inc.
            
            
            -
            
            
            33,631Nomura
                Securities International, Inc.
            
            
            -
            
            
            156,352SocGen/SG
                Americas Securities
            
            
            -
            
            
            87,995West
                LB
            
            
            -
            
            
            247,294**Total
                financing arrangements, portfolio investments**
            
            $
            327,877
            
            $
            815,313




17


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





During
      the third quarter, the availability of short-term collateralized borrowing
      through repurchase agreements worsened considerably, primarily as a result
      of
      the fall-out from increasing defaults in the sub-prime mortgage market and
      losses incurred at a number of larger companies in the mortgage industry. The
      Company sold approximately $21.5 million in non-Agency securities as a
      result of an inability to obtain financing, resulting in a net loss of $1.0
      million. At
      September 30, 2007, we had outstanding balances under repurchase agreements
      with
      four different counterparties and, as of the date of this report, we have been
      successful at resetting all outstanding balances under our various repurchase
      agreements. In the event a counterparty elected to not reset the outstanding
      balance into a new repurchase agreement, we would be required to repay the
      outstanding balance with proceeds received from a new counterparty or to
      surrender the mortgage-backed securities that serve as collateral for the
      outstanding balance. If we are unable to secure financing from another
      counterparty and as a result surrender the collateral, we would expect to incur
      a loss. Although we presently expect the short-term collateralized borrowing
      markets to continue providing us with necessary financing through repurchase
      agreements, we cannot assure you that this form of financing will be available
      to us in the future on comparable terms, if at all.




**7** . **Collateralized Debt Obligations**




The
      Company had CDOs outstanding of $444.2 million with a weighted average interest
      rate of 5.51% as of September 30, 2007 and $197.4 million with a weighted
      average interest rate of 5.72% as of December 31, 2006. The CDOs include
      amortizing interest rate cap contracts with a notional amount of $303.8 million
      as of September 30, 2007 and a notional amount of $187.5 million as of December
      31, 2006, which were recorded as an asset of the Company. The Company's
      CDOs are secured by ARM loans pledged as collateral which are recorded as
      an asset of the Company. The pledged ARM loans included in mortgage loans held
      in securitization trust had a principal balance of $457.1 million and $204.6
      million at September 30, 2007 and December 31, 2006, respectively.




**8.
      Discontinued Operation**




In
      connection with the sale of our wholesale mortgage origination platform assets
      on February 22, 2007 and the sale of our retail mortgage lending platform on
      March 31, 2007, during the fourth quarter of 2006, we classified our mortgage
      lending segment as a discontinued operation in accordance with the provisions
      of
      SFAS No. 144. As a result, we have reported revenues and expenses related to
      the
      segment as a discontinued operation and the related assets and liabilities
      as
      assets and liabilities related to a discontinued operation for all periods
      presented in the accompanying consolidated financial statements. Certain assets,
      such as the deferred tax asset, and certain liabilities, such as subordinated
      debt and liabilities related to leased facilities not assigned to Indymac,
      will
      become part of the ongoing operations of NYMT and accordingly, we have not
      included these items as part of the discontinued operation in accordance with
      the provisions of SFAS No. 144.




18


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





***Balance
      Sheet***





The
      following tables indicate a significant decline in the assets and
      liabilities related to the discontinued operation from December 31, 2006 to
      September 30, 2007, as the Company exited from the mortgage lending business
      at
      the end of March 2007.




The
      components of Assets related to the discontinued operation as of September
      30,
      2007 and December 31, 2006 are as follows (dollar amounts in
      thousands):




**September 30,**
              **2007**
            
            **December
                31,**
              **2006**Due
                from loan purchasers
            
            $
            -
            
            $
            88,351Escrow
                deposits-pending loan closings
            
            
            -
            
            
            3,814Accounts
                and accrued interest receivable
            
            
            579
            
            
            2,488Mortgage
                loans held for sale (net)
            
            
            7,999
            
            
            106,900Prepaid
                and other assets
            
            
            1,294
            
            
            4,654Derivative
                assets
            
            
            -
            
            
            171Property
                and equipment, net
            
            
            11
            
            
            6,427Total assets
            
            $
            9,883
            
            $
            212,805




The
      components of Liabilities related to the discontinued operation as of September
      30, 2007 and December 31, 2006 are as follows (dollar amounts in
      thousands):




**September 30,**
              **2007**
            
            **December
                31,**
              **2006**Financing
                arrangements, mortgage loans held for sale
            
            $
            -
            
            $
            172,972Due
                to loan purchasers
            
            
            1,180
            
            
            8,334Accounts
                payable and accrued expenses
            
            
            4,420
            
            
            6,066Derivative
                liabilities
            
            
            -
            
            
            216Other
                liabilities
            
            
            -
            
            
            117Total liabilities
            
            $
            5,600
            
            $
            187,705





*Mortgage
      Loans Held for Sale -* Mortgage
      loans held for sale consists of the following as of September 30, 2007 and
      December 31, 2006 (dollar amounts in thousands):





****
            
            **September 30,**
              **2007**
            
            **December
                31,**
              **2006**Mortgage
                loans principal amount
            
            $
            9,598
            
            $
            110,804Deferred
                origination costs - net
            
            
            (45
            )
            
            138Reserve for
                loan losses
            
            
            (1,554
            )
            
            (4,042
            )Total mortgage loans
                  held for sale (net)
            
            $
            7,999
            
            $
            106,900




*Loan
      losses -* The
      following table presents the activity in the Company's reserve for loan losses
      on mortgage loans held for sale for the nine months ended September
      30, 2007 and 2006 (dollar amounts in thousands).


19


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





**September
                30,****2007**
            
            **2006**Balance at
                beginning of period
            
            $
            4,042
            
            $
            -Provisions
                for loan losses
            
            
            957
            
            
            -Charge-offs
            
            
            (3,445
            )
            
            -Balance
                of the end of period
            
            $
            1,554
            
            $
            -




*Financing
      Arrangements, Mortgage Loans Held for Sale -* Financing arrangements secured by mortgage loans held for sale consisted of
      the
      following as of December 31, 2006 (dollar amounts in thousands):


**December
                  31,**
                **2006**$120
                  million master repurchase agreement as of March 31, 2007 with CSFB
                  expiring on June 29, 2007 and $200 million as of December 31, 2006,
                  bearing interest at daily LIBOR plus spreads from 0.75% to 2.000%
                  depending on collateral (6.36% at December 31, 2006). Principal
                  repayments are required 90 days from the funding date. Management
                  did not
                  seek renewal of this facility.
              
              $
              106,801$300
                  million master repurchase agreement with Deutsche Bank Structured
                  Products, Inc. expiring on March 26, 2007 bearing interest at 1
                  month
                  LIBOR plus spreads from 0.625% to 1.25% depending on collateral
                  (6.0% at
                  December 31, 2006). Principal payments are due 120 days from the
                  repurchase date. Management did not seek renewal of this
                  facility.
              
              
              66,171Total
                  Financing Arrangements
              
              $
              172,972




As
      of September 30, 2007, the Company had no outstanding financing arrangements
      secured by mortgage loans held for sale.




***Statements
      of Operations***




The
      combined results of operations of the discontinued operation for the three
      and
      nine months ended September 30, 2007 and 2006 are as follows (dollar amounts
      in
      thousands):




**For
                the Three Months Ended**
            
            **For
                the Nine Months Ended****September
                30,**
            
            **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Revenues:**Net
                interest income
            
            $
            179
            
            $
            543
            
            $
            931
            
            $
            2,871Gain
                on sale of mortgage loans
            
            
            (10
            )
            
            4,311
            
            
            2,540
            
            
            14,362Loan
                losses
            
            
            (172
            )
            
            (4,077
            )
            
            (8,414
            )
            
            (4,077
            )Brokered
                loan fees
            
            
            3
            
            
            2,402
            
            
            2,319
            
            
            8,672Gain
                on sale of retail lending segment
            
            
            -
            
            
            -
            
            
            4,525
            
            
            -Other
                income (expense)
            
            
            (39
            )
            
            43
            
            
            (24
            )
            
            (437
            )Total
                net revenues
            
            
            (39
            )
            
            3,222
            
            
            1,877
            
            
            21,391**Expenses:**Salaries,
                commissions and benefits
            
            
            424
            
            
            5,212
            
            
            6,508
            
            
            17,102Brokered
                loan expenses
            
            
            -
            
            
            1,674
            
            
            1,731
            
            
            6,609Occupancy
                and equipment
            
            
            (86
            )
            
            1,255
            
            
            2,124
            
            
            3,870General
                and administrative
            
            
            298
            
            
            3,132
            
            
            5,048
            
            
            10,464Total
                expenses
            
            
            636
            
            
            11,273
            
            
            15,411
            
            
            38,045**Loss
                before income tax benefit**
            
            
            (675
            )
            
            (8,051
            )
            
            (13,534
            )
            
            (16,654
            )Income
                tax (provision) benefit
            
            
            -
            
            
            3,915
            
            
            -
            
            
            8,494**Loss
                from discontinued operations - net of tax**
            
            $
            (675
            )
            $
            (4,136
            )
            $
            (13,534
            )
            $
            (8,160
            )





*Gain
      on Sale of Mortgage Loans* -
      The
      Company recognizes gain on sale of loans sold to third parties as the difference
      between the sales price and the adjusted cost basis of the loans when title
      transfers. The adjusted cost basis of the loans includes the original principal
      amount adjusted for deferrals of origination and commitment fees received,
      net
      of direct loan origination costs paid.


20


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





*Loan
      Origination Fees and Direct Origination Cost* -
      The
      Company records loan fees, discount points and certain incremental direct
      origination costs as an adjustment of the cost of the loan and such amounts
      are
      included in gain on sales of loans when the loan is sold.





*Brokered
      Loan Fees and Expenses* -
      The
      Company recorded commissions associated with brokered loans when such loans
      are
      closed with the borrower. Costs associated with brokered loans are expensed
      when
      incurred.





*Loan
      Commitment Fees* -
      Fees
      received for the funding of mortgage loans to borrowers at pre-set conditions
      are deferred and recognized at the date at which the loan is sold.




**9** . **Commitments and Contingencies**




*Loans
      Sold to Investors* -
      The
      Company is not exposed to long term credit risk on its loans sold to investors.
      In the normal course of business, however, the Company is obligated to
      repurchase loans based on violations of representations and warranties, or
      early
      payment defaults. For the three months ended September 30, 2007, we repurchased
      no loans, however for the nine months ended September 30, 2007, we repurchased
      a
      total of $6.5 million of mortgage loans that were originated in either 2005
      or
      2006, the majority of which were due to early payment defaults. Of the
      repurchased loans originated in 2006, a majority were Alt-A. As of September
      30,
      2007, we had pending repurchase requests totaling $7.3 million in unpaid
      principal balances, against which the Company has taken a reserve of $1.0
      million included in due to loan purchasers within liabilities related to
      discontinued operations. The
      Company intends to address the $7.3 million in outstanding repurchase requests
      by either repurchasing the mortgage loans and reselling them to third parties
      or
      entering into settlement agreements with the parties requesting the repurchases
      and paying such parties negotiated amounts based on the actual loss incurred
      or
      the estimated amount to be borne by such party in lieu of repurchasing the
      mortgage loans.




*Outstanding
      Litigation* -
      The
      Company has at times been subject to various legal proceedings arising in the
      ordinary course of its discontinued mortgage lending business. Other than as
      described in the following paragraphs, 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 or financial condition. As of
      September 30, 2007, the Company has a reserve of $0.5 million for legal defense
      costs it expects to incur with respect to these various legal
      proceedings.





On
      December 13, 2006, Steven B. Yang and Christopher Daubiere (“Plaintiffs”), filed
      suit in the United States District Court for the Southern District of New York
      (the “Court”) against HC and our Company alleging that we failed to pay them,
      and similarly situated employees, overtime in violation of the Fair Labor
      Standards Act (“FLSA”) and New York State law. Plaintiffs, former employees
      in our discontinued Mortgageline division who purport to bring a FLSA
      "collective action" on behalf of similarly situated loan officers in our now
      discontinued mortgage lending operations, are seeking unspecified amounts
      for alleged unpaid overtime wages, liquidated damages, attorney's fees and
      costs. Because the parties have agreed to attempt mediation, as of
      November 9, 2007, Plaintiffs have not applied to the Court for permission to
      certify the class or send notice of the collective action to prospective
      collective action members .




We
      are
      currently engaged in discovery and continue to investigate Plaintiffs'
      claims. This case involves complex issues of law and fact and has not yet
      progressed to the point where the Company can: (1) predict its outcome;
      (2) precisely estimate damages that might result from such case due to the
      uncertainty of the class certification and the number of potential participants
      in any class that may be certified; or (3) predict the effect that final
      resolution of this litigation might have on it, its business, financial
      condition or results of operations, although such effect could be materially
      adverse. After consulting with counsel, the Company believes that it has
      defenses to the claims against it in these cases and is vigorously defending
      these proceedings.




*Leases* -
      The
      Company leases its corporate offices, certain office space related to our
      discounted mortgage lending operation not assumed by IndyMac and certain
      equipment under short-term lease agreements expiring at various dates through
      2010. All such leases are accounted for as operating leases. Total rental
      expense for property and equipment amounted to $2.1 million and $3.9 million
      for
      the nine months ended September 30, 2007 and 2006, respectively.




On
      November 13, 2006, the Company entered into an Assignment and Assumption of
      Sublease and an Escrow Agreement, each with Lehman Brothers Holdings Inc.
      (“Lehman”) (collectively, the “Agreements”). Under the Agreements, the Company
      assigned and Lehman has assumed the sublease for the Company's corporate
      headquarters at 1301 Avenue of the Americas. Pursuant to the Agreements, Lehman
      has funded an escrow account for the benefit of HC such that if the Company
      vacates the leased space before February 1, 2008, the Company will receive
      $3.2
      million. The escrow amount shall be reduced by $0.2 million for each month
      the
      Company remains in the leased space beginning February 1, 2008. The entire
      remaining amount held in the escrow account will be released to the Company
      when
      it vacates the leased space. Pursuant to the provisions of the sale transaction
      with IndyMac, beginning August 1, 2007, so long as IndyMac continues to occupy
      and use the leased space at the Company’s corporate headquarters, IndyMac will
      pay rent equal to Company’s cost, including any penalties and foregone bonuses
      resulting from the delayed vacation of the leased premises. Until
      February 1, 2008, the Company’s lease cost, including penalties and foregone
      bonuses, is $0.2 million per month. The Company intends to relocate its
      corporate headquarters to a smaller facility at a location that is yet to be
      determined.


21


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





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




Subsequent
      to the move to a new headquarters location in New York City in July 2003, in
      lieu of a cash security deposit for the office lease we entered into an
      irrevocable transferable letter of credit in the amount of $313,000 with
      PricewaterhouseCoopers, LLP (sublandlord), as beneficiary. This letter of credit
      is secured by cash deposited in a bank account maintained at JP Morgan Chase
      bank.




**10.**  **Concentrations
      of Credit Risk**




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




****
            
            **September 30,**
              **2007**
            
            **December
                31,**
              **2006**New
                York
            
            
            31.2
            %
            
            29.1
            %Massachusetts
            
            
            17.5
            %
            
            17.5
            %Florida
            
            
            8.0
            %
            
            11.4
            %California
            
            
            7.9
            %
            
            7.5
            %New
                Jersey
            
            
            5.7
            %
            
            5.1
            %





**11** . **Fair Value of Financial Instruments**




Fair
      value estimates are made as of a specific point in time based on estimates
      using
      market quotes, 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 cashflow, 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 necessarily substantiated by
      comparison to independent markets and, in many cases, could not be necessarily
      realized in an immediate sale of the instrument. Also, because of differences
      in
      methodologies and assumptions used to estimate fair values, the Company's fair
      values should not be compared to those of other companies.




Fair
      value estimates are based on existing financial instruments and do not attempt
      to estimate the value of anticipated future business and the value of assets
      and
      liabilities that are not considered financial instruments. Accordingly, the
      aggregate fair value amounts presented below do not represent the underlying
      value of the Company.




The
      fair
      value of certain assets and liabilities approximate cost due to their short-term
      nature, terms of repayment or interest rates associated with the asset or
      liability. Such assets or liabilities include cash and cash equivalents, escrow
      deposits, unsettled mortgage loan sales, and financing arrangements. All forward
      delivery commitments and option contracts to buy securities are to be
      contractually settled within six months of the balance sheet date.





The
      following describes the methods and assumptions used by the Company in
      estimating fair values of other financial instruments:




a. *Investment Securities Available for Sale* -
      Fair
      value is generally estimated 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 based on available market information.




b. *Mortgage Loans Held in the 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
      quoted market prices for securities backed by similar types of
      loans.


22


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





c. *Interest Rate Swaps and Caps* -
      The
      fair value of interest rate swaps and caps is based on using market accepted
      financial models as well as dealer quotes.





The
      following tables set forth information about financial instruments, except
      for
      those noted above for which the carrying amount approximates fair value (dollar
      amounts in thousands):





**September
                30, 2007****Notional**
              **Amount**
            
            **Carrying**
              **Amount**
            
            **Estimated**
              **Fair
                Value**Investment
                securities available for sale
            
            $
            367,980
            
            $
            359,872
            
            $
            359,872Mortgage
                loans held in the securitization trusts
            
            
            457,057
            
            
            458,968
            
            
            453,067Commitments
                and contingencies:Interest
                rate swaps
            
            
            220,000
            
            
            (1,601
            )
            
            (1,601
            )Interest
                rate caps
            
            $
            783,334
            
            $
            977
            
            $
            977




**December
                31, 2006****Notional**
              **Amount**
            
            **Carrying**
              **Amount**
            
            **Estimated**
              **Fair
                Value**Investment
                securities available for sale
            
            $
            491,293
            
            $
            488,962
            
            $
            488,962Mortgage
                loans held in the securitization trusts
            
            
            584,358
            
            
            588,160
            
            
            582,504Commitments
                and contingencies:Interest
                rate swaps
            
            
            285,000
            
            
            621
            
            
            621Interest
                rate caps
            
            $
            1,540,518
            
            $
            2,011
            
            $
            2,011





**12** . **Income Taxes**




All
      income tax benefits relate to HC and are included in the results of operations
      of the discontinued operation (see note 8). A reconciliation of the statutory
      income tax provision (benefit) to the effective income tax provision for the
      nine months ended September 30, 2007 and September 30, 2006, is as follows
      (dollar amounts in thousands).






**September
                30.****2007**
            
            **2006**Benefit
                at statutory rate
            
            $
            (7,434
            )
            
            (35.0
            )%
            $
            (4.893
            )
            
            (35.0
            )%Non-taxable
                REIT income (loss)
            
            
            1,813
            
            
            8.5
            %
            
            (1,825
            )
            
            (13.1
            )%Transfer
                pricing of loans sold to nontaxable parent
            
            
            -
            
            
            -
            
            
            11
            
            
            0.1
            %State
                and local tax benefit
            
            
            (1,480
            )
            
            (7.0
            )%
            
            (1,773
            )
            
            (12.7
            )%Valuation
                allowance
            
            
            25,438
            
            
            119.8
            %
            
            -
            
            
            -Miscellaneous
            
            
            15
            
            
            0.1
            %
            
            (14
            )
            
            (0.1
            )%Total
                provision (benefit)
            
            $
            18,352
            
            
            86.4
            %
            $
            (8,494
            )
            
            (60.8
            )%




The
      income tax benefit for the nine month period ended September 30, 2006 is
      comprised of the following components (dollar amounts in thousands):


**Deferred**Federal
              
              $
              (6,721
              )State
              
              
              (1,773
              )Total
                  tax benefit
              
              $
              (8,494
              )




23


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2007**


**(unaudited)**





The
      deferred tax asset at September 30, 2007 includes a deferred tax asset of $18.4
      million (included in prepaid and other assets on our consolidated balance
      sheet) and a deferred tax liability of $0.1 million (included
      in accounts payable and accrued expenses on our consolidated balance
      sheet) which represents the tax effect of differences between tax basis and
      financial statement carrying amounts of assets and liabilities. The major
      sources of temporary differences and their deferred tax effect at September
      30,
      2007 were as follows (dollar amounts in thousands):




Deferred
                tax assets:Net
                operating loss carryover
            
            $
            27,407Restricted
                stock, performance shares and stock option expense
            
            
            418Marked
                to market adjustment
            
            
            56Sec.
                267 disallowance
            
            
            268Charitable
                contribution carryforward
            
            
            35GAAP
                reserves
            
            
            1,202Rent
                expense
            
            
            319Loss
                on sublease
            
            
            67Gross
                deferred tax asset
            
            
            29,772Valuation
                allowance
            
            
            (29,707
            )Net
                deferred tax asset
            
            $
            65Deferred
                tax liabilities:Depreciation
            
            $
            65Total
                deferred tax liability
            
            $
            65Net
                deferred tax asset
            
            $
            -




The
        deferred tax asset at December 31, 2006 includes a deferred tax asset of
        $18.4
        million (included in prepaid and other assets on our consolidated balance
        sheet)
        and a deferred tax liability of $0.1million (included in accounts payable
        and
        accrued expenses on our consolidated balance sheet) which represents the
        tax
        effect of differences between tax basis and financial statement carrying
        amounts
        of assets and liabilities. The major sources of temporary differences and
        their
        deferred tax effect at December 31, 2006 were as follows (dollar amounts in
        thousands):
 
 Deferred
                  tax assets:Net
                  operating loss carryover
              
              $
              19,949Restricted
                  stock, performance shares and stock option expense
              
              
              410Marked
                  to market adjustment
              
              
              2Sec.
                  267 disallowance
              
              
              268Charitable
                  contribution carryforward
              
              
              35GAAP
                  reserves
              
              
              1,399Rent
                  expense
              
              
              518Loss
                  on sublease
              
              
              121Gross
                  deferred tax asset
              
              
              22,702Valuation
                  allowance
              
              
              (4,269
              )Net
                  deferred tax asset
              
              $
              18,433Deferred
                  tax liabilities:Management
                  compensation
              
              $
              16Depreciation
              
              
              65Total
                  deferred tax liability
              
              $
              81Net
                  deferred tax asset
              
              $
              18,352


24




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2007**
 **(unaudited)**
  The
        net
        operating loss carry-forward expires at various intervals between 2012 and
        2027.
        The charitable contribution carry-forward will expire in 2011.
 
 On
        January 1, 2007, the Company adopted FIN 48, “Accounting for Uncertainty in
        Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”), which
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise's financial statements. FIN 48 prescribes a recognition threshold
        and
        measurement attribute for the financial statement recognition and measurement
        of
        a tax position taken or expected to be taken in a tax return. FIN 48 also
        provides guidance on de-recognition, classification, interest and penalties,
        accounting in interim periods, disclosure, and transition. Interest and
        penalties are accrued and reported as interest expenses and other
        expenses reported in the consolidated statement of income are booked
        when incurred. In addition, the 2003-2006
        tax years remain open to examination by the major taxing jurisdictions. The
        adoption of FIN 48 has had no material impact on the Company's consolidated
        financial statements.
  **13.**  **Segment
        Reporting**
  Until
        March 31, 2007, the Company operated two reportable segments, the mortgage
        portfolio management segment and the mortgage lending segment. Upon the sale
        of
        substantially all the mortgage lending operating assets on March 31, 2007,
        the
        Company exited the mortgage lending business and accordingly will no longer
        report segment information.
  25
 **NEW
          YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
          30, 2007**
 **(unaudited)**
  **14**.**Stock Incentive Plans**
  A
        summary
        of the status of the Company's options as of September 30, 2007 and changes
        during the nine months then ended is presented below:
  ****
              
              **Number
                  of**
                **Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**Outstanding
                  at January 1, 2007
              
              
              93,300
              
              $
              47.60Granted
              
              
              -
              
              
              -Cancelled
              
              
              (93,300
              )
              
              47.60Exercised
              
              
              -
              
              
              -Outstanding
                  at September 30, 2007
              
              
              -
              
              $
              -Options
                  exercisable at September 30, 2007
              
              
              -
              
              $
              -
  A
        summary
        of the status of the Company's options as of December 31, 2006 and changes
        during the year then ended is presented below:
 
 ****
              
              **Number
                  of**
                **Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**Outstanding
                  at January 1, 2006
              
              
              108,300
              
              $
              47.80Granted
              
              
              -
              
              
              -Cancelled
              
              
              (15,000
              )
              
              49.15Exercised
              
              
              -
              
              
              -Outstanding
                  at December 31, 2006
              
              
              93,300
              
              $
              47.60Options
                  exercisable at December 31, 2006
              
              
              93,300
              
              $
              47.60
  There were
        no stock options outstanding at September 30, 2007.
  The
        following table summarizes information about stock options at December 31,
        2006:
  **Options**
                **Outstanding**
                **Weighted**
                **Average**
                **Remaining**
              
              
              
              **Options
                  Exercisable**
              
              **Fair
                  Value****Range
                  of Exercise Prices**
              
              **Date
                  of**
                **Grants**
              
              **Number**
                **Outstanding**
              
              **Contractual**
                **Life
                  (Years)**
              
              **Exercise**
                **Price**
              
              **Number**
                **Exercisable**
              
              **Exercise**
                **Price**
              
              **of
                  Options**
                **Granted**$9.00
              
              
              6/24/04
              
              
              35,300
              
              
              7.5
              
              $
              45.00
              
              
              35,300
              
              $
              45.00
              
              $
              0.39$9.83
              
              
              12/2/04
              
              
              58,000
              
              
              7.9
              
              
              49.15
              
              
              58,000
              
              
              49.15
              
              
              0.29Total
              
              
              
              
              
              93,300
              
              
              7.8
              
              $
              47.60
              
              
              93,300
              
              $
              47.60
              
              $
              0.33
  The
        fair
        value of each option grant is estimated on the date of grant using the Binomial
        option-pricing model with the following weighted-average
        assumptions:
  26
 **NEW
          YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
          30, 2007**
 **(unaudited)**
  Risk
                  free interest rate
              
              
              4.5
              %Expected
                  volatility
              
              
              10
              %Expected
                  life
              
              
              10
                  yearsExpected
                  dividend yield
              
              
              10.48
              %
  ***Restricted
        Stock***
  Through September
        30, 2007, the Company has awarded 136,867 shares of restricted stock under
        the
        2005 Plan, of which 100,380 shares have fully vested and 36,486 shares were
        forfeited and are available for re-issuance. During the nine months ended
        September 30, 2007, the Company recognized non-cash compensation expense
        of $0.5
        million relating to the vested portion of restricted stock grants. Dividends
        are
        paid on all restricted stock issued, whether those shares are vested or not.
        In
        general, unvested restricted stock is forfeited upon the recipient's termination
        of employment.
  A
        summary
        of the status of the Company's non-vested restricted stock as of September
        30,
        2007 and changes during the nine months then ended is presented
        below:
  **Number
                  of**
                **Non-vested**
                **Restricted**
                **Shares**
              
              **Weighted**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value******
              
              ****Non-vested
                  shares at beginning of year, January 1, 2007
              
              
              42,701
              
              $
              31.80Granted
              
              
              -
              
              
              -Forfeited
              
              
              (31,178
              )
              
              27.90Vested
              
              
              (11,523
              )
              
              43.15Non-vested
                  shares as of September 30, 2007
              
              
              -
              
              $
              -Weighted-average
                  fair value of restricted stock granted during the period
              
              
              -
              
              $
              -
 
 A
        summary
        of the status of the Company's non-vested restricted stock as of December
        31,
        2006 and changes during the year then ended is presented below:
 
 **Number
                  of**
                **Non-vested**
                **Restricted**
                **Shares**
              
              **Weighted**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value**Non-vested
                  shares at beginning of year, January 1, 2006
              
              
              44,211
              
              $
              44.25Granted
              
              
              25,831
              
              
              21.80Forfeited
              
              
              (4,341
              )
              
              46.00Vested
              
              
              (23,000
              )
              
              41.85Non-vested
                  shares as of December 31, 2006
              
              
              42,701
              
              $
              31.80Weighted-average
                  fair value of restricted stock granted during the period
              
              
              112,509
              
              $
              21.80
  **15.
        Capital Stock and Earnings per Share**
  The
        Company had 400,000,000 shares of common stock, par value $0.01 per share,
        authorized with 3,635,854 shares issued and outstanding as of September 30,
        2007. Of the common stock authorized, 206,222 shares (plus forfeited shares
        previously granted) were reserved for issuance as equity awards to employees,
        officers and directors pursuant to the 2005 Stock Incentive Plan. As of
        September 30, 2007, 271,887 shares remain reserved for issuance.
 
 The
        Board
        of Directors declared a one for five reverse stock split of its common stock,
        providing shareholders of record as of October 9, 2007, with one share of
        common
        stock for each five shares owned as of the record date. The reduction in
        shares
        resulting from the split was effective on October 9, 2007 decreasing the
        number
        of common shares outstanding to 3.6 million. All per share and
        share amounts provided in the quarterly report have been restated
        to give effect to the reverse stock split.
  27
  **NEW
          YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
          30, 2007**
 **(unaudited)**
  The
        Company calculates basic net income per share by dividing net income (loss)
        for
        the period by weighted-average shares of common stock outstanding for that
        period. Diluted net income (loss) per share takes into account the effect
        of
        dilutive instruments, such as 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. Since the Company is in a
        loss
        position for the period ended September 30, 2007 and 2006, the calculation
        of
        basic and diluted earnings per share is the same since the effect of common
        stock equivalents would be anti-dilutive.
  The
        following table presents the computation of basic and diluted net earnings
        per
        share for the periods indicated (dollar amounts in thousands, except net
        earnings per share):
 
 **For Nine
                  M****onths
                  E****nded**
                **September 30,****2007**
              
              **2006**Numerator:Net
                  loss
              
              $
              (39,653
              )
              $
              (5,486
              )Denominator:
              
              
              -
              
              
              -Weighted
                  average number of common shares outstanding - basic
              
              
              3,625
              
              
              3,595Net
                  effect of unvested restricted stock
              
              
              -
              
              
              -Performance
                  shares
              
              
              -
              
              
              -Net
                  effect of stock options
              
              
              -
              
              
              -Weighted
                  average number of common shares outstanding - dilutive
              
              
              3,625
              
              
              3,595Net
                  loss per share - basic and diluted
              
              $
              (10.94
              )
              $
              (1.53
              )  28
  **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 in general and our
        investment in mortgage loans and mortgage-backed securities holdings in
        particular, is a statement about our operations as of a specific point in
        time
        and is not meant to be construed as an investment policy. The types of
        assets we hold, the amount of leverage we use or the liabilities we incur
        and
        other characteristics of our assets and liabilities disclosed in this report
        as
        of a specified period of time are subject to reevaluation and change without
        notice.
  Our
        forward-looking statements are based upon our management's beliefs, assumptions
        and expectations of our future operations and economic performance, taking
        into
        account the information currently available to us. Forward-looking statements
        involve risks and uncertainties, some of which are not currently known to
        us and
        many of which are beyond our control and that might cause our actual results,
        performance or financial condition to be materially different from the
        expectations of future results, performance or financial condition we express
        or
        imply in any forward-looking statements. Some of the important factors that
        could cause our actual results, performance or financial condition to differ
        materially from expectations are:
  ·
              our
                  proposed portfolio strategy may be changed or modified by our management
                  without advance notice to stockholders and we may suffer losses
                  as a
                  result of such modifications or
                  changes;
 
 ·
              market
                  changes in the terms and availability of repurchase agreements
                  used to
                  finance our investment portfolio activities;·
              reduced
                demand for our securities in the mortgage securitization and secondary
                markets;·
              interest
                  rate mismatches between our mortgage-backed securities and our
                  borrowings
                  used to fund such purchases;
  ·
              changes
                  in interest rates and mortgage prepayment
                  rates;
  ·
              effects
                  of interest rate caps on our adjustable-rate mortgage-backed
                  securities;
  ·
              the
                  degree to which our hedging strategies may or may not protect us
                  from
                  interest rate volatility;
  ·
              potential
                  impacts of our leveraging policies on our net income and cash available
                  for distribution;
  ·
              our
                  board's ability to change our operating policies and strategies
                  without
                  notice to you or stockholder
                  approval;
  ·
              our
                  ability to manage, minimize or eliminate liabilities stemming from
                  the
                  discontinued operations including, among other things, litigation,
                  repurchase obligations on the sales of mortgage loans and property
                  leases;
                  and·
              the
                  other important factors identified, or incorporated by reference
                  into this
                  report, including, but not limited to those under the captions
                  “Management's Discussion and Analysis of Financial Condition and
                  Results
                  of Operations” and “Quantitative and Qualitative Disclosures about Market
                  Risk”, and those described under the caption “Part I. Item 1A. Risk
                  Factors” in our Annual Report on Form 10-K filed with the Securities and
                  Exchange Commission on April 2,
                  2007.
  29
  We
        undertake no obligation to publicly update or revise any forward-looking
        statements, whether as a result of new information, future events or otherwise.
        In light of these risks, uncertainties and assumptions, the events described
        by
        our forward-looking events might not occur. We qualify any and all of our
        forward-looking statements by these cautionary factors. In addition, you
        should
        carefully review the risk factors described in other documents we file from
        time
        to time with the Securities and Exchange Commission.
  This
        Quarterly Report on Form 10-Q contains market data, industry statistics and
        other data that have been obtained from, or compiled from, information made
        available by third parties. We have not independently verified their
        data.
  **General
          Overview**
 
 New
          York
          Mortgage Trust, Inc. (“we,” “us,” “our,” “NYMT” or the “Company”) is a
          self-advised real estate investment trust ("REIT") that invests in and
          manages a
          portfolio of mortgage-backed securities and mortgage loans. Our
          investment portfolio consists primarily of Agency mortgage-backed securities
          ("MBS") and, to a lesser extent, high quality adjustable rate mortgage
          (“ARM”)
          securities primarily rated in the highest rating categories by at least
          one of
          the Rating Agencies. 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 investments in purchased residential
          mortgage-backed securities collateralized mortgage obligations, ARM loans
          and
          securitized loans, and the interest expense we pay on the borrowings that
          we use
          to finance these investments and our operating costs.
 
 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.
 
 *Discontinued
          Operation*
 
 Until
          March 31, 2007, the company operated a mortgage lending business through
          its
          wholly-owned, taxable REIT subsidiary, Hypotheca Capital, LLC (formerly
          known as
          The New York Mortgage Company, LLC) (“HC” or our “TRS”).
 
 On
          March
          31, 2007, we completed the sale of substantially all of the operating assets
          related to HC's retail mortgage lending platform to IndyMac Bank, F.S.B.
          (“Indymac”), a wholly-owned subsidiary of Indymac Bancorp, Inc. On February 22,
          2007, we completed the sale of substantially all of the operating assets related
          to HC's wholesale mortgage lending platform to Tribeca Lending Corp.
          (“Tribeca Lending”), a wholly-owned subsidiary of Franklin Credit Management
          Corporation.
  While
          the
          Company sold substantially all of the assets of its wholesale and retail
          mortgage lending platforms and exited the mortgage lending business as
          of March
          31, 2007, it retains certain liabilities associated with that former line
          of
          business. Among these liabilities are the costs associated with the disposal
          of
          the mortgage loans held for sale, potential repurchase and
          indemnification obligations (including early payment defaults) on
          previously sold mortgage loans and remaining lease payment obligations
          on real
          and personal property.
  *Strategy*
 
 The
          Company invests in high-quality MBS, including agency and non-agency ARM
          securities and residential mortgage loans. Our investment portfolio,
          consisting primarily of residential mortgage-backed securities and mortgage
          loans held in securitization trusts, generates a substantial portion of
          our
          earnings. In managing our investment in a mortgage portfolio, we:
  ·invest
                    in high-credit quality Agency and non-Agency MBS including ARM
                    securities, collateralized mortgage obligation floaters (“CMO Floaters”)
                    and high-credit quality mortgage loans;·finance
                    our portfolio by entering into repurchase agreements, or issue
                    collateral
                    debt obligations relating to our securitizations;
  30
  ·generally
                    operate as a long-term portfolio investor;
                    and
 
 ·generate
                    earnings from the return on our mortgage securities and spread
                    income from
                    our mortgage loan portfolio.
 
 We
          have
          acquired and increasingly seek to acquire additional assets that will produce
          competitive returns, taking into consideration the amount and nature of
          the
          anticipated returns from the investment, our ability to pledge the investment
          for secured, collateralized borrowings and the costs associated with obtaining,
          financing, managing, securitizing and reserving for these
          investments.
 
 *Investment
          Portfolio Credit Quality.* We
          retain in our portfolio primarily high-credit quality loans that we
          originated or acquired from third parties. In the future, we expect to
          obtain
          mortgage loans in bulk purchases exclusively from third party originators.
          Retaining high credit quality mortgage loans generally leads
          to improved portfolio liquidity and generally provides for financing
          opportunities that are available on favorable terms. At September 30, 2007,
          the Company had $9.0 million in delinquent loans held in securitization
          trusts,
          against which it had a $1.0 million credit reserve.
 
 In
          addition, 99% of the mortgage backed securities portfolio is either Agency
          or
“AAA” rated. Our portfolio is comprised of: $326.4 million Agency
          securities; $32.0 million non-Agency “AAA” rated; and $1.5 million NYMT residual
          retained securities.
 
 *Securitizations* .
          The
          portion of our investment portfolio categorized as mortgage loans held
          in
          securitization trusts consists of securitized prime adjustable-rate mortgage
          loans that we either originated or acquired from third parties. We aggregate
          high credit quality, adjustable-rate mortgage loans until we have a pool
          of
          loans of sufficient size to securitize. Historically, we obtained the loans
          we
          securitize from either our TRS or from third parties. In the future we
          will
          obtain mortgage loans in bulk purchases from third party originators. Our
          first securitization occurred on February 25, 2005 and we completed our
          second
          and third loan securitizations on July 28, 2005 and December 20, 2005,
          respectively. These securitization transactions, through which we financed
          the
          adjustable-rate and hybrid mortgage loans that we retained, were structured
          as
          financings for both tax and financial accounting purposes. Therefore, we
          do not
          expect to generate a gain or loss on sales from these activities, and,
          following
          the securitizations, the loans are classified on our consolidated balance
          sheet
          as mortgage loans held in securitization trusts. From each of our
          securitizations, we issued investment grade securities to third parties
          and
          recorded the securitization debt as a liability. On March 30, 2006 we completed
          our fourth securitization, New York Mortgage Trust 2006-1. This securitization
          was structured as a sale for accounting purposes.
  *Funding
          Diversification* .
          We
          strive to maintain and achieve a balanced and diverse funding mix to finance
          our
          investment portfolio and assets. We rely primarily on repurchase agreements
          and
          collateralized debt obligations (“CDOs”) in order to finance our investment
          portfolio of mortgage-backed securities and residential loans. As of
          September 30, 2007, we had repurchase agreements outstanding with four
          different
          counterparties totaling $327.9 million, including approximately $102.2
          million
          maturing on February 22, 2008.
 
 During
          the nine months ended September 30, 2007, we sold approximately $339.0
          million
          of previously retained securitizations resulting in the issuance of non-recourse
          debt and eliminating any risk of counterparty financing changes, such as
          increased margins due to declines in the market value of our
          securities or reduced availability of liquidity.  This CDO issuance
          replaced short-term repurchase agreements freeing up approximately $17.5
          million
          in capital needed for repurchase agreement margin. As of September 30,
          2007 we
          had $444.2 million of outstanding CDOs.
  In
          2005,
          we further diversified our sources of financing with the issuance of $45.0
          million of trust preferred securities classified as subordinated debentures.
          See
“Liquidity and Capital Resources” for further discussion on our financing
          activities.
  *Interest
          Rate Risk Management* -
          A
          significant risk to our operations, relating to our portfolio management,
          is the
          risk that interest rates on our assets will not adjust at the same times
          or
          amounts that rates on our liabilities adjust. Even though we retain and
          invest
          in ARM securities, many of the underlying hybrid ARM loans in our securities
          portfolio have fixed rates of interest for a period of time ranging from
          two to
          seven years. Our funding costs are variable and the maturities are short
          term in
          nature. We use hedging instruments to reduce our risk associated with
          changes in interest rates that could affect our investment portfolio of
          mortgage
          loans and securities. Typically, we utilized interest rate swaps to extend
          the
          maturity of our short borrowings to better match the interest rate sensitivity
          to the underlying assets being financed. We hedge our financing costs in
          an
          attempt to maintain a net duration gap of less than one year; as of September
          30, 2007, our net duration gap was approximately 3 months.
  31
 As
          we
          acquire mortgage-backed securities or loans, we seek to hedge interest
          rate risk
          in order to stabilize net asset values and earnings during periods of rising
          interest rates. To do so, we use hedging instruments in conjunction with
          our
          borrowings to approximate the re-pricing characteristics of such assets.
          The
          Company utilizes a model based risk analysis system to assist in projecting
          portfolio performances over a scenario of different interest rates and
          market
          stresses. 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. However, given the prepayment
          uncertainties on our mortgage assets, it is not possible to definitively
          lock-in
          a spread between the earnings yield on our investment portfolio and the
          related
          cost of borrowings. Nonetheless, through active management and the use
          of
          evaluative stress scenarios of the portfolio, we believe that we can mitigate
          a
          significant amount of both value and earnings volatility. See further discussion
          of interest rate risk at the “Quantitative And Qualitative Disclosures About
          Market Risk - Interest Rate Risk” section of this document.
  *Other
          Risk Considerations* .
          Our
          business is affected by a variety of economic and industry factors. Management
          periodically reviews and assesses these factors and their potential impact
          on
          our business. The most significant risk factors management considers while
          managing the business and which could have a material adverse effect on
          our
          financial condition and results of operations are:
  ·
                a
                    decline in the market value of our assets due to rising interest
                    rates;
 
 ·
                increasing
                    or decreasing levels of prepayments on the mortgages underlying
                    our
                    mortgage-backed securities;
 
 ·
                our
                    ability to dispose of the remaining loans held for sale at levels
                    for
                    which we have currently reserved;
 
 ·
                the
                    overall leverage of our portfolio and the ability to obtain financing
                    to
                    leverage our equity, including the availability of repurchase
                    agreements
                    to finance our investment portfolio
                    activities;
 
 ·
                the
                    concentration of our mortgage loans in specific geographic
                    regions;
 
 ·
                our
                    ability to use hedging instruments to mitigate our interest rate
                    and
                    prepayment risks;
 
 ·
                declining
                    real estate values;
 
 ·
                reduced
                    demand in the secondary markets for our securities created by
                    our
                    securitizations,
 
 ·
                if
                    our assets are insufficient to meet the collateral requirements
                    of our
                    lenders, we might be compelled to liquidate particular assets
                    at
                    inopportune times and at disadvantageous prices;
 
 ·
                if
                    we are disqualified as a REIT, we will be subject to tax as a
                    regular
                    corporation and face substantial tax liability;
                    and
 
 ·
                compliance
                    with REIT requirements might cause us to forgo otherwise attractive
                    opportunities.
 
 32
 **Known
          Material Trends and Commentary**
  *Liquidity* .
          We
          depend on the capital markets to finance our investments in mortgage-backed
          securities and mortgage loans. To finiance our investment portfolio,
          we entered into repurchase agreements for short term financing. Commercial
          and
          investment banks have historically provided significant liquidity to finance
          our
          operations. Recent market events have caused providers of liquidity to
          increase their credit review standards and decrease the amount of fair
          value
          against they will lend, resulting in a decrease in overall market
          liquidity. While these events have not adversely affected our liquidity
          currently, management cannot predict the future availability of these sources
          of
          liquidity.  We have issued collateralized debt obligations to finance our
          mortgage loans held in securitization trusts.
  Although
          we are not a participant in the sub-prime mortgage sector and exited the
          mortgage lending business at the end of the first quarter of 2007, the
          current
          default trends in the sub-prime mortgage sector, and the resulting weakness
          in
          the broader mortgage market, could adversely affect one or more of the
          Company's
          lenders and could cause one or more of the Company's lenders to be unwilling
          or
          unable to provide it with additional financing. This could potentially
          increase
          the Company's financing costs and reduce liquidity. If one or more major
          market
          participants failed, it could negatively impact the marketability of all
          fixed
          income securities, including Agency MBS, and this could negatively impact
          the
          value of the securities in the Company's portfolio, thus reducing its net
          book
          value. In the event the Company's lenders are unwilling or unable to provide
          it
          with additional financing, we could be forced to sell our investment securities
          at an inopportune time on unfavorable terms. However, because the Company's
          investment portfolio is comprised of 91% Agency and 8% “AAA” rated mortgage
          backed securities, the Company believes that it is better positioned to
          convert
          its investment securities to cash or to negotiate an extended financing
          term
          should it lenders reduce the amount of the liquidity available to it. See
          "Liquidity and Capital Resources" below for further discussion.
  Subsequent
            to its exit from the mortgage origination business, the Company has continued
            the process of exploring strategic alternatives while continuing its
            passive
            REIT strategy. There can be no assurances that the Company will be successful
            in
            entering into a strategic alternative. Should the Company be unsuccessful
            in
            doing so, it will operate at a higher expense ratio relative to its peers,
            and
            will have to reevaluate its long term viability.
 *EPDs* .
          The
          occurrence of early payment defaults (“EPD”), which generally are mortgage loans
          for which a borrower has missed one of his/her first three payments when
          due,
          has greatly affected the mortgage lending industry. As the incidence of
          EPDs on
          loans originated in the second half of 2006 and the first quarter of 2007
          increased dramatically, the frequency of loans we were requested to repurchase
          increased. These EPDs pertain only to loans originated in our discontinued
          mortgage lending operation. These repurchases are predominately made with
          cash
          and the reacquired loans are held on the balance sheet until they are re-sold.
          EPD loans are typically re-sold at a loss and result in a reduction
          of our working capital.
  The
          majority of our EPDs to date are associated with borrowers whose loans were
          underwritten to loan programs where the borrower was not required to provide
          full income and or asset verification in order to qualify for the loan.
          These
          alternative documentation programs, also known as “Alternative-A” or “Alt-A”
programs, offered to many investors for whom we once originated loans,
          combined with reduced amounts of required down payments, made it easier
          for many
          borrowers to obtain mortgage financing.
  The
          increased incidence of EPDs has made many loan buyers and investors cautious
          when it comes to the purchase of mortgage loans. This has affected our
          ability
          to sell these mortgage loans held for sale in that loan purchasers are
          more
          cautious in their approach to loan review. The increased number of EPDs
          also
          caused these investors to change their underwriting guidelines resulting in
          further difficulty in selling the loans underwritten to the prior guidelines.
          During the three months ended September 30, 2007, no mortgage loans
          held for sale were sold. The Company continues to review and assess its
          portfolio of mortgage loans held for sale to find the best execution on
          their
          sale.
  33
  During
            the three months ended September 30, 2007, we did not repurchase any
            mortgage
            loans. For the nine months ended September 30, 2007, we repurchased a
            total of
            $6.5 million of mortgage loans. All mortgage loans repurchased to date
            were
            originated in either 2005 or 2006 and the majority of the repurchase
            requests
            were due to EPDs. Of the repurchased mortgage loans originated in 2006,
            the
            majority were Alt-A. As of June 30, 2007, we had $25.2 million of repurchase
            requests pending, against which the Company had taken a reserve of $4.9
            million.
 During
            the three months ended September 30, 2007, we received $1.0 million of
            new
            repurchase requests and had $0.5 million existing repurchase requests
            rescinded.
            Also during the three months ended September 30, 2007, we eliminated
            $18.4
            million in repurchase requests by entering into settlement and release
            agreements with the parties requesting the repurchases. The settlements
            provided
            for a payment of a negotiated amount taking into account the loss incurred
            or
            otherwise borne by the loan purchaser in return for the elimination of
            the
            repurchase request, and in a majority of the cases, a release from all
            future
            claims due to EPDs, quality control issues ,
            and
            indemnification obligations (discussed below) .
            As of
            September 30, 2007, we had $7.3 million in outstanding repurchase requests
            and a
            reserve of $0.6 million.
 
 From
            time
            to time, as an alternative to repurchasing loans, we sign indemnification
            agreements with loan investors. Generally these agreements specify that
            if a
            loan goes delinquent and the investor realizes a loss as a result of
            foreclosure, the Company will reimburse the investor for their loss. As
            of
            June 30, 2007, we had outstanding indemnification agreements on $7.4
            million of
            mortgage loans, against which the Company had taken a reserve of $0.4
            million . During
            the three months ended September 30, 2007, we entered into no new
            indemnification agreements and eliminated $5.3 million in existing
            indemnification obligations by entering into settlement and release agreements
            with the parties pertaining to repurchase requests. As of September 30,
            2007, we
            had outstanding indemnification agreements on $2.1 million of mortgage
            loans,
            against which the Company maintained a reserve of $0.4 million.
 
 All
            reserves taken by the Company reflect management's expectations based
            on current
            market conditions. If future market conditions deteriorate further, these
            reserves may be insufficient to cover current identified
            obligations.
 
 *Loan
            Sale Environment* .
            The
            current environment for loans sales has become significantly more challenging
            as
            loan purchasers have become increasingly reluctant to purchase loans.
            This
            reluctance stems from concerns about increasing mortgage loan delinquencies,
            decreasing access to liquidity to fund such loans purchases and unfavorable
            changes in securitization structuring and support requirements by rating
            agencies. All of these factors have negatively impacted mortgage loan
            sale
            prices and decreased or eliminated certain loan purchasers' demand for
            mortgage
            loans. As of September 30, 2007, the Company had reserves of $1.6 million
            to
            cover the disposition of the mortgage loans held for sale. If these market
            conditions do not improve, there could be a further depression in the
            prices at
            which we can sell our mortgage loans held for sale. Such conditions could
            have a
            material adverse effect on our liquidity and overall financial condition.
 
 Until
            the
            Company disposes of all the mortgage loans held for sale and the repurchase
            periods set forth in the loan sale agreements expire, the Company may
            continue
            to incur losses on these loans beyond what reserves have been made against
            such
            loans.
 **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 Statement of
        Financial Accounting Standards 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 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, will become
        part of the ongoing operations of NYMT and accordingly, we have not classified
        as a discontinued operation in accordance with the provisions of Statement
        of
        Financial Accounting Standards No. 144.
  The
          Board
          of Directors declared a one for five reverse stock split of our common
          stock, providing shareholders of record as of October 9, 2007, with one
          share of
          common stock for each five shares owned of record as of October 9, 2007
          (the
          "Reverse Stock Split"). The reduction in shares resulting from the reverse
          stock
          split was effective on October 9, 2007, decreasing the number of common
          shares
          outstanding to approximately 3.6 million. Prior year share amounts and
          earnings
          per share disclosures have been restated to reflect the reverse stock
          split.
 **Significance
        of Estimates and Critical Accounting Policies**
  We
        prepare our consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America, or GAAP, many
        of
        which require the use of estimates, judgments and assumptions that affect
        reported amounts. These estimates are based, in part, on our judgment and
        assumptions regarding various economic conditions that we believe are reasonable
        based on facts and circumstances existing at the time of reporting. The results
        of these estimates affect reported amounts of assets, liabilities and
        accumulated other comprehensive income at the date of the consolidated financial
        statements and the reported amounts of income, expenses and other comprehensive
        income during the periods presented.
  34
  Changes
        in the estimates and assumptions could have a material effect on these financial
        statements. Accounting policies and estimates related to specific components
        of
        our consolidated financial statements are disclosed in the notes to our
        consolidated financial statements. In accordance with SEC guidance, those
        material accounting policies and estimates that we believe are most critical
        to
        an investor's understanding of our financial results and condition and which
        require complex management judgment are discussed below.
 
 *Revenue
        Recognition* .
        Interest income on our residential mortgage loans and mortgage-backed securities
        is a combination of the interest earned based on the outstanding principal
        balance of the underlying loan/security, the contractual terms of the assets
        and
        the amortization of yield adjustments, principally premiums and discounts,
        using
        generally accepted interest methods. The net GAAP cost over the par balance
        of
        self-originated mortgage loans held for investment and the premium and discount
        associated with the purchase of mortgage-backed securities and loans are
        amortized into interest income over the lives of the underlying assets using
        the
        effective yield method as adjusted for the effects of estimated prepayments.
        Estimating prepayments and the remaining term of our interest yield investments
        require management judgment, which involves, among other things, consideration
        of possible future interest rate environments and an estimate of how borrowers
        will react to those environments, historical trends and performance of those
        interest yield investments. The actual prepayment speed and actual lives
        could
        be more or less than the amount estimated by management at the time of
        origination or purchase of the assets or at each financial reporting
        period.
  *Fair
        Value* .
        Generally, the financial instruments we utilize are widely traded and there
        is a
        ready and liquid market in which these financial instruments are traded.
        The
        fair values for such financial instruments 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 financial instrument 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.
  *Impairment
        of and Basis Adjustments on Investment Securities* -
        As
        previously described herein, we regularly securitize our mortgage loans and
        retain the beneficial interests created. Such assets are evaluated for
        impairment on a quarterly basis or, if events or changes in circumstances
        indicate that these assets or the underlying collateral may be impaired,
        on a
        more frequent basis. We evaluate whether these assets are considered impaired,
        whether the impairment is other-than-temporary and, if the impairment is
        other-than-temporary, recognize an impairment loss equal to the difference
        between the asset's amortized cost basis and its fair value. These evaluations
        require management to make estimates and judgments based on changes in market
        interest rates, credit ratings, credit and delinquency data and other
        information to determine whether unrealized losses are reflective of credit
        deterioration and our ability and intent to hold the investment to maturity
        or
        recovery. This other-than-temporary impairment analysis requires significant
        management judgment and we deem this to be a critical accounting
        estimate.
 
 The
        Company sold approximately $246.9 million of non-Agency ARM securities,
        including $225.4 million of lower yielding non-Agency ARM securities previously
        designated as impaired, with a reserve of $3.8 million. The Company incurred
        an
        additional net loss of $1.0 million in the sale of the incremental $21.5
        million
        in securities.
 
 At
        September 30, 2007, we have gross unrealized losses of $7.7 million on the
        remaining securities in our portfolio. As of September 30, 2007, we do not
        consider this impairment to be other-than-temporary.
  *Securitizations* .
        We
        create securitization entities as a means of either:
  ·
              creating
                  securities backed by mortgage loans which we will continue to hold
                  and
                  finance that will be more liquid than holding whole loan assets;
                  or
  ·
              securing
                  long-term collateralized financing for our residential mortgage
                  loan
                  portfolio and matching the income earned on residential mortgage
                  loans
                  with the cost of related liabilities, otherwise referred to a match
                  funding our balance sheet.
  Residential
        mortgage loans are transferred to a separate bankruptcy-remote legal entity
        from
        which private-label multi-class mortgage-backed notes are issued. On a
        consolidated basis, securitizations are accounted for as secured financings
        as
        defined by SFAS No. 140, “Accounting for Transfers and Servicing of Financial
        Assets and Extinguishments of Liabilities” (“SFAS No. 140”), and, therefore, no
        gain or loss is recorded in connection with the securitizations. Each
        securitization entity is evaluated in accordance with Financial Accounting
        Standards Board Interpretation (“FIN”) 46(R), “Consolidation of Variable
        Interest Entities”, and we have determined that we are the primary beneficiary
        of the securitization entities. As such, the securitization entities are
        consolidated into our consolidated balance sheet subsequent to securitization.
        Residential mortgage loans transferred to securitization entities collateralize
        the mortgage-backed notes issued, and, as a result, those investments are
        not
        available to us, our creditors or stockholders. All discussions relating
        to
        securitizations are on a consolidated basis and do not necessarily reflect
        the
        separate legal ownership of the loans by the related bankruptcy-remote legal
        entity.
  35




*Derivative
      Financial Instruments* -
      The
      Company has developed risk management programs and processes, which include
      investments in derivative financial instruments designed to manage market risk
      associated with its mortgage-backed securities investment
      activities.




All
      derivative financial instruments are reported as either assets or liabilities
      in
      the consolidated balance sheet at fair value. The gains and losses associated
      with changes in the fair value of derivatives not designated as hedges are
      reported in current earnings. If the derivative is designated as a fair value
      hedge and is highly effective in achieving offsetting changes in the fair value
      of the asset or liability hedged, the recorded value of the hedged item is
      adjusted by its change in fair value attributable to the hedged risk. If the
      derivative is designated as a cash flow hedge, the effective portion of change
      in the fair value of the derivative is recorded in OCI and is recognized in
      the
      income statement when the hedged item affects earnings. The Company calculates
      the effectiveness of these hedges on an ongoing basis, and, to date, has
      calculated effectiveness of approximately 100% of these hedges. Ineffective
      portions, if any, of changes in the fair value or cash flow hedges are
      recognized in earnings.




*Recent
      Accounting Pronouncements* -
      In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No.157”). SFAS No.157 defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles and expands disclosures
      about fair value measurements. SFAS No.157 will be applied under other
      accounting principles that require or permit fair value measurements, as this
      is
      a relevant measurement attribute. This statement does not require any new fair
      value measurements. We will adopt the provisions of SFAS No.157 beginning
      January 1, 2008. We are currently evaluating the impact of this statement on
      our
      consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS No. 159”), which provides
      companies with an option to report selected financial assets and liabilities
      at
      fair value. The objective of SFAS No. 159 is to reduce both complexity in
      accounting for financial instruments and the volatility in earnings caused
      by
      measuring related assets and liabilities differently. SFAS No. 159 establishes
      presentation and disclosure requirements and requires companies to provide
      additional information that will help investors and other users of financial
      statements to more easily understand the effect of the Company's choice to
      use
      fair value on its earnings. SFAS No. 159 also requires entities to display
      the
      fair value of those assets and liabilities for which the Company has chosen
      to
      use fair value on the face of the balance sheet. SFAS No. 159 is effective
      for
      financial statements issued for fiscal years beginning after November 15, 2007.
      The Company is in the process of analyzing the impact of SFAS No. 159 on its
      consolidated financial statements.




In
      June
      2007, the EITF reached consensus on Issue No. 06-11, *Accounting for Income Tax Benefits of Dividends on Share-Based Payment
      Awards* ("EITF
      06-11"). EITF 06-11 requires that the tax benefit related to dividend
      equivalents paid on restricted stock units, which are expected to vest, be
      recorded as an increase to additional paid-in capital. EITF 06-11 is to be
      applied prospectively for tax benefits on dividends declared in fiscal years
      beginning after December 15, 2007, and the Company expects to adopt the
      provisions of EITF 06-11 beginning in the first quarter of 2008. The Company
      is
      currently evaluating the potential effect on the financial statements of
      adopting EITF 06-11.




In
      June
      2007, the AICPA issued SOP No. 07-1, *Clarification
      of the Scope of the Audit and Accounting Guide* Investment
      Companies *and
      Accounting by Parent Companies and Equity Method Investors for Investments
      in
      Investment Companies* (“SOP
      07-1”). SOP 07-1 addresses whether the accounting principles of the AICPA Audit
      and Accounting Guide *Investment
      Companies* may
      be applied to an entity by clarifying the definition of an investment
      company and whether those accounting principles may be retained by a
      parent company in consolidation or by an investor in the application of the
      equity method of accounting. In
      October of 2007, the provisions of SOP 07-1 were deferred indefinitely. The
      Company has not determined whether or not SOP 07-1 will have an impact if it
      is
      ultimately implemented.




*Loan
      Loss Reserves on Mortgage Loans* —
We
      evaluate a reserve for loan losses based on management's judgment and estimate
      of credit losses inherent in our portfolio of mortgage loans held for sale
      and
      mortgage loans held in securitization trusts.




Estimation
      involves the consideration of various credit-related factors including but
      not
      limited to, the current housing market conditions, loan-to-value ratios,
      delinquency status, historical credit loss severity rates, purchased mortgage
      insurance, the borrower's credit and other factors deemed to warrant
      consideration. Additionally, we look at the balance of any delinquent loan
      and
      compare that to the value of the property. Using the lower of the original
      purchase price or appraised value as a benchmark, we either utilize various
      internet based property data services to look at comparable properties in the
      same area, or consult with a realtor in the property's area, to determine the
      property’s current value.


36




Comparing
      the current loan balance to the current property value determines the current
      loan-to-value (“LTV”) ratio of the loan. Generally we estimate that for the
      mortgage loans held in securitization trusts, a first lien loan on a property
      that goes into a foreclosure process and becomes real estate owned (“REO”)
      results in the property being disposed of at approximately 68% of the property's
      original value. With respect to our portfolio of mortgage loans held for sale,
      which generally consists of mortgage loans originated in 2006 and 2007, we
      assume a first lien loan on a property that goes into a foreclosure process
      and
      becomes REO will result in the property being disposed of at approximately
      65%
      of the property's original value This estimate is based on management's long
      term experience in similar market conditions. Thus, for a first lien loan that
      is delinquent, we will adjust the property value down to approximately 68%
      or
      65%, as applicable depending on the loan classification, of the original
      property’s current value and compare that to the current balance of the loan.
      The difference determines the base reserve taken for that loan. This base
      reserve for a particular loan may be adjusted if we are aware of specific
      circumstances that may affect the outcome of the loss mitigation process for
      that loan. Predominately, however, we use the base reserve number for our
      reserve.




Reserves
      for second liens, all of which are mortgage loans held for sale, are larger
      than
      that for first liens as second liens are in a junior position and only receive
      proceeds after the claims of the first lien holder are satisfied. Given the
      softness in the housing market due to the increased properties listed for sale,
      we currently assume that second mortgages will return approximately 5% or less
      of their original balance for loans that go through foreclosure. As with first
      liens, we may occasionally alter the base reserve calculation but that is in
      a
      minority of the cases and only if we are aware of specific circumstances that
      pertain to that specific loan.




At
      September 30, 2007, we had a loan loss reserve of $1.6 million on mortgage
      loans
      held for sale, $1.0 million in reserves for indemnifications and repurchase
      requests and a $1.0 million loan loss reserve for mortgage loans held in
      securitization trusts. The Company incurred $9.4 million of loan losses during
      the nine months ended September 30, 2007, including $8.4 million of loan losses
      in the discontinued operations.





**Overview
      of Performance**




For
      the
      three months ended September 30, 2007, we reported a net loss of $20.7 million
      and compared to a net loss of $3.9 million for the three months ended September
      30, 2006. For the nine months ended September 30, 2007, we reported a net loss
      of $39.7 million, as compared to a net loss of $5.5 million for the nine months
      ended September 30, 2006.




The
      main
      components of the increase in loss for the three and nine months ended September
      30, 2007 as compared to the same periods for the previous year are detailed
      in
      the following table:




**Detailed
                    Components of increase in loss**
                
                **for
                    the three months ended September 30,**
                
                **for
                    the nine months ended September 30,****2007**
                
                **2006**
                
                **Difference**
                
                **2007**
                
                **2006**
                
                **Difference**Net
                    interest income on investment portfolio
                
                $
                1,164
                
                $
                1,116
                
                $
                48
                
                $
                2,799
                
                $
                7,730
                
                $
                (4,931
                )Loss
                    on other-than temporary impaired/ Realized loss on investment
                    securities
                
                
                (1,013
                )
                
                440
                
                
                (1,453
                )
                
                (4,834
                )
                
                (529
                )
                
                (4,305
                )Loan
                    loss reserve on loans held in securitization trust
                
                
                (99
                )
                
                -
                
                
                (99
                )
                
                (1,039
                )
                
                -
                
                
                (1,039
                )Allowance
                    for deferred tax asset
                
                
                (18,352
                )
                
                -
                
                
                (18,352
                )
                
                (18,352
                )
                
                -
                
                
                (18,352
                )Loss
                    from discontinued operations - net of tax
                
                $
                (675
                )
                $
                (4,136
                )
                $
                3,461
                
                $
                (13,534
                )
                $
                (8,160
                )
                $
                (5,374
                )




**Summary
      of Operations and Key Performance Measurements**




For
      the
      nine months ended September 30, 2007, our income was dependent upon our mortgage
      portfolio management operations and the net interest (interest income on
      portfolio assets net of the interest expense and hedging costs associated with
      the financing of such assets) generated from our portfolio, mortgage loans
      held
      in the securitization trusts and residential mortgage-backed
      securities.




The
      key
      performance measures for our portfolio management activities are:




·
            net
                interest spread on the portfolio;




·
            characteristics
                of the investments and the underlying pool of mortgage loans including
                but
                not limited to credit quality, coupon and prepayment rates;
                and




·
            return
                on our mortgage asset investments and the related management of interest
                rate risk.




**Financial
      Condition**





As
      of
      September 30, 2007, we had approximately $0.9 billion of total assets, as
      compared to approximately $1.3 billion of total assets as of December 31, 2006.
      The decline in total assets results primarily from a decline in assets related
      to our discontinued operations of $202.9 million and a decline of $258.3 million
      related to investment portfolio assets.


37




**Balance
      Sheet Analysis - Asset Quality**




*Investment
      Securities - Available for Sale* -
      Our
      securities portfolio consists of Agency securities or AAA-rated residential
      mortgage-backed securities. At September 30, 2007 and December 31, 2006, we
      had
      no investment securities in a single issuer or entity (other than a government
      sponsored agency of the U.S. Government) that had an aggregate book value in
      excess of 10% of our total assets. The following tables set forth the credit
      characteristics of our securities portfolio as of September 30, 2007 and
      December 31, 2006 (dollar amounts in thousands):




**Credit
      Characteristics of Our Investment Securities**





**September
                30, 2007****Sponsor
                or Rating**
            
            **Par**
              **Value**
            
            **Carrying**
              **Value**
            
            **%
                of**
              **Portfolio**
            
            **Coupon**
            
            **Yield**Agency
                REMIC CMO floaters
            
            
            FNMA/FHLMC
            
            $
            332,649
            
            $
            326,422
            
            
            90.7
            %
            
            6.47
            %
            
            6.53
            %Non-Agency
                floaters
            
            
            AAA
            
            
            30,403
            
            
            29,813
            
            
            8.3
            %
            
            6.00
            %
            
            6.01
            %Non-Agency
                ARMs
            
            
            AAA
            
            
            -
            
            
            -
            
            
            0.0
            %
            
            -
            
            
            -NYMT
                retained securities
            
            
            AAA-BBB
            
            
            2,169
            
            
            2,175
            
            
            0.6
            %
            
            6.29
            %
            
            6.37
            %NYMT
                retained securities
            
            
            Below
                Investment Grade
            
            
            2,759
            
            
            1,462
            
            
            0.4
            %
            
            5.68
            %
            
            14.32
            %Total/Weighted
                average
            
            
            
            
            $
            367,980
            
            $
            359,872
            
            
            100.0
            %
            
            6.42
            %
            
            6.54
            %







**December
                31, 2006****Sponsor
                  or Rating**
            
            **Par**
              **Value**
            
            **Carrying**
              **Value**
            
            **%
                of**
              **Portfolio**
            
            **Coupon**
            
            **Yield**Agency
                REMIC CMO floaters
            
            
            FNMA/FHLMC
            
            $
            163,121
            
            $
            163,898
            
            
            33.5
            %
            
            6.72
            %
            
            6.40
            %Non-Agency
                  floaters
            
            
            AAA
            
            
            22,392
            
            
            22,284
            
            
            4.6
            %
            
            6.12
            %
            
            6.46
            %Non-Agency
                Arms
            
            
            AAA
            
            
            280,992
            
            
            278,850
            
            
            57.0
            %
            
            4.80
            %
            
            5.68
            %NYMT
                retained securities
            
            
            AAA-BBB
            
            
            22,022
            
            
            21,918
            
            
            4.5
            %
            
            5.64
            %
            
            6.15
            %NYMT
                retained securities
            
            
            Below
                Inv Grade
            
            
            2,767
            
            
            2,012
            
            
            0.4
            %
            
            5.67
            %
            
            21.00
            %Total/Weighted
                average
            
            
            
            
            $
            491,294
            
            $
            488,962
            
            
            100.0
            %
            
            5.54
            %
            
            6.06
            %




The
      following table sets forth the stated reset periods and weighted average yields
      of our investment securities at September 30, 2007 and December 31, 2006 (dollar
      amounts in thousands):




**Reset/
      Yield of our Investment Securities**




**September
                30, 2007****Less than**
              **6 Months**
            
            **More than 6**
              **Months**
              **To 24 Months**
            
            **More than 24**
              **Months**
              **To 60 Months**
            
            **Total****Carrying
                Value**
            
            **Weighted
                Average Yield**
            
            **Carrying
                Value**
            
            **Weighted
                Average Yield**
            
            **Carrying
                Value**
            
            **Weighted
                Average Yield**
            
            **Carrying
                Value**
            
            **Weighted
                Average Yield**Agency
                REMIC CMO floaters
            
            $
            326,422
            
            
            6.53
            %
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            326,422
            
            
            6.53
            %Non-Agency
                  floaters
            
            
            29,813
            
            
            6.01
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            29,813
            
            
            6.01
            %Non-Agency
                ARMs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -NYMT
                retained securities
            
            
            2,175
            
            
            6.37
            %
            
            -
            
            
            -
            
            
            1,462
            
            
            14.32
            %
            
            3,637
            
            
            10.82
            %Total/Weighted
                average
            
            $
            358,410
            
            
            6.48
            %
            $
            -
            
            
            -
            
            $
            1,462
            
            
            14.32
            %
            $
            359,872
            
            
            6.54
            %




38




**December
                31, 2006****Less
                than**
              **6
                Months**
            
            **More
                than 6**
              **Months**
              **To
                24 Months**
            
            **More
                than 24**
              **Months**
              **To
                60 Months**
            
            **Total****Carrying
                Value**
            
            **Weighted
                Average Yield**
            
            **Carrying
                Value**
            
            **Weighted
                Average Yield**
            
            **Carrying
                Value**
            
            **Weighted
                Average Yield**
            
            **Carrying
                Value**
            
            **Weighted
                Average Yield**Agency
                REMIC CMO Floating Rate
            
            $
            163,898
            
            
            6.40
            %
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            163,898
            
            
            6.40
            %Private
                Label Floating Rate
            
            
            22,284
            
            
            6.46
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            22,284
            
            
            6.46
            %Private
                Label ARMs
            
            
            16,673
            
            
            5.60
            %
            
            78,565
            
            
            5.80
            %
            
            183,612
            
            
            5.64
            %
            
            278,850
            
            
            5.68
            %NYMT
                Retained Securities
            
            
            6,024
            
            
            7.12
            %
            
            -
            
            
            -
            
            
            17,906
            
            
            7.83
            %
            
            23,930
            
            
            7.66
            %Total/Weighted
                Average
            
            $
            208,879
            
            
            6.37
            %
            $
            78,565
            
            
            5.80
            %
            $
            201,518
            
            
            5.84
            %
            $
            488,962
            
            
            6.06
            %




*Mortgage
      Loans Held in Securitization Trusts* -
      Included in our portfolio are adjustable-rate mortgage loans that we originated
      or purchased in bulk from third parties that meet our investment criteria and
      portfolio requirements. If the securitization qualifies as a financing for
      SFAS
      No. 140 purposes the loans are classified as “mortgage loans held in
      securitization trusts.”




The
      NYMT
      2006-1 securitization qualified as a sale under SFAS No. 140, which resulted
      in
      the recording of residual assets and mortgage servicing rights. The residual
      assets total $1.5 million and are included in investment securities available
      for sale. The residual interest carrying values are determined by dealer quotes.
      These quotes take into consideration certain pricing assumptions including,
      constant prepayment rate, discount rate, loan loss frequency and loan loss
      severity rates.




At
      September 30, 2007, mortgage loans held in securitization trusts totaled $459.0
      million, or 54% of total assets. Of this portfolio of mortgage loans held in
      securitization trusts, all are traditional or hybrid ARMs and 76.7%
      are loans that are interest only. On our hybrid ARMs, interest rate reset
      periods are predominately five years or less and the interest-only/amortization
      period is typically 10 years, which mitigates the “payment shock” at the time of
      interest rate reset. No loans in our investment portfolio of mortgage loans
      are
      option-ARMs or ARMs with negative amortization.




**Characteristics
      of Our Mortgage Loans Held in Securitization Trusts and Retained Interests
      in
      Securitization:**




The
      following table sets forth the composition of our portfolio of
      mortgage loans held in securitization trusts and retained interests in our
      REMIC securitization, NYMT 2006-1 as of September 30, 2007 (dollar amounts
      in thousands):





**#
                of Loans**
            
            **Par
                Value**
            
            **Carrying**
              **Value****Loan
              Characteristics:**Mortgage
                loans held in securitization trusts
            
            
            1,035
            
            $
            457,057
            
            $
            458,968Retained
                interest in securitization (included in Investment securities
                available for sale)
            
            
            397
            
            
            212,574
            
            
            3,637Total
                Loans Held
            
            
            1,432
            
            $
            669,631
            
            $
            462,605




****
            
            **Average**
            
            **High**
            
            **Low****General
              Loan Characteristics:**Original
                Loan Balance
            
            $
            488
            
            $
            3,500
            
            $
            48Coupon
                Rate
            
            
            5.78
            %
            
            9.50
            %
            
            4.00
            %Gross
                Margin
            
            
            2.34
            %
            
            6.50
            %
            
            1.13
            %Lifetime
                Cap
            
            
            11.17
            %
            
            13.75
            %
            
            9.00
            %Original
                Term (Months)
            
            
            360
            
            
            360
            
            
            360Remaining
                Term (Months)
            
            
            333
            
            
            342
            
            
            298




The
      following table sets forth the composition of our portfolio mortgage loans
      held
      in securitization trusts and retained interests in our REMIC securitization,
      NYMT 2006-1 as of December 31, 2006:





**#
                of Loans**
            
            **Par
                Value**
            
            **Carrying**
              **Value****Loan
              Characteristics:**Mortgage
                loans held in securitization trusts
            
            
            1,259
            
            $
            584,358
            
            $
            588,160Retained
                interest in securitization (included in Investment securities
                available for sale)
            
            
            458
            
            
            249,627
            
            
            23,930Total
                Loans Held
            
            
            1,717
            
            $
            833,985
            
            $
            612,090




39




**General
                Loan Characteristics:**
            
            **Average**
            
            **High**
            
            **Low**Original
                Loan Balance
            
            $
            501
            
            $
            3,500
            
            $
            48Coupon
                Rate
            
            
            5.67
            %
            
            8.13
            %
            
            3.88
            %Gross
                Margin
            
            
            2.36
            %
            
            6.50
            %
            
            1.13
            %Lifetime
                Cap
            
            
            11.14
            %
            
            13.75
            %
            
            9.00
            %Original
                Term (Months)
            
            
            360
            
            
            360
            
            
            360Remaining
                Term (Months)
            
            
            340
            
            
            351
            
            
            307




The
      following tables provide additional characteristics of the mortgage loans held
      in securitization trusts and retained interests in securitization as of
      September 30, 2007 and December 31, 2006:




**Arm
                Loan Type:**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**Traditional
                ARMs
            
            
            2.3
            %
            
            2.9
            %2/1
                Hybrid ARMs
            
            
            2.1
            %
            
            3.8
            %3/1
                Hybrid ARMs
            
            
            11.8
            %
            
            16.8
            %5/1
                Hybrid ARMs
            
            
            81.4
            %
            
            74.5
            %7/1
                Hybrid ARMs
            
            
            2.4
            %
            
            2.0
            %Total
            
            
            100.0
            %
            
            100.0
            %Percent
                of ARM loans that are Interest Only
            
            
            76.7
            %
            
            75.9
            %Weighted
                average length of interest only period
            
            
            8.2
                years
            
            
            8.0
                years




**Traditional
                ARMs - Periodic Cap(1):**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**None
            
            
            69.9
            %
            
            61.9
            %1%
            
            
            5.4
            %
            
            8.8
            %Over
                1%
            
            
            24.7
            %
            
            29.3
            %Total
            
            
            100.0
            %
            
            100.0
            %


(1)
            Periodic
                caps refer to the maximum amount by which the mortgage rate on any
                mortgage loan may increase or decrease on an adjustment
                date.




**Hybrid
                ARMs - Initial Cap(2):**
            
            **September 30,**
              **2007**
              **Percentage**
            
            **December 31,**
              **2006**
              **Percentage**3.00%
                or less
            
            
            9.7
            %
            
            14.8
            %3.01%-4.00%
            
            
            5.9
            %
            
            7.5
            %4.01%-5.00%
            
            
            83.5
            %
            
            76.6
            %5.01%-6.00%
            
            
            .9
            %
            
            1.1
            %Total
            
            
            100.0
            %
            
            100.0
            %


(2)
            Initial
                caps refer to a fixed percentage specified in the related mortgage
                note by
                which the related mortgage rate generally will not increase or decrease
                on
                the first adjustment date more than such fixed
                percentage.





**FICO
                Scores:**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**650
                or less
            
            
            3.9
            %
            
            3.8
            %651
                to 700
            
            
            17.1
            %
            
            16.9
            %701
                to 750
            
            
            32.6
            %
            
            34.0
            %751
                to 800
            
            
            42.2
            %
            
            41.5
            %801
                and over
            
            
            4.2
            %
            
            3.8
            %Total
            
            
            100.0
            %
            
            100.0
            %Average
                FICO Score
            
            
            738
            
            
            737




40





**Loan
                to Value (LTV)**:
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**50%
                or less
            
            
            9.7
            %
            
            9.8
            %50.01%
                - 60.00%
            
            
            8.8
            %
            
            8.8
            %60.01%
                - 70.00%
            
            
            27.6
            %
            
            28.1
            %70.01%
                - 80.00%
            
            
            51.7
            %
            
            51.1
            %80.01%
                and over
            
            
            2.2
            %
            
            2.2
            %Total
            
            
            100.0
            %
            
            100.0
            %Average
                LTV
            
            
            69.6
            %
            
            69.4
            %





**Property
                Type**:
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**Single
                Family
            
            
            51.1
            %
            
            52.3
            %Condominium
            
            
            23.0
            %
            
            22.9
            %Cooperative
            
            
            9.9
            %
            
            8.8
            %Planned
                Unit Development
            
            
            12.8
            %
            
            13.0
            %Two
                to Four Family
            
            
            3.2
            %
            
            3.0
            %Total
            
            
            100.0
            %
            
            100.0
            %




**Occupancy
                Status:**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**Primary
            
            
            84.4
            %
            
            85.3
            %Secondary
            
            
            11.9
            %
            
            10.7
            %Investor
            
            
            3.7
            %
            
            4.0
            %Total
            
            
            100.0
            %
            
            100.0
            %





**Documentation
                Type:**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**Full
                Documentation
            
            
            72.1
            %
            
            70.1
            %Stated
                Income
            
            
            19.7
            %
            
            21.3
            %Stated
                Income/ Stated Assets
            
            
            6.8
            %
            
            7.2
            %No
                Documentation
            
            
            0.9
            %
            
            0.9
            %No
                Ratio
            
            
            0.5
            %
            
            0.5
            %Total
            
            
            100.0
            %
            
            100.0
            %





**Loan
                Purpose:**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**Purchase
            
            
            58.0
            %
            
            57.3
            %Cash
                out refinance
            
            
            16.1
            %
            
            26.1
            %Rate
                and term refinance
            
            
            25.9
            %
            
            16.6
            %Total
            
            
            100.0
            %
            
            100.0
            %




**Geographic
                Distribution: (5% or more in any one state)**
            
            **September  30,**
              **2007**
              **Percentage**
            
            **December  31,**
              **2006**
              **Percentage**NY
            
            
            31.2
            %
            
            29.1
            %MA
            
            
            17.5
            %
            
            17.5
            %FL
            
            
            8.0
            %
            
            11.4
            %CA
            
            
            7.9
            %
            
            7.5
            %NJ
            
            
            5.7
            %
            
            5.1
            %Other
                (less than 5% individually)
            
            
            29.7
            %
            
            29.4
            %Total
            
            
            100.0
            %
            
            100.0
            %




41





*Delinquency
      Status -* As of
      September 30, 2007 and December 31, 2006, we had 13 delinquent loans totaling
      $9.0 million and 6 delinquent loans totaling $6.2 million, respectively,
      categorized as mortgage loans held in securitization trusts. The table below
      shows delinquencies in our loan portfolio as of September 30, 2006 (dollar
      amounts in thousands):




The
      following tables set forth delinquent loans in our
      portfolio as of September 30, 2007 and December 31, 2006 (dollar amounts in
      thousands):




September
                30, 2007**Days
                Late:**
            
            **Number  of**
              **Delinquent**
              **Loans**
            
            **Total**
              **Dollar**
              **Amount**
            
            **%
                of**
              **Loan**
              **Portfolio**30-60
            
            
            1
            
            $
            246
            
            
            0.05
            %61-90
            
            
            2
            
            
            1,131
            
            
            0.25
            %90+
            
            
            10
            
            $
            7,604
            
            
            1.66
            %As
                of September 30, 2007, we had no REO.




December
                31, 2006**Days
                Late:**
            
            **Number  of
                Delinquent**
              **Loans**
            
            **Total**
              **Dollar**
              **Amount**
            
            **%
                of**
              **Loan**
              **Portfolio**30-60
            
            
            1
            
            $
            166
            
            
            0.03
            %61-90
            
            
            1
            
            
            193
            
            
            0.03
            %90+
            
            
            4
            
            
            5,819
            
            
            0.99
            %REO
            
            
            1
            
            $
            625
            
            
            0.11
            %




Interest
      is recognized as revenue when earned according to the terms of the mortgage
      loans and when, in the opinion of management, it is collectible. The accrual
      of
      interest on loans is discontinued when, in management's opinion, the interest
      is
      not collectible in the normal course of business, but in no case beyond when
      payment on a loan becomes 90 days delinquent. Interest collected on loans for
      which accrual has been discontinued is recognized as income upon
      receipt.





The
      Company has established a $1.0 million loan loss reserve for delinquent mortgage
      loans held in securitization trusts.







42
 
  The
          following table details loan summary information for loans held in
          securitization trust at September 30, 2007 (all amounts in
          thousands)
  **Principal
                      amount of loans****Periodic**
                  
                  
                  
                  
                  
                  
                  
                  **subject
                      to****Description**
                  
                  **Interest
                      Rate %**
                  
                  **Final
                      Maturity**
                  
                  **Payment**
                  
                  
                  
                  **Face**
                  
                  **Carrying**
                  
                  **delinquent****Property**
                  
                  
                  
                  **Loan**
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  **Term**
                  
                  **Prior**
                  
                  **Amount
                      of**
                  
                  **Amount
                      of**
                  
                  **principal
                      or****Type**
                  
                  **Balance**
                  
                  **Count**
                  
                  **Max**
                  
                  **Min**
                  
                  **Avg**
                  
                  **Min**
                  
                  **Max**
                  
                  **(months)**
                  
                  **Liens**
                  
                  **Mortgage**
                  
                  **Mortgage**
                  
                  **interest****Single**
                  
                  
                  <=
                      $100
                  
                  
                  17
                  
                  
                  8.38
                  
                  
                  4.75
                  
                  
                  6.04
                  
                  
                  07/01/33
                  
                  
                  11/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  $
                  3,502
                  
                  $
                  1,181
                  
                  $
                  -**Family**
                  
                  
                  <=$250
                  
                  
                  115
                  
                  
                  9.50
                  
                  
                  4.50
                  
                  
                  5.73
                  
                  
                  09/01/32
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  21,483
                  
                  
                  20,777
                  
                  
                  435<=$500
                  
                  
                  187
                  
                  
                  7.93
                  
                  
                  4.25
                  
                  
                  5.68
                  
                  
                  09/01/32
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  67,320
                  
                  
                  65,178
                  
                  
                  500<=$1,000
                  
                  
                  83
                  
                  
                  8.50
                  
                  
                  4.38
                  
                  
                  5.89
                  
                  
                  07/01/33
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  60,723
                  
                  
                  58,513
                  
                  
                  816>$1,000
                  
                  
                  44
                  
                  
                  8.13
                  
                  
                  4.88
                  
                  
                  5.89
                  
                  
                  06/01/33
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  75,698
                  
                  
                  74,983
                  
                  
                  3,250**Summary**
                  
                  
                  **446**
                  
                  
                  **9.50**
                  
                  
                  **4.25**
                  
                  
                  **5.77**
                  
                  
                  **09/01/32**
                  
                  
                  **01/01/36**
                  
                  
                  **360**
                  
                  
                  NA
                  
                  **$**
                  **228,726**
                  
                  **$**
                  **220,632**
                  
                  **$**
                  **5,001****2-4**
                  
                  
                  <=
                      $100
                  
                  
                  1
                  
                  
                  6.63
                  
                  
                  6.63
                  
                  
                  6.63
                  
                  
                  02/01/35
                  
                  
                  02/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  $
                  80
                  
                  $
                  78
                  
                  $
                  -**FAMILY**
                  
                  
                  <=$250
                  
                  
                  8
                  
                  
                  6.75
                  
                  
                  4.38
                  
                  
                  5.81
                  
                  
                  12/01/34
                  
                  
                  11/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  1,529
                  
                  
                  1,455
                  
                  
                  -<=$500
                  
                  
                  29
                  
                  
                  7.63
                  
                  
                  5.13
                  
                  
                  6.02
                  
                  
                  07/01/33
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  10,650
                  
                  
                  10,445
                  
                  
                  1,368<=$1,000
                  
                  
                  4
                  
                  
                  6.88
                  
                  
                  4.75
                  
                  
                  5.69
                  
                  
                  07/01/35
                  
                  
                  10/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  3,068
                  
                  
                  3,055
                  
                  
                  ->$1,000
                  
                  
                  2
                  
                  
                  5.63
                  
                  
                  5.50
                  
                  
                  5.56
                  
                  
                  12/01/34
                  
                  
                  08/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  4,008
                  
                  
                  4,008
                  
                  
                  -**Summary**
                  
                  
                  **44**
                  
                  
                  **7.63**
                  
                  
                  **4.38**
                  
                  
                  **5.95**
                  
                  
                  **07/01/33**
                  
                  
                  **01/01/36**
                  
                  
                  **360**
                  
                  
                  NA
                  
                  **$**
                  **19,335**
                  
                  **$**
                  **19,041**
                  
                  **$**
                  **1,368****Condo**
                  
                  
                  <=
                      $100
                  
                  
                  20
                  
                  
                  7.38
                  
                  
                  4.38
                  
                  
                  5.80
                  
                  
                  01/01/35
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  $
                  3,528
                  
                  $
                  1,479
                  
                  $
                  -<=$250
                  
                  
                  108
                  
                  
                  9.00
                  
                  
                  4.25
                  
                  
                  5.69
                  
                  
                  08/01/32
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  20,345
                  
                  
                  19,748
                  
                  
                  230<=$500
                  
                  
                  124
                  
                  
                  8.13
                  
                  
                  4.00
                  
                  
                  5.52
                  
                  
                  08/01/32
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  44,225
                  
                  
                  42,885
                  
                  
                  378<=$1,000
                  
                  
                  51
                  
                  
                  7.75
                  
                  
                  4.50
                  
                  
                  5.49
                  
                  
                  08/01/33
                  
                  
                  11/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  38,981
                  
                  
                  35,953
                  
                  
                  ->$1,000
                  
                  
                  17
                  
                  
                  8.00
                  
                  
                  4.63
                  
                  
                  5.76
                  
                  
                  07/01/34
                  
                  
                  09/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  27,513
                  
                  
                  25,325
                  
                  
                  1,149**Summary**
                  
                  
                  **320**
                  
                  
                  **9.00**
                  
                  
                  **4.00**
                  
                  
                  **5.60**
                  
                  
                  **08/01/32**
                  
                  
                  **01/01/36**
                  
                  
                  **360**
                  
                  
                  NA
                  
                  **$**
                  **134,592**
                  
                  **$**
                  **125,390**
                  
                  **$**
                  **1,757****CO-OP**
                  
                  
                  <=
                      $100
                  
                  
                  7
                  
                  
                  5.50
                  
                  
                  4.75
                  
                  
                  5.07
                  
                  
                  10/01/34
                  
                  
                  06/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  $
                  1,099
                  
                  $
                  365
                  
                  $
                  -<=$250
                  
                  
                  32
                  
                  
                  7.63
                  
                  
                  4.00
                  
                  
                  5.52
                  
                  
                  09/01/34
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  5,913
                  
                  
                  5,611
                  
                  
                  -<=$500
                  
                  
                  61
                  
                  
                  7.63
                  
                  
                  4.25
                  
                  
                  5.52
                  
                  
                  08/01/34
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  23,640
                  
                  
                  22,280
                  
                  
                  -<=$1,000
                  
                  
                  34
                  
                  
                  6.75
                  
                  
                  4.50
                  
                  
                  5.30
                  
                  
                  10/01/34
                  
                  
                  11/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  24,832
                  
                  
                  23,879
                  
                  
                  ->$1,000
                  
                  
                  7
                  
                  
                  7.38
                  
                  
                  4.88
                  
                  
                  5.61
                  
                  
                  11/01/34
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  9,814
                  
                  
                  9,612
                  
                  
                  -**Summary**
                  
                  
                  **141**
                  
                  
                  **7.75**
                  
                  
                  **4.00**
                  
                  
                  **5.40**
                  
                  
                  **08/01/34**
                  
                  
                  **12/01/35**
                  
                  
                  **360**
                  
                  
                  NA
                  
                  **$**
                  **65,298**
                  
                  **$**
                  **61,747**
                  
                  **$**
                  **-****PUD**
                  
                  
                  <=
                      $100
                  
                  
                  1
                  
                  
                  5.63
                  
                  
                  5.63
                  
                  
                  5.63
                  
                  
                  07/01/35
                  
                  
                  07/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  $
                  100
                  
                  $
                  97
                  
                  $
                  -<=$250
                  
                  
                  35
                  
                  
                  7.76
                  
                  
                  4.00
                  
                  
                  5.75
                  
                  
                  07/01/33
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  6,816
                  
                  
                  6,257
                  
                  
                  -<=$500
                  
                  
                  34
                  
                  
                  8.88
                  
                  
                  4.63
                  
                  
                  6.19
                  
                  
                  08/01/32
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  12,592
                  
                  
                  11,937
                  
                  
                  -<=$1,000
                  
                  
                  10
                  
                  
                  7.92
                  
                  
                  4.75
                  
                  
                  5.93
                  
                  
                  08/01/33
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  6,827
                  
                  
                  6,730
                  
                  
                  855>$1,000
                  
                  
                  4
                  
                  
                  7.80
                  
                  
                  5.63
                  
                  
                  6.36
                  
                  
                  04/01/34
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  5,233
                  
                  
                  5,226
                  
                  
                  -**Summary**
                  
                  
                  **84**
                  
                  
                  **8.88**
                  
                  
                  **4.00**
                  
                  
                  **5.98**
                  
                  
                  **08/01/32**
                  
                  
                  **01/01/36**
                  
                  
                  **360**
                  
                  
                  NA
                  
                  **$**
                  **31,568**
                  
                  **$**
                  **30,247**
                  
                  **$**
                  **855****Summary**
                  
                  
                  <=
                      $100
                  
                  
                  46
                  
                  
                  8.38
                  
                  
                  4.38
                  
                  
                  5.79
                  
                  
                  07/01/33
                  
                  
                  12/01/35
                  
                  
                  360
                  
                  
                  NA
                  
                  $
                  8,309
                  
                  $
                  3,200
                  
                  $
                  -<=$250
                  
                  
                  298
                  
                  
                  9.50
                  
                  
                  4.00
                  
                  
                  5.70
                  
                  
                  08/01/32
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  56,086
                  
                  
                  53,848
                  
                  
                  665<=$500
                  
                  
                  435
                  
                  
                  8.88
                  
                  
                  4.00
                  
                  
                  5.68
                  
                  
                  08/01/32
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  114,202
                  
                  
                  152,725
                  
                  
                  2,246<=$1,000
                  
                  
                  182
                  
                  
                  8.50
                  
                  
                  4.38
                  
                  
                  5.67
                  
                  
                  07/01/33
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  134,431
                  
                  
                  128,130
                  
                  
                  1,671>$1,000
                  
                  
                  74
                  
                  
                  8.13
                  
                  
                  4.63
                  
                  
                  5.85
                  
                  
                  06/01/33
                  
                  
                  01/01/36
                  
                  
                  360
                  
                  
                  NA
                  
                  
                  122,266
                  
                  
                  119,154
                  
                  
                  4,399**Grand
                      Total**
                  
                  
                  **1,035**
                  
                  
                  **9.50**
                  
                  
                  **4.00**
                  
                  
                  **5.69**
                  
                  
                  **08/01/32**
                  
                  
                  **01/01/36**
                  
                  
                  **360**
                  
                  
                  NA
                  
                  **$**
                  **479,519**
                  
                  **$**
                  **457,057**
                  
                  **$**
                  **8,981**
 The
              following table details activity for loans held in securitization trust
              for the
              nine months ended September 30, 2007.
  **Principal**
                  
                  **Premium**
                  
                  **Loan
                      Reserve**
                  
                  **Net
                      Carrying Value****Balance,
                      January 1, 2007**
                  
                  **$**
                  **584,358**
                  
                  **$**
                  **3,802**
                  
                  **$**
                  **0**
                  
                  **$**
                  **588,160**Additions
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -principal
                      repayments
                  
                  
                  (127,301
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (127,301
                  )Reserve
                      for loan loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,011
                  )
                  
                  (1,011
                  )Amortization
                      for premium
                  
                  
                  -
                  
                  
                  (880
                  )
                  
                  -
                  
                  
                  (880
                  )**Balance,
                      September 30, 2007**
                  
                  $
                  457,057
                  
                  $
                  2,922
                  
                  
                  ($1,011
                  )
                  $
                  458,968
  43
  *Cash
          and cash equivalents -*We had
          unrestricted cash and cash equivalents of $11.1 million at September 30,
          2007
          versus $1.0 million at December 31, 2006.


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




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




*Prepaid
      and other assets* -
      Prepaid and other assets totaled $2.4 million as of September 30, 2007 as
      compared to $20.6 million as of December 31, 2006. The December 31, 2006 balance
      included $18.4 million of a net deferral tax asset that was fully reserved
      for during the three months ended September 30, 2007.





*Property
      and Equipment, Net -* Property
      and equipment totaled $0.1 million as of September 30, 2007 and $0.1 million
      as
      of December 31, 2006 and have estimated lives ranging from three to ten years,
      and are stated at cost less accumulated depreciation and amortization.
      Depreciation is determined in amounts sufficient to charge the cost of
      depreciable assets to operations over their estimated service lives using the
      straight-line method.





*Assets
      Related to Discontinued Operations*




The
      balances of the following assets related to the discontinued operation have
      declined as of September 30, 2007 as compared to December 31, 2006, primarily
      due to our exit from the mortgage lending business:




*Mortgage
      Loans Held for Sale* -
      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 of $8.0 million at September 30,
      2007 as compared to $106.9 million at December 31, 2006. We use cash on a
      short-term basis to finance our mortgage loans held for sale.




*Due
      from Purchasers* - We had
      no amounts due from loan purchasers that were outstanding at September 30,
      2007,
      as compared to $88.4 million at December 31, 2006. Amounts due from loan
      purchasers are a receivable for the principal and premium due to us for loans
      that have been shipped to permanent investors but for which payment has not
      yet
      been received at period end.





**Balance
      Sheet Analysis - Financing Arrangements**




*Financing
      Arrangements, Portfolio Investments* -As of
      September 30, 2007 and December 31, 2006, there were $327.9 million and $815.3
      million, respectively, of repurchase borrowings outstanding. The
      Company entered into a six month repurchase agreement with Credit Suisse
      totaling approximately $102 million. The repurchase agreement will mature on
      February 22, 2008 with interest rates to reset monthly. All outstanding
      borrowings under other repurchase agreements mature within 30 days. At September
      30, 2007 average days to maturity for our repurchase agreements
      was 56 days. The
      weighted average borrowing rate on these financing facilities was 5.28% and
      5.37% as of September 30, 2007 and December 31, 2006, respectively.




*Collateralized
      Debt Obligations* - There
      were no new securitization transactions accounted for as a financing during
      the
      nine months ended September 30, 2007 or during the year ended December 31,
      2006.
      We had $444.2 million and $197.4 million of CDOs outstanding as of September
      30,
      2007 and December 31, 2006, respectively. The weighted average borrowing rate
      on
      these CDOs was 5.51% and 5.72% as of September 30, 2007 and December 31, 2006,
      respectively. The increase in the amount of CDOs outstanding between December
      31, 2006 and September 30, 2007 is due to the sale of $339.0 million on
      previously retained securitizations of NYMT 2005-2 securities on February 26,
      2007 and $148.0 million of NYMT 2005-1 securities on March 26, 2007. The sales
      were treated as financings in accordance with SFAS No. 140.




44


*Derivative
      Assets and Liabilities* - We
      generally hedge only the risk related to changes in the benchmark interest
      rate
      used in the variable rate index, usually a London Interbank Offered Rate, known
      as LIBOR, or a U.S. Treasury rate.




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




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




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




The
      following table summarizes the estimated fair value of derivative assets as
      of
      September 30, 2007 and December 31, 2006 (dollar amounts in
      thousands):




**September 30,**
              **2007**
            
            **December 31,**
              **2006****Derivative
                Assets:**Interest
                rate caps
            
            $
            977
            
            $
            2,011Interest
                rate swaps
            
            
            -
            
            
            621**Total
                derivative assets**
            
            $
            977
            
            $
            2,632**Derivative
                Liabilities:**Interest
                rate caps
            
            $
            -
            
            $
            -Interest
                rate swaps
            
            
            1,601
            
            
            -**Total
                derivative Liabilities**
            
            $
            1,601
            
            $
            -




*Subordinated
      Debentures* - As of
      September 30, 2007, we had trust preferred securities outstanding of $45.0
      million. The securities are fully guaranteed by the Company with respect to
      distributions and amounts payable upon liquidation, redemption or repayment.
      These securities are classified as subordinated debentures in the liability
      section of the Company's consolidated balance sheet.


45





$25.0
      million of our subordinated debentures have a floating interest rate equal
      to
      three-month LIBOR plus 3.75%, resetting quarterly (9.11% at September 30, 2007
      and 9.12% at December 31, 2006). These securities mature on March 15, 2035
      and
      may be called at par by the Company any time after March 15, 2010. HC entered
      into an interest rate cap agreement to limit the maximum interest rate cost
      of
      the trust preferred securities to 7.5%. The term of the interest rate cap
      agreement is five years and resets quarterly in conjunction with the reset
      periods of the trust preferred securities.




$20
      million of our subordinated debentures have a fixed interest rate equal to
      8.35%
      up to and including July 30, 2010, at which point the interest rate is
      converted to a floating rate equal to one-month LIBOR plus 3.95% until maturity.
      The securities mature on October 30, 2035 and may be called at par by the
      Company any time after October 30, 2010.





**Balance
      Sheet Analysis - Stockholders' Equity**




Stockholders'
      equity at September 30, 2007 was $24.9 million and included $10.9 million of net
      unrealized losses on available for sale securities and cash flow hedges
      presented as accumulated other comprehensive income.




**Prepayment
      Experience**




The
      cumulative prepayment rate (“CPR”) on our mortgage portfolio averaged
      approximately 20% during the nine month period ended September 30, 2007 as
      compared to 20% for the nine month period ended September 30, 2006. CPRs on
      our
      purchased portfolio of investment securities averaged approximately 14% while
      the CPRs on mortgage loans held for investment or held in our securitization
      trusts averaged approximately 26% during the nine month period ended September
      30, 2007. The CPR on our mortgage portfolio averages 20% for the three months
      ended September 30, 2007, as compared to 21% for the three months ended June
      30,
      2007 and 21% for the three months ended September 30, 2006. When prepayment
      expectations over the remaining life of assets increase, we have to amortize
      premiums over a shorter time period resulting in a reduced yield to maturity
      on
      our investment assets. Conversely, if prepayment expectations decrease, the
      premium would be amortized over a longer period resulting in a higher yield
      to
      maturity. We monitor our prepayment experience on a monthly basis and adjust
      the
      amortization of our net premiums accordingly.




**Results
      of Operations**




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


46




**Other
      Operational Information**




**September
                30,****2007
                (1)**
            
            **2006**
            
            **%
                change**Loan
                officers
            
            
            -
            
            
            378
            
            
            (100.0
            )%Other
                employees
            
            
            9
            
            
            307
            
            
            (97.1
            )%Total
                employees
            
            
            9
            
            
            685
            
            
            (98.7
            )%Number
                of sales locations
            
            
            -
            
            
            50
            
            
            (100.0
            )%





(1)
            In
                connection with the sale of our mortgage lending platform assets
                at the
                end of the first quarter of 2007, the Company exited the mortgage
                lending
                business and significantly reduced its staffing needs. As of March
                31,
                2007, the Company did not employ any loan officers and did not maintain
                any sales locations.****





***Comparative
      Net Loss***




**for the Three Months Ended**
                **September 30,**
              
              **for the Nine Months Ended**
                **September 30,****2007**
              
              **2006**
              
              **%
                  Change**
              
              **2007**
              
              **2006**
              
              **%
                  Change**Net
                  interest income
              
              $
              269
              
              $
              239
              
              
              12.6
              %
              $
              128
              
              $
              5,074
              
              
              (97.5
              )%Total
                  other (expenses) income
              
              
              (1,112
              )
              
              440
              
              
              (352.7
              )%
              
              (5,873
              )
              
              (529
              )
              
              (1010.2
              )%Total
                  expenses
              
              
              846
              
              
              411
              
              
              105.8
              %
              
              2,022
              
              
              1,871
              
              
              8.1
              %(Loss)
                  income for continuing operations
              
              
              (20,041
              )
              
              268
              
              
              (7,578.0
              )%
              
              (26,119
              )
              
              2,674
              
              
              (1,076.8
              )%Loss
                  from discontinued operations
              
              
              (675
              )
              
              (4,136
              )
              
              116.3
              %
              
              (13,534
              )
              
              (8,160
              )
              
              (65.9
              )%Net
                  loss
              
              
              (20,716
              )
              
              (3,868
              )
              
              (336.3
              )%
              
              (39,653
              )
              
              (5,486
              )
              
              (622.0
              )%EPS
                  Basic and Diluted
              
              $
              (5.70
              )
              $
              (1.07
              )
              
              (442.9
              )%
              $
              (10.94
              )
              $
              (1.53
              )
              
              (605.8
              )%




For
        the
        three months ended September 30, 2007, we reported a net loss of $20.7 million,
        as compared to a net loss of $3.9 million for the three months ended September
        30, 2006. For the nine months ended September 30, 2007, we reported a net
        loss
        of $39.7 million, as compared to a net loss of $5.5 million for the nine
        months
        ended September 30, 2006. The
        table
        below will detail the material components of the change in net loss for the
        three month and nine month ended periods.




See
      the
      following table for the selected components of the increase net loss for the
      three and nine months ended September 30, 2007 and 2006.




****
            
            **for the Three Months Ended**
              **September 30,**
            
            **for the Nine Months Ended**
              **September 30,****2007**
            
            **2006**
            
            **%**
              **Change**
            
            **2007**
            
            **2006**
            
            **%**
              **Change**Net
                interest income on investment portfolio
            
            $
            1,164
            
            $
            1,116
            
            
            4.3
            %
            $
            2,799
            
            $
            7,730
            
            
            (63.8
            )%Realized
                (loss) gain on sale of investment securities
            
            
            (1,013
            )
            
            440
            
            
            (330.2
            )%
            
            (4,834
            )
            
            (529
            )
            
            (813.8
            )%Loan
                loss reserve on loans held in securitization trust
            
            
            (99
            )
            
            -
            
            
            (100.0
            )%
            
            (1,039
            )
            
            -
            
            
            (100.0
            )%Allowance
                for deferred tax asset
            
            
            (18,352
            )
            
            -
            
            
            (100.0
            )%
            
            (18,352
            )
            
            -
            
            
            (100.0
            )%Loss
                from discontinued operations - net of tax
            
            $
            (675
            )
            $
            (4,136
            )
            
            83.7
            %
            $
            (13,534
            )
            $
            (8,160
            )
            
            (65.9
            )%




For
        the
        three months ended September 30, 2007, we reported a net loss of $20.7 million,
        as compared to a net loss of $3.9 million for the three months ended September
        30, 2006. The increase in net loss of $16.8 million for the three months
        ended
        September 30, 2007 as compared to the three months ended September 30, 2006
        is
        primarily due to an allowance for deferred tax asset of $18.4 million.
        For the nine months ended September 30, 2007, we reported a net loss of $39.7
        million, as compared to a net loss of $5.5 million for the nine months ended
        September 30, 2006. The increase in net loss of $34.2 million is due mainly
        to a
        decrease in net interest income from the investment portfolio of $4.9 million,
        an increase in realized losses from sale of investment securities totaling
        $4.3
        million, an increase in net loss from discontinued operations of $5.4 million
        and a $18.4 million allowance for the deferred tax asset.
 47




***Comparative
        Net Interest Income***


The
      following table sets forth the changes in net interest income, yields earned
      on
      mortgage loans and securities and rates on financial arrangements for the three
      and nine months ended September 30, 2007 and 2006:





**For the Three Months Ended****September 30,****2007**
            
            **2006****Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**($
                Millions)
            
            ($
                Millions)**Interest
                income:**Investment
                securities and loans held in the securitization
                trusts
            
            $
            863.7
            
            $
            12,813
            
            
            5.93
            %
            $
            1,281.3
            
            $
            17,632
            
            
            5.50
            %Amortization
                of net premium
            
            
            1.5
            
            
            (437
            )
            
            (0.21
            )%
            
            6.4
            
            
            (634
            )
            
            (0.22
            )%Interest
                income/weighted average
            
            $
            865.2
            
            $
            12,376
            
            
            5.72
            %
            $
            1,287.7
            
            $
            16,998
            
            
            5.28
            %**Interest
                expense:**Investment
                securities and loans held in the securitization trusts
            
            $
            817.6
            
            $
            11,212
            
            
            5.49
            %
            $
            1,214.4
            
            $
            15,882
            
            
            5.12
            %Subordinated
                debentures
            
            
            45.0
            
            
            895
            
            
            7.96
            %
            
            45.0
            
            
            877
            
            
            7.80
            %Interest
                expense/weighted average
            
            $
            862.6
            
            $
            12,107
            
            
            5.61
            %
            $
            1,259.4
            
            $
            16,759
            
            
            5.21
            %Net
                interest income/weighted average
            
            
            
            
            $
            269
            
            
            0.11
            %
            
            
            
            $
            239
            
            
            0.07
            %




**For
                the Nine Months Ended September 30,****2007**
            
            **2006****Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**
            
            **Average**
              **Balance**
            
            **Amount**
            
            **Yield/**
              **Rate**($
                Millions)
            
            ($
                Millions)**Interest
                income:**Investment
                securities and loans held in the securitization
                trusts
            
            $
            942.3
            
            $
            40,415
            
            
            5.72
            %
            $
            1,322.6
            
            $
            51,682
            
            
            5.21
            %Amortization
                of net premium
            
            
            3.2
            
            
            (1,428
            )
            
            (0.22
            )%
            
            6.1
            
            
            (1,632
            )
            
            (0.18
            )%Interest
                income/weighted average
            
            $
            945.5
            
            $
            38,987
            
            
            5.50
            %
            $
            1,328.7
            
            $
            50,050
            
            
            5.03
            %**Interest
                expense:**Investment
                securities and loans held in the securitization
                trusts
            
            $
            891.4
            
            $
            36,188
            
            
            5.41
            %
            $
            1,248.7
            
            $
            42,320
            
            
            4.47
            %Subordinated
                debentures
            
            
            45.0
            
            
            2,671
            
            
            7.83
            %
            
            45.0
            
            
            2,656
            
            
            7.87
            %Interest
                expense/weighted average
            
            $
            936.4
            
            $
            38,859
            
            
            5.47
            %
            $
            1,293.7
            
            $
            44,976
            
            
            4.59
            %Net
                interest income/weighted average
            
            
            
            
            $
            128
            
            
            0.03
            %
            
            
            
            $
            5,074
            
            
            0.44
            %


The
        decrease in net interest margin of $4.9 million for the nine months ended
        September 30, 2007 as compared to the nine months end September 30, 2006
        is
        primarily due to a decrease in average earning assets of $383.2 million as
        well
        as a reduction in net interest margin of 41 basis points.




48
 
  The
            following table sets forth 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 trust, excluding
            the costs of our subordinated debentures.
 **As
                  of the Quarter Ended**
              
              **Average**
                **Interest**
                **Earning**
                **Assets**
                **($ millions)**
              
              **Weighted**
                **Average**
                **Coupon**
              
              **Weighted**
                **AverageCash**
                **Yield on**
                **Interest**
                **Earning**
                **Assets**
              
              **Cost
                  of**
                **Funds**
              
              **Net Interest**
                **Spread**September
                  30, 2007
              
              $
              865.7
              
              
              5.93
              %
              
              5.72
              %
              
              5.38
              %
              
              0.34
              %June
                  30, 2007
              
              $
              948.6
              
              
              5.66
              %
              
              5.55
              %
              
              5.43
              %
              
              0.12
              %March
                  31, 2007
              
              $
              1,022.7
              
              
              5.59
              %
              
              5.36
              %
              
              5.34
              %
              
              0.02
              %December
                  31, 2006
              
              $
              1,111.0
              
              
              5.53
              %
              
              5.35
              %
              
              5.26
              %
              
              0.09
              %September
                  30, 2006
              
              $
              1,287.6
              
              
              5.50
              %
              
              5.28
              %
              
              5.12
              %
              
              0.16
              %June
                  30, 2006
              
              $
              1,217.9
              
              
              5.29
              %
              
              5.08
              %
              
              4.30
              %
              
              0.78
              %March
                  31, 2006
              
              $
              1,478.6
              
              
              4.85
              %
              
              4.75
              %
              
              4.04
              %
              
              0.71
              %December
                  31, 2005
              
              $
              1,499.0
              
              
              4.84
              %
              
              4.43
              %
              
              3.81
              %
              
              0.62
              %September
                  30, 2005
              
              $
              1,494.0
              
              
              4.69
              %
              
              4.08
              %
              
              3.38
              %
              
              0.70
              %June
                  30, 2005
              
              $
              1,590.0
              
              
              4.50
              %
              
              4.06
              %
              
              3.06
              %
              
              1.00
              %March
                  31, 2005
              
              $
              1,447.9
              
              
              4.39
              %
              
              4.01
              %
              
              2.86
              %
              
              1.15
              %December
                  31, 2004
              
              $
              1,325.7
              
              
              4.29
              %
              
              3.84
              %
              
              2.58
              %
              
              1.26
              %September
                  30, 2004
              
              $
              776.5
              
              
              4.04
              %
              
              3.86
              %
              
              2.45
              %
              
              1.41
              %
  ***Comparative
        Expenses***
 **for the Three Months EndedSeptember
                  30,**
              
              **for the Nine Months Ended**
                **September
                  30,****2007**
              
              **2006**
              
              **% Change**
              
              **2007**
              
              **2006**
              
              **% Change**Salaries
                  and benefits
              
              $
              178
              
              $
              166
              
              
              7.2
              %
              $
              674
              
              $
              618
              
              
              9.1
              %Marketing
                  and promotion
              
              
              37
              
              
              20
              
              
              85.0
              %
              
              99
              
              
              54
              
              
              83.3
              %Data
                  processing and communications
              
              
              50
              
              
              58
              
              
              (13.8
              )%
              
              143
              
              
              177
              
              
              (19.2
              )%Professional
                  fees
              
              
              266
              
              
              82
              
              
              224.4
              %
              
              471
              
              
              447
              
              
              5.4
              %Depreciation
                  and amortization
              
              
              93
              
              
              131
              
              
              29.0
              %
              
              242
              
              
              398
              
              
              (39.2
              )%Other
              
              
              222
              
              
              (46
              )
              
              (582.6
              )%
              
              393
              
              
              177
              
              
              (122.0
              )%$
              846
              
              $
              411
              
              
              105.8
              %
              $
              2,022
              
              $
              1,871
              
              
              8.1
              %
 The
          increase in professional fees of $0.2 million for the three months ended
          September 30, 2007 as compared to the three months ended September 30,
          2006 is
          due mainly to legal and accounting fees related to continued review our
          strategic alternative initiatives. The increase in other expenses of $0.3
          million for the three months ended September 30, 2007 as compared to the
          three
          months ended September 30, 2006 is due primarily to the change in allocation
          of
          certain expenses previously allocated to the discontinued mortgage lending
          operation. Also, the decrease of $0.2 million in depreciation and amortization
          for the nine months ended September 30, 2007 as compared the same period
          in 2006
          is due to the sale of fixed assets in the first quarter related to the
          disposal
          of the mortgage lending business.
  ***Discontinued
        Operation***
 **for the Three Months Ended**
                  **September
                    30,**
                
                **for the Nine Months Ended**
                  **September
                    30,****2007**
                
                **2006**
                
                **%
                    Change**
                
                **2007**
                
                **2006**
                
                **%
                    Change****Revenues:**Net
                    interest income
                
                $
                179
                
                $
                543
                
                
                (67.0
                )%
                $
                931
                
                $
                2,871
                
                
                (67.6
                )%(Loss)
                    gain on sale of mortgage loans
                
                
                (10
                )
                
                4,311
                
                
                (100.2
                )%
                
                2,540
                
                
                14,362
                
                
                (82.3
                )%Loan
                    (losses)
                
                
                (172
                )
                
                (4,077
                )
                
                (95.8
                )%
                
                (8,414
                )
                
                (4,077
                )
                
                (106.4
                )%Brokered
                    loan fees
                
                
                3
                
                
                2,402
                
                
                (99.9
                )%
                
                2,319
                
                
                8,672
                
                
                (73.3
                )%Gain
                    on sale of retail lending segment
                
                
                -
                
                
                -
                
                
                -
                %
                
                4,525
                
                
                -
                
                
                100.0
                %Other (expense)
                    income
                
                
                (39
                )
                
                43
                
                
                (190.7
                )%
                
                (24
                )
                
                (437
                )
                
                94.5
                %Total
                    net revenues
                
                $
                (39
                )
                $
                3,222
                
                
                (101.2
                )%
                $
                1,877
                
                $
                21,391
                
                
                (91.2
                )%**Expenses:**Salaries,
                    commissions and benefits
                
                $
                424
                
                $
                5,212
                
                
                (91.9
                )%
                $
                6,508
                
                $
                17,102
                
                
                (61.9
                )%Brokered
                    loan expenses
                
                
                -
                
                
                1,674
                
                
                (100.0
                )%
                
                1,731
                
                
                6,609
                
                
                (73.8
                )%Occupancy
                    and equipment
                
                
                (86
                )
                
                1,255
                
                
                (106.9
                )%
                
                2,124
                
                
                3,870
                
                
                (45.1
                )%General
                    and administrative
                
                
                298
                
                
                3,132
                
                
                (90.5
                )%
                
                5,048
                
                
                10,464
                
                
                (51.8
                )%Total
                    expenses
                
                
                636
                
                
                11,273
                
                
                (94.4
                )%
                
                15,411
                
                
                38,045
                
                
                (59.5
                )%**Loss
                    before income tax benefit**
                
                
                (675
                )
                
                (8,051
                )
                
                (91.6
                )%
                
                (13,534
                )
                
                (16,654
                )
                
                (18.7
                )%Income
                    tax (provision) benefit
                
                
                -
                
                
                3,915
                
                
                (100.0
                )%
                
                -
                
                
                8,494
                
                
                (100.0
                )%**Loss
                    from discontinued operations - net of tax**
                
                $
                (675
                )
                $
                (4,136
                )
                
                83.7
                %
                $
                (13,534
                )
                $
                (8,160
                )
                
                (65.9
                )%
  49
  The
        majority of the decreases in
        revenues and expensesare due to the Company's exit from the mortgage
        lending business in the first quarter of 2007. In addition, the Company
        experienced loan losses of $8.4 million and
        $4.1
        million for the nine months ended September 30, 2007 and 2006, respectively.
        This increase in loan losses for the nine months ended September 30, 2007
        from
        the same period in 2006 is largely attributable to decrease in real estate
        values.The Company recorded a net gain of $4.5 million for the sale of
        the retail segment during the nine months ending September 30, 2007. In
        addition, the Company incurred an $18.4 valuation allowance for the deferred
        tax
        asset, in the three months ended September 30, 2007.
  **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.
 
 **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, pay
        dividends to our stockholders and other general business needs. We recognize
        the
        need to have funds available for our operating businesses and our investment
        portfolio. We plan to meet liquidity through normal operations with the goal
        of
        avoiding unplanned sales of assets or emergency borrowing of funds.
  As
        of the
        date of this report, we believe our existing cash balances, funds available
        under our current repurchase agreements and cash flows from operations will
        be
        sufficient for our liquidity requirements for at least the next 12 months.
        At
        September 30, 2007, we had cash balances of $11.1 million and borrowings
        of
        $327.9 million under outstanding repurchase agreements. At September 30,
        2007,
        we also had longer-term capital resources from CDOs outstanding of $444.2
        million and from subordinated debt of $45.0 million.
 
 We
        had
        outstanding repurchase agreements, a form of collateralized short-term
        borrowing, with 4 different financial institutions as of September 30, 2007.
        These agreements are secured by our mortgage-backed securities and bear interest
        rates that have historically moved in close relationship to LIBOR. Our
        borrowings under repurchase agreements are based on the fair value of our
        mortgage backed securities portfolio.  See "Market (Fair Value) Risk" under
        Item 3 of this Form 10-Q.  Interest rate changes can have a negative impact
        on the valuation of these securities, reducing the amount we can borrow under
        these agreements.  Moreover because these lines of financing are not
        committed, meaning the counterparty can call the loan at any time, interest
        rate
        changes, concern regarding the fair value of our mortgage-backed securities
        portfolio, and shared concerns in the credit markets may lead to margin
        calls initiated by the repurchase agreement providers. External disruptions
        to
        credit markets might also impair access to additional liquidity.  See "Risk
        Factors" relating to liquidity under Part II, Item 1A of this Form 10-Q and
        "Liquidity and Funding Risk" under Item 3 of this Form 10-Q for a discussion
        of
        additional risks and uncertainties relating to our liquidity.
  During
        and subsequent to the month of August, 2007, the availability
        of short-term collateralized borrowing through repurchase agreements
        worsened considerably, primarily as a result of the fall-out from increasing
        defaults in the sub-prime mortgage market and losses incurred at a number
        of
        larger companies in the mortgage industry.  At September 30, 2007, we
        had outstanding balances under repurchase agreements with four different
        counterparties and, as of the date of this report, we have been successful
        at
        resetting all outstanding balances under our various repurchase agreements
        as
        they have become due.  In the event a counterparty elected to not reset the
        outstanding balance into a new repurchase agreement, we would be required
        to
        repay the outstanding balance with proceeds received from a new
        counterparty or to surrender the mortgage-backed securities that serve as
        collateral for the outstanding balance.  If we are unable to secure
        financing from another counterparty and surrender the collateral, we would
        expect to incur a significant loss.  Although we presently expect the
        short-term collateralized borrowing markets to continue providing us with
        necessary financing through repurchase agreements, we cannot assure you
        that this form of financing will be available to us in the future on
        comparable terms, if at all.
 
 Our
        investments and assets will also generate liquidity on an ongoing basis through
        mortgage principal and interest payments, pre-payments and net earnings held
        prior to payment of dividends. Should our liquidity needs ever exceed the
        on-going or immediate sources of liquidity discussed above, we believe that
        our
        securities could be sold to raise additional cash. Such sales might occur
        at prices lower than the carrying value of the assets, which would result
        in
        losses.
  50
  To
        finance our investment portfolio, we generally seek to borrow between eight
        and
        12 times the amount of our equity.  At
        September 30, 2007, our leverage ratio defined as financing arrangements,
        portfolio investments divided by total stockholders’ equity was 13 to 1.
        Collateralized debt obligations are not included in leverage ratio calculations
        as they do not require any upfront or market valuation over
        collateralization. We, and the providers of our financing facilities,
        generally view our $45.0 million of subordinated trust preferred debentures
        outstanding at September 30, 2007 as a form of equity which would result
        in an
        adjusted leverage ratio of 5 to 1.
  We
        enter
        into interest rate swap agreements to extend the maturity of our repurchase
        agreements as a mechanism to reduce the interest rate risk of the securities
        portfolio. As of September 30, 2007, we had $220.0 million in interest rate
        swaps outstanding with two different financial institutions. The weighted
        average maturity of the swaps was 560 days at September 30, 2007. The impact
        of
        the interest swaps extends the maturity of the repurchase agreements to 13
        months.
  On
        September 27, 2007, the Company’s board of directors elected to omit the
        quarterly dividend for holders of the Company’s common stock for the 2007 third
        quarter. The board of director’s decision continues to reflect the Company’s
        focus on elimination of operating losses related to the discontinued mortgage
        lending business with a view to conserving capital to build future earnings
        from
        our portfolio management operations. The Company’s board of directors will
        continue to evaluate the Company’s dividend policy each quarter and will make
        adjustments as necessary, based on a variety of factors, including, among
        other
        things, the Company’s financial condition, liquidity, earnings projections and
        business prospects. Our dividend policy does not constitute an obligation
        to pay
        dividends, which only occurs when the board of directors declares a dividend.
        Including this omitted dividend, during the nine months ended September 30,
        2007, we distributed approximately $1.8 million in common stock
        dividends.
  We
        intend
        to make distributions to our stockholders to comply with the various
        requirements to maintain our REIT status and to minimize or avoid corporate
        income tax and the nondeductible excise tax. However, differences in timing
        between the recognition of REIT taxable income and the actual receipt of
        cash
        could require us to sell assets or to borrow funds on a short-term basis
        to meet
        the REIT distribution requirements and to avoid corporate income tax and
        the
        nondeductible excise tax.
  Certain
        of our assets may generate substantial mismatches between REIT taxable income
        and available cash. These assets could include mortgage-backed securities
        we
        hold that have been issued at a discount and require the accrual of taxable
        income in advance of the receipt of cash. As a result, our REIT taxable income
        may exceed our cash available for distribution and the requirement to distribute
        a substantial portion of our net taxable income could cause us to:
  ·
                  sell
                      assets in adverse market
                      conditions;
 ·
                borrow
                    on unfavorable terms; or
  ·
                distribute
                    amounts that would otherwise be invested in assets or repayment
                    of debt,
                    in order to comply with the REIT distribution
                    requirements.
  Repurchase
        requests from mortgage loan investors are an important factor affecting our
        liquidity. Repurchase requests predominately result from early payment defaults
        (“EPDs”) (i.e., where the borrowers have not timely made some or all of their
        first three mortgage payments) or in the event of a breach of a representation,
        warranty or covenant under the loan sale agreement. While in the past we
        complied with the repurchase demands by repurchasing the loan and reselling
        it
        at a loss, more recently we have addressed these requests by negotiation
        of a
        net cash settlement based
        on
        the actual or assumed loss on the loan in lieu of repurchasing the
        loans. New repurchase demands increased during the three months ended September
        30, 2007 by
        approximately $1.0 million, while $0.5 million of existing repurchase requests
        were rescinded. In addition, we settled $18.4 million in repurchase requests,
        reducing the total outstanding repurchase requests to approximately
        $7.3 million, as compared to $25.2 million for the three months ended June
        30,
        2007. We cannot assure you that we will be successful in settling the
        remaining repurchase demands on favorable terms, or at all. If the Company
        cannot continue to resolve its current repurchase demands through negotiated
        net
        cash settlements, the Company's 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.
 
 **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. The
        impact
        of inflation is primarily reflected in the increased costs of our operations.
        Virtually all our assets and liabilities are financial in nature. Our
        consolidated financial statements and corresponding notes thereto have been
        prepared in accordance with GAAP, which require the measurement of financial
        position and operating results in terms of historical dollars without
        considering the changes in the relative purchasing power of money over time
        due
        to inflation. As a result, interest rates and other factors influence our
        performance far more than inflation. Inflation affects our operations primarily
        through its effect on interest rates, since interest rates typically increase
        during periods of high inflation and decrease during periods of low inflation.
        During periods of increasing interest rates, demand for mortgages and a
        borrower's ability to qualify for mortgage financing in a purchase transaction
        may be adversely affected. During periods of decreasing interest rates,
        borrowers may prepay their mortgages, which in turn may adversely affect
        our
        yield and subsequently the value of our portfolio of mortgage
        assets.
  51
  **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
 ·
                    Market
                        (fair value) risk
 ·
                      Credit
                          spread risk
 ·
                        Liquidity
                            and funding risk
 ·
                          Prepayment
                              risk
 ·
                            Credit
                                risk
 **Interest
        Rate Risk**
  Our
        primary interest rate exposure relates to the portfolio of adjustable-rate
        mortgage loans and mortgage-backed securities we acquire, as well as our
        variable-rate borrowings and related interest rate swaps and caps. Interest
        rate
        risk is defined as 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 the general level of interest rates can affect our net interest income,
        which
        is the difference between the interest income earned on interest earning
        assets
        and our interest expense incurred in connection with our interest bearing
        debt
        and liabilities. Changes in interest rates can also affect, among other things,
        our ability to acquire loans and securities, the value of our loans, mortgage
        pools and mortgage-backed securities, and our ability to realize gains from
        the
        resale and settlement of such originated loans.
  In
        our
        investment portfolio, our primary market risk is interest rate risk. Interest
        rate risk can be defined as the sensitivity of our portfolio, including future
        earnings potential, prepayments, valuations and overall liquidity to changes
        in
        interest rates. We attempt to manage interest rate risk by adjusting portfolio
        compositions, liability maturities and utilizing interest rate derivatives
        including interest rate swaps and caps. Management's goal is to maximize
        the
        earnings potential of the portfolio while maintaining long term stable portfolio
        valuations.
  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 this model, as of September 30, 2007, an instantaneous shift
        of
        100 basis points in interest rates would result in an approximate decrease
        in
        the net interest spread by 10-15 basis points as compared to our base line
        projections over the next year.
  52
  The
        following tables set forth information about financial instruments (dollar
        amounts in thousands):
  **September
                  30, 2007****Notional**
                **Amount**
              
              **Carrying**
                **Amount**
              
              **Estimated**
                **Fair Value**Investment
                  securities available for sale
              
              $
              367,980
              
              $
              359,872
              
              $
              359,872Mortgage
                  loans held in the securitization trusts
              
              
              457,057
              
              
              458,968
              
              
              453,067Commitments
                  and contingencies:Interest
                  rate swaps
              
              
              220,000
              
              
              (1,601
              )
              
              (1,601
              )Interest
                  rate caps
              
              $
              783,334
              
              $
              977
              
              $
              977
 
 **December
                  31, 2006****Notional**
                **Amount**
              
              **Carrying**
                **Amount**
              
              **Estimated**
                **Fair Value**Investment
                  securities available for sale
              
              $
              491,293
              
              $
              488,962
              
              $
              488,962Mortgage
                  loans held in the securitization trusts
              
              
              584,358
              
              
              588,160
              
              
              582,504Commitments
                  and contingencies:Interest
                  rate swaps
              
              
              285,000
              
              
              621
              
              
              621Interest
                  rate caps
              
              $
              1,540,518
              
              $
              2,011
              
              $
              2,011
  The
        impact of changing interest rates may be mitigated by portfolio prepayment
        activity that we closely monitor and the portfolio funding strategies we
        employ.
        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.
  In
        a
        period of declining interest rates or nominal differences between long-term
        and
        short-term interest rates, the rate of prepayment on our mortgage assets
        may
        increase. Increased prepayments would cause us to amortize any premiums paid
        for
        our mortgage assets faster, thus resulting in a reduced net yield on our
        mortgage assets. Additionally, to the extent proceeds of prepayments cannot
        be
        reinvested at a rate of interest at least equal to the rate previously earned
        on
        such mortgage assets, our earnings may be adversely affected.
  Conversely,
        if interest rates rise or if the differences between long-term and short-term
        interest rates increase the rate of prepayment on our mortgage assets may
        decrease. Decreased prepayments would cause us to amortize the premiums paid
        for
        our ARM assets over a longer time period, thus resulting in an increased
        net
        yield on our mortgage assets. Therefore, in rising interest rate environments
        where prepayments are declining, not only would the interest rate on the
        ARM
        Assets portfolio increase to re-establish a spread over the higher interest
        rates, but the yield also would rise due to slower prepayments. The combined
        effect could mitigate other negative effects that rising short-term interest
        rates might have on earnings.
  Interest
        rates can also affect our net return on hybrid adjustable rate (“hybrid ARM”)
        securities and loans net of the cost of financing hybrid ARMs. We
        continually monitor and estimate the duration of our hybrid ARMs and have
        a
        policy to hedge the financing of the hybrid ARMs such that the net duration
        of
        the hybrid ARMs, our borrowed funds related to such assets, and related hedging
        instruments are less than one year. During a declining interest rate
        environment, the prepayment of hybrid ARMs may accelerate (as borrowers may
        opt
        to refinance at a lower rate) causing the amount of liabilities that have
        been
        extended by the use of interest rate swaps to increase relative to the amount
        of
        hybrid ARMs, possibly resulting in a decline in our net return on hybrid
        ARMs as
        replacement hybrid ARMs may have a lower yield than those being prepaid.
        Conversely, during an increasing interest rate environment, hybrid ARMs may
        prepay slower than expected, requiring us to finance a higher amount of hybrid
        ARMs than originally forecast and at a time when interest rates may be higher,
        resulting in a decline in our net return on hybrid ARMs. Our exposure to
        changes in the prepayment speed of hybrid ARMs is mitigated by regular
        monitoring of the outstanding balance of hybrid ARMs and adjusting the amounts
        anticipated to be outstanding in future periods and, on a regular basis,
        making
        adjustments to the amount of our fixed-rate borrowing obligations for future
        periods.
  53
  Interest
        rate changes may also impact our net book value as our securities, certain
        mortgage loans and related hedge derivatives are marked-to-market each quarter.
        Generally, as interest rates increase, the value of our fixed income
        investments, such as mortgage loans and mortgage-backed securities, decreases
        and as interest rates decrease, the value of such investments will increase.
        We
        seek to hedge to some degree changes in value attributable to changes in
        interest rates by entering into interest rate swaps and other derivative
        instruments. In general, we would expect that, over time, decreases in value
        of
        our portfolio attributable to interest rate changes will be offset to some
        degree 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.
  In
        order
        to minimize the negative impacts of changes in interest rates on earnings
        and
        capital, we closely monitor our asset and liability mix and utilize interest
        rate swaps and caps, subject to the limitations imposed by the REIT
        qualification tests.
  Movements
        in interest rates can pose a major risk to us in either a rising or declining
        interest rate environment. We depend on substantial borrowings to conduct
        our
        business. These borrowings are all made at variable interest rate terms that
        will increase as short term interest rates rise. Additionally, when interest
        rates rise, mortgage loans held for sale and any applications in process
        with
        interest rate lock commitments, or IRLCs, decrease in value. To preserve
        the
        value of such loans or applications in process with IRLCs, we may enter into
        forward sale loan contracts, or FSLCs, to be settled at future dates with
        fixed
        prices.
  Our
        hedging transactions using derivative instruments also involve certain
        additional risks such as counterparty credit risk, the enforceability of
        hedging
        contracts and the risk that unanticipated and significant changes in interest
        rates will cause a significant loss of basis in the contract. The counterparties
        to our derivative arrangements are major financial institutions and securities
        dealers that are well capitalized with high credit ratings and with which
        we may
        also have other financial relationships. While we do not anticipate
        nonperformance by any counterparty, we are exposed to potential credit losses
        in
        the event the counterparty fails to perform. Our exposure to credit risk
        in the
        event of default by a counterparty is the difference between the value of
        the
        contract and the current market price. There can be no assurance that we
        will be
        able to adequately protect against the forgoing risks and will ultimately
        realize an economic benefit that exceeds the related expenses incurred in
        connection with engaging in such hedging strategies.
  ***Market
        (Fair Value) Risk***
  For
        certain of the financial instruments that we own, fair values will not be
        readily available since there are no active trading markets for these
        instruments as characterized by current exchanges between willing parties.
        Accordingly, fair values can only be derived or estimated for these investments
        using various valuation techniques, such as computing the present value of
        estimated future cash flows using discount rates commensurate with the risks
        involved. However, the determination of estimated future cash flows is
        inherently subjective and imprecise. Minor changes in assumptions or estimation
        methodologies can have a material effect on these derived or estimated fair
        values. These estimates and assumptions are indicative of the interest rate
        environments as of September 30, 2007, and do not take into consideration
        the
        effects of subsequent interest rate fluctuations.
  We
        note
        that the values of our investments in mortgage-backed securities and in
        derivative instruments, primarily interest rate hedges on our debt, will
        be
        sensitive to changes in market interest rates, interest rate spreads, credit
        spreads and other market factors. The value of these investments can vary
        and
        has varied materially from period to period. Historically, the values of
        our
        mortgage loan portfolio have tended to vary inversely with those of its
        derivative instruments.
  The
        following 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 cash flows, 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 investment are determined by the loan pricing
        sheet which is based on internal management pricing and third party competitors
        in similar products and markets.
  54
  The
        fair
        value of loan commitments to fund with agreed upon rates are estimated using
        the
        fees and rates currently charged to enter into similar agreements, taking
        into
        account the remaining terms of the agreements and the present creditworthiness
        of the counterparties. For fixed rate loan commitments, fair value also
        considers the difference between current market interest rates and the existing
        committed rates.
  The
        fair
        value of commitments to deliver mortgages is estimated using current market
        prices for dealer or investor commitments relative to our existing
        positions.
  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 ARM portfolio 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 ARM 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 of our portfolio using
        a
        discounted cash flow simulation model. Application of this method results
        in an
        estimation of the percentage change in the market value of our assets,
        liabilities and hedging instruments per 100 basis point (“bp”) shift in interest
        rates expressed in years - a measure commonly referred to as duration. Positive
        portfolio duration indicates that the market value of the total portfolio
        will
        decline if interest rates rise and increase if interest rates decline. The
        closer duration is to zero, the less interest rate changes are expected to
        affect earnings. Included in the table is a “Base Case” duration calculation for
        an interest rate scenario that assumes future rates are those implied by
        the
        yield curve as of September 30, 2007. The other two scenarios assume interest
        rates are instantaneously 100 and 200 bps higher that those implied by market
        rates as of September 30, 2007.
  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 ARM Assets resulting
        from
        periodic and lifetime cap features, as well as prepayment options. Assets
        and
        liabilities that are not interest rate-sensitive such as cash, payment
        receivables, prepaid expenses, payables and accrued expenses are excluded.
        The
        duration calculated from this model is a key measure of the effectiveness
        of our
        interest rate risk management strategies.
  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.
  **Net
        Portfolio Duration**
 **September
        30, 2007**
  **Basis point increase****-100**
              
              **Base**
              
              **+100**
              
              **+200**Mortgage
                  Portfolio
              0.27
              
              
              0.36
                  years
              
              
              0.60 years
              
              
              0.90 yearsBorrowings
                  (including hedges)
              0.34
              
              
              0.34
                  years
              
              
              0.34
                  years
              
              
              0.34
                  yearsNet
              (0.07)
              
              
              0.02
                  years
              
              
              0.26
                  years
              
              
              0.56
                  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.
  55
  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 ARM products and the availability
        and the cost of financing for ARM products. 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 ARM Assets in determining the earnings at risk.
  ***Credit
        Spread Risk***
  The
        mortgage-backed securities we currently, and will in the future, own are
        also
        subject to spread risk. The majority of these securities will be adjustable-rate
        securities that are valued based on a market credit spread to U.S. Treasury
        security yields. In other words, their value is dependent on the yield demanded
        on such securities by the market based on their credit relative to U.S. Treasury
        securities. Excessive supply of such securities combined with reduced demand
        will generally cause the market to require a higher yield on such securities,
        resulting in the use of a higher or wider spread over the benchmark rate
        (usually the applicable U.S. Treasury security yield) to value such securities.
        Under such conditions, the value of our securities portfolio would tend to
        decline. Conversely, if the spread used to value such securities were to
        decrease or tighten, the value of our securities portfolio would tend to
        increase. Such changes in the market value of our portfolio may affect our
        net
        equity, net income or cash flow directly through their impact on unrealized
        gains or losses on available-for-sale securities, and therefore our ability
        to
        realize gains on such securities, or indirectly through their impact on our
        ability to borrow and access capital.
  Furthermore,
        shifts in the U.S. Treasury yield curve, which represents the market's
        expectations of future interest rates, would also affect the yield required
        on
        our securities and therefore their value. These shifts, or a change in spreads,
        would have a similar effect on our portfolio, financial position and results
        of
        operations.
  ***Liquidity
        and Funding Risk***
  Liquidity
        is a measure of our ability to meet potential cash requirements, including
        ongoing commitments to repay borrowings, meet margin requirements, fund and
        maintain investments, pay dividends to our stockholders and meet other general
        business needs. We recognize the need to have funds available for our operating.
        It is our policy to have adequate liquidity at all times. We plan to meet
        liquidity through normal operations with the goal of avoiding unplanned sales
        of
        assets or emergency borrowing of funds.
 
 As
        it
        relates to our investment portfolio, derivative financial instruments we
        use
        also subject us to “margin call” risk based on their market values. Under our
        interest rate swaps, we pay a fixed rate to the counterparties while they
        pay us
        a floating rate. When floating rates are low, on a net basis we pay the
        counterparty and visa-versa. In a declining interest rate environment, we
        would
        be subject to additional exposure for cash margin calls due to accelerating
        prepayments of mortgage assets. However, the asset side of the balance sheet
        should increase in value in a further declining interest rate scenario. Most
        of
        our interest rate swap agreements provide for a bi-lateral posting of margin,
        the effect being that either swap party must post margin, depending on the
        change in value of the swap over time. Unlike typical unilateral posting
        of
        margin only in the direction of the swap counterparty, this provides us with
        additional flexibility in meeting our liquidity requirements as we can call
        margin on our counterparty as swap values increase.
  Incoming
        cash on our mortgage loans and securities is a principal source of cash.
        The
        volume of cash depends on, among other things, interest rates. The volume
        and
        quality of such incoming cash flows can be impacted by severe and immediate
        changes in interest rates. If rates increase dramatically, our short-term
        funding costs will increase quickly. While many of our investment portfolio
        loans are hybrid ARMs, they typically will not reset as quickly as our funding
        costs creating a reduction in incoming cash flow. Our derivative financial
        instruments are used to mitigate the effect of interest rate
        volatility.
  We
        manage
        liquidity to ensure that we have the continuing ability to maintain cash
        flows
        that are adequate to meet commitments on a timely and cost-effective basis.
        Our
        principal sources of liquidity are the repurchase agreement market, the issuance
        of CDOs, loan warehouse facilities as well as principal and interest payments
        from portfolio assets. 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.
  56
  ***Prepayment
        Risk***
  When
        borrowers repay the principal on their mortgage loans before maturity or
        faster
        than their scheduled amortization, the effect is to shorten the period over
        which interest is earned, and therefore, reduce the cash flow and yield on
        our
        ARM assets. Furthermore, prepayment speeds exceeding or lower than our
        reasonable estimates for similar assets, impact the effectiveness of any
        hedges
        we have in place to mitigate financing and/or fair value risk. Generally,
        when
        market interest rates decline, borrowers have a tendency to refinance their
        mortgages. The higher the interest rate a borrower currently has on his or
        her
        mortgage the more incentive he or she has to refinance the mortgage when
        rates
        decline. Additionally, when a borrower has a low loan-to-value ratio, he
        or she
        is more likely to do a “cash-out” refinance. Each of these factors increases the
        chance for higher prepayment speeds during the term of the loan.
  We
        mitigate prepayment risk by constantly evaluating our ARM portfolio at a
        range
        of reasonable market prepayment speeds observed at the time for assets with
        a
        similar structure, quality and characteristics. Furthermore, we stress-test
        the
        portfolio as to prepayment speeds and interest rate risk in order to develop
        an
        effective hedging strategy.
  For
        the
        nine and three months ended September 30, 2007, our mortgage assets paid
        down at
        an approximate average annualized constant paydown rate (“CPR”) of 20% and 20%,
        respectively, compared to 20% and 21%, respectively, for the comparable periods
        in 2006 and 19% for the year ended December 31, 2006. When prepayment experience
        increases, we have to amortize our premiums over a shorter time period,
        resulting in a reduced yield to maturity on our ARM Assets. Conversely, if
        actual prepayment experience decreases, we would amortize the premium over
        a
        longer time period, resulting in a higher yield to maturity. We monitor our
        prepayment experience on a monthly basis and adjust the amortization of the
        net
        premium, as appropriate.
  ***Credit
        Risk***
  Credit
        risk is the risk that we will not fully collect the principal we have invested
        in mortgage loans or securities. As previously noted, we were predominately
        a
        high-quality loan originator and our underwriting guidelines are intended
        to
        evaluate the credit history of the potential borrower, the capacity and
        willingness of the borrower to repay the loan, and the adequacy of the
        collateral securing the loan. Along with this however, during 2006 and the
        first
        quarter of 2007, immediately prior to our sale of our mortgage lending
        operation, there was a growing percentage of loans underwritten with stated
        income and/or stated assets. These loan types make credit risk assessment
        more
        difficult.
  We
        mitigate credit risk by establishing and applying criteria that identifies
        high-credit quality borrowers. With regard to the purchased mortgage security
        portfolio, we rely on the credit worthiness of Fannie Mae,
        Freddie Mac or the AAA/Aaa rating established by the Rating
        Agencies.
  With
        regard to loans included in our securitization, factors such as FICO score,
        LTV,
        debt-to-income ratio, and other borrower and collateral factors are evaluated.
        Credit enhancement features, such as mortgage insurance may also be factored
        into the credit decision. In some instances, when the borrower exhibits strong
        compensating factors, exceptions to the underwriting guidelines may be
        approved.
  Our
        mortgage loans held in securitization are concentrated in geographic markets
        that are generally supply constrained. We believe that these markets have
        less
        exposure to sudden declines in housing values than those markets which have
        an
        oversupply of housing.
  **Item
        4. Controls and Procedures**
  *Evaluation
        of Disclosure Controls and Procedures* -
        We
        maintain disclosure controls and procedures that are designed to ensure that
        information required to be disclosed in the reports that we file or submit
        under
        the Securities Exchange Act of 1934, as amended, is recorded, processed,
        summarized and reported within the time periods specified in the rules and
        forms
        of the SEC, and that such information is accumulated and communicated to
        our
        management timely. An evaluation was performed under the supervision and
        with
        the participation of our management, including our Co-Chief Executive Officers
        and our Chief Financial Officer, of the effectiveness of our disclosure controls
        and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
        Exchange Act of 1934, as amended) as of September 30, 2007. Based upon that
        evaluation, our management, including our Co-Chief Executive Officers and
        our
        Chief Financial Officer, concluded that our disclosure controls and procedures
        were effective as of September 30, 2007.
  *Changes
        in Internal Control over Financial Reporting* -
        Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting for our Company, as such term is defined
        in
        Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
        as
        amended. Our internal control system was designed to provide reasonable
        assurance to our management and board of directors regarding the reliability,
        preparation and fair presentation of published financial statements in
        accordance with generally accepted accounting principles.
  57
  As
        previously disclosed in the Company's Annual Report on Form 10-K for the
        fiscal
        year ended December 31, 2006, filed with the SEC on April 2, 2007, we identified
        a material weakness in our internal control over financial reporting as of
        December 31, 2006. A material weakness is a control deficiency or combination
        of
        control deficiencies that results in more than a remote likelihood that a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. The material weakness identified was an inadequacy
        in the
        operation of our control activities involving the completion and review of
        the
        accounting period closing process. The sale of substantially all of the
        operating assets of our mortgage lending platform to IndyMac Bank, F.S.B.,
        which
        closed as of March 31, 2007, significantly increased the workload demands
        of the
        existing accounting staff, thereby disrupting the timely completion and review
        of the accounting period closing process. In addition, in connection with
        the
        uncertainty of the consummation and effect of the Indymac transaction, the
        accounting department was affected by the departure of certain key accounting
        personnel during this time. The increased workload and decreased staff levels
        resulted in a significant number of post-closing journal entries and contributed
        to a request for additional time to file our Annual Report on Form
        10-K.
 
 In
        making
        our assessment of the internal control over financial reporting, our management
        used the criteria issued by the Committee of Sponsoring Organizations of
        the
        Treadway Commission (COSO) in *Internal Control-Integrated Framework.* Because
        of the material weaknesses described above, management concluded that our
        internal control over financial reporting was not effective as of December
        31,
        2006. At March 31, 2007, due to post-closing transition requirements related
        to
        the IndyMac transaction, we determined that the material weakness had not
        yet
        been remediated. Although we believe the actions and events outlined below
        have
        improved our internal controls, we determined that the material weakness
        had not been remediated at September 30, 2007.
 
 As
        previously disclosed in our Annual Report on Form 10-K for the year ended
        December 31, 2006, and in our quarterly reports on Form 10-Q for the three
        months ended March 31, 2007 and June 30, 2007, during the first, second 
and third quarters of 2007, our management actively assessed our accounting
        needs to determine appropriate staffing levels. Subsequent to March 31, 2007,
        management identified and engaged certain accounting consultants to perform
        the
        functions of controller for the Company. Effective October 1, 2007, the Company
        employed a full-time controller. In addition, with the completion of
        substantially all of the post-closing requirements related to the IndyMac
        transaction the workload demands on our accounting staff and disruptions
        to the
        accounting period closing process have been greatly reduced. Management believes
        that our internal controls have improved as a result of these actions and
        events
        and will continue to assess the Company's accounting needs and take such
        steps
        as necessary to maintain effective controls.
  **PART
        II: OTHER INFORMATION**
 
 **Item
        1A. Risk Factors**
  We
        previously disclosed risk factors under "Item 1A. Risk Factors" in our Annual
        Report on Form 10-K for the year ended December 31, 2006. In addition to
        those
        risk factors and the other information included elsewhere in this report,
        you
        should also carefully consider the risk factors discussed below. The risks
        described below and in our Annual Report on Form 10-K for the year ended
        December 31, 2006, are not the only risks facing our company. Additional
        risks
        and uncertainties not currently known to us or that we deem to be immaterial
        also may materially adversely affect our business, financial condition and/or
        results of operations.
  ***Possible
        market developments could reduce the amount of liquidity available to us
        and
        could cause our lenders to require us to pledge additional assets as collateral.
        If we are unable to obtain sufficient short-term financing or our assets
        are
        insufficient to meet the collateral requirements, then we may be compelled
        to
        liquidate particular assets at an inopportune time.***
  58
  Possible
        market developments, including a sharp rise in interest rates, a change in
        prepayment rates or increasing market concern about the value or liquidity
        of
        one or more types of mortgage-related assets in which our portfolio is
        concentrated may reduce the market value of ** our
        portfolio, which may reduce the amount of liquidity available to us or may
        cause
        our lenders to require additional collateral. If we are unable to obtain
        sufficient short-term financing or our lenders start to require additional
        collateral, we may be compelled to liquidate our assets at a disadvantageous
        time, thus harming our operating results, net profitability and ability to
        make
        distributions to you.
 
 ***Our
        use of repurchase agreements to borrow funds may give our lenders greater
        rights
        in the event that either we or a lender files for
        bankruptcy.***
 
 Our
        borrowings under repurchase agreements may qualify for special treatment
        under
        the bankruptcy code, giving our lenders the ability to avoid the automatic
        stay
        provisions of the bankruptcy code and to take possession of and liquidate
        our
        collateral under the repurchase agreements without delay in the event that
        we
        file for bankruptcy. Furthermore, the special treatment of repurchase agreements
        under the bankruptcy code may make it difficult for us to recover our pledged
        assets in the event that a lender files for bankruptcy. Thus, the use of
        repurchase agreements exposes our pledged assets to risk in the event of
        a
        bankruptcy filing by either a lender or us.
 
 ***The
        Company's liquidity may be adversely affected by margin calls under its
        repurchase agreements because they are dependent in part on the lenders'
        valuation of the collateral securing the financing.***
 
 Each
        of
        these repurchase agreements allows the lender, to varying degrees, to revalue
        the collateral to values that the lender considers to reflect market. If
        a
        lender determines that the value of the collateral has decreased, it may
        initiate a margin call requiring the Company to post additional collateral
        to
        cover the decrease. When the Company is subject to such a margin call, it
        must
        provide the lender with additional collateral or repay a portion of the
        outstanding borrowings with minimal notice. Any such margin call could harm
        the
        Company's liquidity, results of operation, financial condition, and business
        prospects. Additionally, in order to obtain cash to satisfy a margin call,
        the
        Company may be required to liquidate assets at a disadvantageous time, which
        could cause it to incur further losses and adversely affect its results of
        operations and financial condition.
  ***The
        Company's loan delinquencies may increase as a result of significantly increased
        monthly payments required from ARM borrowers after the initial fixed
        period.***
  Scheduled
        increase in monthly payments on adjustable rate mortgage loans may result
        in
        higher delinquency rates on mortgage loans and could have a material adverse
        affect on our net income and results of operations. This increase in borrowers'
        monthly payments, together with any increase in prevailing market interest
        rates, may result in significantly increased monthly payments for borrowers
        with
        adjustable rate mortgage loans. Borrowers seeking to avoid these increased
        monthly payments by refinancing their mortgage loans may no longer be able
        to
        fund available replacement loans at comparably low interest rates. A decline
        in
        housing prices may also leave borrowers with insufficient equity in their
        homes
        to permit them to refinance their loans or sell their homes. In addition,
        these
        mortgage loans may have prepayment premiums that inhibit
        refinancing.
 
 ***We
        may be required to repurchase loans if we breached representations and
        warranties from loan sale transactions, which could harm our profitability
        and
        financial condition.***
  Loans
        from our discontinued mortgage lending operations are sold to third parites
        under agreements with numerous representations and
        warranties regarding the manner in which the loan was
        originated, the property securing the loan and the borrower. If these
        representations or warranties are found to have been breached, we may be
        required to repurchase such loan. We may be forced to resell these repurchased
        loans at a loss, which could harm our profitability and financial
        condition.
  ***We
        may incur increased borrowing costs related to repurchase agreements and
        that
        would harm our profitability.***
  Currently,
        a significant portion of our borrowings are collateralized borrowings in
        the
        form of repurchase a agreements. If the interest rates on these agreements
        increase, that would harm our profitability.
  Our
        borrowing costs under repurchase agreements generally correspond to short-term
        interest rates such as LIBOR or a short-term Treasury index, plus or minus
        a
        margin. The margins on these borrowings over or under short-term interest
        rates
        may vary depending upon:
  ·
              the
                  movement of interest rates;
  ·
              the
                  availability of financing in the market;
                  and
  59
  ·
              the
                  value and liquidity of our mortgage-related
                  assets.
  ***Because
        assets we acquire may experience periods of illiquidity, we may lose profits
        or
        be prevented from earning capital gains if we cannot sell mortgage-related
        assets at an opportune time.***
  We
        bear
        the risk of being unable to dispose of our mortgage-related assets at
        advantageous times or in a timely manner because mortgage-related assets
        generally experience periods of illiquidity. The lack of liquidity may result
        from the absence of a willing buyer or an established market for these assets,
        as well as legal or contractual restrictions on resale. As a result, the
        illiquidity of mortgage-related assets may cause us to lose profits and the
        ability to earn capital gains.
  ***Our
        common stock is currently quoted for trading on the Over the Counter Bulletin
        Board which may adversely impact the liquidity of our shares and reduce the
        value of an investment in our stock.***
  Effective
        September 11, 2007, our common stock was delisted from quotation on the New
        York
        Stock Exchange and on the same day our common stock became quoted on the
        Over
        the Counter exchange. We have applied to list our common stock on another
        national securities exchange, however, we can provide no assurance that our
        common stock will be approved for listing on another national securities
        exchange in the future. Our common stock has historically been sporadically
        or
“thinly traded” (meaning that the number of persons interested in purchasing our
        shares at or near ask prices at any given time may be relatively small or
        non-existent) and no assurances can be given that a broader or more active
        public trading market for our common stock will develop or be sustained in
        the
        future or that current trading levels will be sustained. You may be unable
        to
        sell at or near ask prices or at all if you desire to liquidate your shares.
        This situation is attributable to a number of factors, including, among other
        things, the fact that we are a small company which is relatively unknown
        to
        stock analysts, stock brokers, institutional investors and others in the
        investment community that generate or influence sales volume. As a consequence,
        there may be periods of several days or more when trading activity in our
        shares
        is minimal or non-existent, as compared to a seasoned issuer which has a
        large
        and steady volume of trading activity that will generally support continuous
        sales without an adverse effect on share price.
  ***We
          have not established a minimum dividend payment level for our common
          stockholders and there are no assurances of our ability to pay dividends
          to them
          in the future.***
  We
        intend
        to pay quarterly dividends and to make distributions to our common stockholders
        in amounts such that all or substantially all of our taxable income in each
        year, subject to certain adjustments, is distributed. This, along with other
        factors, should enable us to qualify for the tax benefits accorded to a REIT
        under the Code. We have not established a minimum dividend payment level
        for our
        common stockholders and our ability to pay dividends may be harmed by the
        risk
        factors described above and in our annual report on Form 10-K. On July
        23, 2007, our board of directors elected to omit declaring and paying a dividend
        to common stockholders for the 2007 second quarter.  The board of
        directors' decision reflected the Company's focus on elimination of
        operating losses through the sole of our mortgage lending business with a
        view
        to conserving capital to build future earnings from our portfolio
        management operations.  All distributions to our common stockholders will
        be made at the discretion of our board of directors and will depend on our
        earnings, our financial condition, maintenance of our REIT status and such
        other
        factors as our board of directors may deem relevant from time to time. There
        are
        no assurances of our ability to pay dividends in the future.
 
 **Item
        6. Exhibits**
  The
        information set forth under “Exhibit Index” below is incorporated herein by
        reference.
 
 60
 **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  NEW
                  YORK MORTGAGE TRUST, INC.Date:
                  November 14, 2007
              By:
              /s/ David
                  A. AkreDavid
                  A. Akre
                Co-Chief
                  Executive Officer
  Date:
                  November 14, 2007
              By:
              /s/
                  Steven R. MummaSteven
                  R. Mumma
                Chief
                  Financial Officer
  61
 
 **EXHIBIT
        INDEX**
  **No.**
              
              **Description**3.1(a)
              
              Articles
                  of Amendment and Restatement of the Registrant (incorporated by
                  reference
                  to Exhibit 3.01 to our Registration Statement on Form S-11/A filed
                  on
                  June 18, 2004 (Registration No. 333-111668)).3.1(b)
              
              Articles
                    of Amendment of the Registrant (incorporated by reference to
                    Exhibit 3.1
                    to our Current Report on Form 8-K filed on October 4,
                    2007.)3.1(c)
              
              Articles
                    of Amendment of the Registrant (incorporated by reference to
                    Exhibit 3.2
                    to our Current Report on Form 8-K filed on October 4,
                    2007.)3.2(a)
              
              Bylaws
                  of the Registrant (incorporated by reference to Exhibit 3.02 to
                  our
                  Registration Statement on Form S-11/ A filed on June 18, 2004
                  (Registration No. 333-111668)).3.2(b)
              
              Amendment
                  No. 1 to Bylaws of Registrant (incorporated by reference to Exhibit
                  3.2(b)
                  to Registrant's Annual Report on Form 10-K filed on March 16,
                  2006)4.1
              
              Form
                  of Common Stock Certificate (incorporated by reference to Exhibit
                  4.01 to
                  our Registration Statement on Form S-11/ A filed on June 18, 2004
                  (Registration No. 333-111668)).4.2(a)
              
              Junior
                  Subordinated Indenture between The New York Mortgage Company, LLC
                  and
                  JPMorgan Chase Bank, National Association, as trustee, dated
                  September 1, 2005 (incorporated by reference to Exhibit 4.1 to our
                  Current Report on Form 8-K filed on September 6,
                  2005).4.2(b)
              
              Amended
                  and Restated Trust Agreement among The New York Mortgage Company,
                  LLC,
                  JPMorgan Chase Bank, National Association, Chase Bank USA, National
                  Association and the Administrative Trustees named therein, dated
                  September 1, 2005 (incorporated by reference to Exhibit 4.2 to our
                  Current Report on Form 8-K filed on September 6,
                  2005).10.1
              
              Fourth
                  Amendment to Assignment and Assumption of Sublease dated as of
                  August 30,
                  2007 by and between The New York Mortgage Company, LLC and Lehman
                  Brothers
                  Holdings, Inc.*31.1
              
              Certification
                  of Co-Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.*31.2
              
              Certification
                  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.*32.1
              
              Certification
                  of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.*32.2
              
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.*
  *
              Filed
                  herewith
  62