**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  
 **FORM
        10-Q**
 
 
 þ  **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 **For
        the quarterly period ended June 30, 2006**
 
  ̈  **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: 1-32171**
 
 **Opteum
        Inc.**
 **(Exact
        name of registrant as specified in its charter)**
 
 **Maryland**
              
              **72-1571637****(State
                  or other jurisdiction of**
                **incorporation
                  or organization)**
              
              **(I.R.S.
                  Employer**
                **Identification
                  No.)**
 
 **3305
        Flamingo Drive, Vero Beach, Florida 32963**
 **(Address
        of principal executive offices) (Zip Code)**
 
 **(772)
        231-1400**
 **(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 þ NO  ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
 Large
                  accelerated filer ̈
              
              Accelerated
                  filerþ
              
              Non-accelerated
                  filer ̈
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES  ̈ NO þ
 
 As
        of
        August 4, 2006, the number of shares outstanding of the registrant’s Class A
        Common Stock, $0.001 par value, was 24,363,499; the number of shares outstanding
        of the registrant’s Class B Common Stock, $0.001 par value, was 319,388; and the
        number of shares outstanding of the registrant’s Class C Common Stock, $0.001
        par value, was 319,388.
 
 
 
 
 **OPTEUM INC.**
  **INDEX**
 
 
 
 PART
                  I. FINANCIAL INFORMATION
              3ITEM
                  1.FINANCIAL
                  STATEMENTS.
              3Consolidated
                  Balance Sheets as of June 30, 2006 (unaudited) and December 31,
                  2005
              3Consolidated
                  Statements of Operations for the six and three months ended June
                  30, 2006
                  and 2005 (unaudited)
              5Consolidated
                  Statement of Stockholders’ Equity for the six months ended June 30, 2006
                  (unaudited)
              7Consolidated
                  Statements of Cash Flows for the six months ended June 30, 2006
                  and 2005
                  (unaudited)
              8Notes
                  to Consolidated Financial Statements (unaudited)
              10ITEM
                  2.MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND
                  RESULTS OF OPERATIONS.
              34ITEM
                  3.QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
              47ITEM
                  4.CONTROLS
                  AND PROCEDURES.
              47PART
                  II. OTHER INFORMATIONITEM
                  1.LEGAL
                  PROCEEDINGS.
              48ITEM
                  1A.RISK
                  FACTORS
              48ITEM
                  4.SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS.
              48ITEM
                  6.EXHIBITS.
              48
 
 
 
  
  **PART
        I. FINANCIAL INFORMATION**
 **ITEM
        1. FINANCIAL STATEMENTS.**
 **OPTEUM
                  INC.****CONSOLIDATED
                  BALANCE SHEETS****(Unaudited)****June
                  30,**
              
              **December
                  31,**ASSETS
              
              **2006**
              
              **2005**MORTGAGE
                  BACKED SECURITIES:Pledged
                  to counterparties, at fair value
              $
              3,402,507,367
              $
              3,493,490,046Unpledged,
                  at fair value
              
              4,780,647
              
              539,313TOTAL
                  MORTGAGE BACKED SECURITIES
              
              3,407,288,014
              
              3,494,029,359Cash
                  and cash equivalents
              
              71,416,035
              
              130,510,948Restricted
                  cash
              
              1,080,000
              
              2,310,000Securities
                  held for sale
              
              987,716
              
              2,782,548Mortgage
                  loans held for sale, net
              
              756,838,343
              
              894,237,630Retained
                  interests, trading
              
              88,395,952
              
              98,010,592Mortgage
                  servicing rights, net
              
              96,637,099
              
              86,081,594Principal
                  payments receivable
              
              18,519,079
              
              21,497,365Accrued
                  interest receivable
              
              16,107,413
              
              15,740,475Other
                  receivables, net
              
              10,229,903
              
              24,512,118Property
                  and equipment, net
              
              17,113,546
              
              16,067,170Prepaid
                  and other assets
              
              22,163,947
              
              19,321,766TOTAL
                  ASSETS
              $
              4,506,777,047
              $
              4,805,101,565LIABILITIES
                  AND STOCKHOLDERS' EQUITYLIABILITIES:Repurchase
                  agreements
              $
              3,306,887,250
              $
              3,337,598,362Warehouse
                  lines of credit and drafts payable
              
              736,969,786
              
              873,741,429Other
                  secured borrowings
              
              104,825,432
              
              104,886,339Junior
                  subordinated notes due to Bimini Capital Trust I & II
              
              103,097,000
              
              103,097,000Accrued
                  interest payable
              
              25,490,425
              
              30,232,719Unsettled
                  security purchases
              
              -
              
              58,278,701Dividends
                  payable
              
              6,318,383
              
              -Compensation
                  and related benefits payable
              
              801,667
              
              -Deferred
                  tax liability
              
              7,703,705
              
              18,360,679Accounts
                  payable, accrued expenses and other
              
              14,607,421
              
              26,417,996TOTAL
                  LIABILITIES
              
              4,306,701,069
              
              4,552,613,225STOCKHOLDERS'
                  EQUITY:Preferred
                  Stock, $0.001 par value; 10,000,000 shares authorized; designated,
                  1,800,000 shares of Class A Redeemable and 2,000,000 shares as
                  Class B
                  Redeemable; issued and outstanding at December 31, 2005, 1,223,208
                  Class A
                  Redeemable and no Class B Redeemable; no shares issued and outstanding
                  at
                  June 30, 2006
              
              -
              
              1,223Class
                  A Common Stock, $0.001 par value; 98,000,000 shares designated:
                  24,354,114
                  shares issued and outstanding at June 30, 2006 and 24,129,042 shares
                  issued and 23,567,242 shares outstanding at December 31,
                  2005
              
              24,354
              
              24,129Less
                  Treasury Stock; 561,800 shares of Class A Common Stock, at cost,
                  at
                  December 31, 2005
              
              -
              
              (5,236,354)Class
                  B Common Stock, $0.001 par value; 1,000,000 shares designated,
                  319,388
                  shares issued and outstanding at June 30, 2006 and December 31,
                  2005
              
              319
              
              319Class
                  C Common Stock, $0.001 par value; 1,000,000 shares designated,
                  319,388
                  shares issued and outstanding at June 30, 2006 and December 31,
                  2005
              
              319
              
              319Additional
                  paid-in capital
              
              333,692,307
              
              342,230,342Accumulated
                  other comprehensive loss
              
              (110,485,739)
              
              (76,494,378)Accumulated
                  deficit
              
              (23,155,582)
              
              (8,037,260)TOTAL
                  STOCKHOLDERS' EQUITY
              
              200,075,978
              
              252,488,340TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY
              $
              4,506,777,047
              $
              4,805,101,565See
                  notes to consolidated financial
                  statements.
 
  
  
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(Unaudited)****Six
                  Months Ended**
              
              **Three
                  Months Ended****June
                  30, 2006**
              
              **June
                  30, 2005**
              
              **June
                  30, 2006**
              
              **June
                  30, 2005**REVENUES:INTEREST
                  INCOME:Interest
                  income, net of amortization of premium and discount
              $
              135,965,632
              $
              67,818,574
              $
              75,293,511
              $
              36,748,640Interest
                  expense
              
              (116,707,064)
              
              (46,545,132)
              
              (60,518,293)
              
              (26,453,422)NET
                  INTEREST INCOME
              
              19,258,568
              
              21,273,442
              
              14,775,218
              
              10,295,218(LOSSES)
                  ON SALES OF MORTGAGE LOANS
              
              (2,072,488)
              
              -
              
              (9,149,146)
              
              -GAINS
                  ON SALES OF MORTGAGE BACKED SECURITIES
              
              -
              
              1,982,382
              
              -
              
              -SERVICING
                  INCOME:Servicing
                  fee income
              
              12,674,275
              
              -
              
              6,375,051
              
              -Fair
                  value adjustments to mortgage servicing rights
              
              (10,830,079)
              
              -
              
              (2,767,598)
              
              -NET
                  SERVICING INCOME
              
              1,844,196
              
              -
              
              3,607,453
              
              -OTHER
                  INCOME
              
              3,277,379
              
              -
              
              1,529,237
              
              -TOTAL
                  NON-INTEREST INCOME(LOSS)
              
              3,049,087
              
              1,982,382
              
              (4,012,456)
              
              -TOTAL
                  NET REVENUES
              
              22,307,655
              
              23,255,824
              
              10,762,762
              
              10,295,218EXPENSES:DIRECT
                  OPERATING EXPENSES
              
              545,823
              
              623,918
              
              226,573
              
              283,945GENERAL
                  AND ADMINISTRATIVE EXPENSES:Compensation
                  and related benefits
              
              17,620,883
              
              2,522,610
              
              9,596,327
              
              1,317,277Directors’
                  fees and liability insurance
              
              420,034
              
              306,973
              
              210,139
              
              150,523Audit,
                  legal and other professional fees
              
              2,614,897
              
              360,600
              
              1,412,749
              
              162,595Other
                  interest expense
              
              3,680,857
              
              -
              
              1,949,072
              
              -Other
                  administrative expenses
              
              18,534,446
              
              315,485
              
              9,596,719
              
              162,479TOTAL
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              42,871,117
              
              3,505,668
              
              22,765,006
              
              1,792,874TOTAL
                  EXPENSES
              
              43,416,940
              
              4,129,586
              
              22,991,579
              
              2,076,819(LOSS)
                  INCOME BEFORE INCOME TAXES
              
              (21,109,285)
              
              19,126,238
              
              (12,228,817)
              
              8,218,399INCOME
                  TAX BENEFIT
              
              12,333,281
              
              -
              
              8,539,937
              
              -NET
                  (LOSS) INCOME
              $
              (8,776,004)
              $
              19,126,238
              $
              (3,688,880)
              $
              8,218,399BASIC
                  AND DILUTED NET (LOSS) INCOME PER SHARE OF:CLASS
                  A COMMON STOCK
              $
              (0.37)
              $
              0.90
              $
              (0.15)
              $
              0.39CLASS
                  B COMMON STOCK
              $
              (0.36)
              $
              0.90
              $
              (0.15)
              $
              0.39WEIGHTED
                  AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTING BASIC AND
                  DILUTED
                  PER SHARE AMOUNTS:CLASS
                  A COMMON STOCK
              
              23,704,908
              
              20,846,479
              
              23,970,333
              
              20,896,789CLASS
                  B COMMON STOCK
              
              319,388
              
              319,388
              
              319,388
              
              319,388CASH
                  DIVIDENDS DECLARED PER SHARE OF:CLASS
                  A COMMON STOCK
              $
              0.36
              $
              0.93
              $
              0.25
              $
              0.40CLASS
                  B COMMON STOCK
              $
              0.36
              $
              0.93
              $
              0.25
              $
              0.40See
                  notes to consolidated financial
                  statements.
 
 
  
  
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)****Six
                  Months Ended June 30, 2006**Common
                  Stock,
                Amounts
                  at par value
              Class
                  A Redeemable Preferred
              Treasury
              Additional
                  Paid-in
              Accumulated
                  Other Comprehensive
              AccumulatedClass
                  A
              Class
                  B
              Class
                  C
              Stock
              Stock
              Capital
              Loss
              Deficit
              TotalBalances,
                  December 31, 2005
              $
                  24,129
              $
                  319
              $
                  319
              $
                  1,223
              $(5,236,354)
              $342,230,342
              $
                  (76,494,378)
              $(8,037,260)
              $
                  252,488,340Fair
                  value adjustment upon adoption of SFAS No. 156 (see Note
                  5)
              -
              -
              -
              -
              -
              -
              -
              2,621,918
              2,621,918Issuance
                  of Class A Common Stock for board compensation and equity plan
                  phantom
                  share exercises, net
              91
              -
              -
              -
              -
              196,222
              -
              -
              196,313Conversion
                  of Class A Redeemable Preferred into Class A Common
              1,223
              -
              -
              (1,223)
              -
              -
              -
              -
              -Treasury
                  Stock Purchases
              -
              -
              -
              -
              (4,500,326)
              -
              -
              -
              (4,500,326)Retirement
                  of Treasury Stock
              (1,089)
              -
              -
              -
              9,736,680
              (9,735,591)
              -
              -
              -Cash
                  dividends declared, March 2006
              -
              -
              -
              -
              -
              -
              -
              (2,645,853)
              (2,645,853)Cash
                  dividends declared, June 2006
              -
              -
              -
              -
              -
              -
              -
              (6,318,383)
              (6,318,383)Phantom
                  shares vested and amortization of equity plan compensation,
                  net
              -
              -
              -
              -
              -
              1,129,718
              -
              -
              1,129,718Stock
                  issuance costs
              -
              -
              -
              -
              -
              (128,384)
              -
              -
              (128,384)Net
                  loss
              -
              -
              -
              -
              -
              -
              -
              (8,776,004)
              (8,776,004)Unrealized
                  loss on available-for-sale securities, net
              -
              -
              -
              -
              -
              -
              (33,991,361)
              -
              (33,991,361)Comprehensive
                  loss
              -
              -
              -
              -
              -
              -
              -
              -
              (42,767,365)Balances,
                  June 30, 2006
              $
                  24,354
              $
                  319
              $
                  319
              $
                  -
              $
                  -
              $
                  333,692,307
              $(110,485,739)
              $(23,155,582)
              $
                  200,075,978See
                  notes to consolidated financial
                  statements.
 
  
  
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(Unaudited)****Six
                  Months Ended June 30,****2006**
              
              **2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  (loss) income
              $
              (8,776,004)
              $
              19,126,238Adjustments
                  to reconcile net (loss) income to net cash provided by operating
                  activities:Loss
                  on sale of mortgage loans held for sale
              
              2,072,488
              
              -Amortization
                  of premium and discount on mortgage backed securities
              
              (7,504,090)
              
              14,844,054Decrease
                  in residual interest in asset backed securities
              
              9,614,640
              
              -Decrease
                  in securities held for sale
              
              1,794,832
              
              -Increase
                  in mortgage servicing rights, net
              
              (6,257,280)
              
              -Deferred
                  income tax benefit
              
              (12,333,281)
              
              -Gains
                  on sales of mortgage backed securities
              
              -
              
              (1,982,382)Stock
                  compensation
              
              1,626,307
              
              1,195,799Depreciation
                  and amortization
              
              2,103,872
              
              73,693Changes
                  in operating assets and liabilities:Decrease
                  in mortgage loans held for sale
              
              135,326,799
              
              -Decrease
                  in other receivables, net
              
              14,282,215
              
              -Increase
                  in accrued interest receivable
              
              (366,939)
              
              (5,117,666)(Increase)/decrease
                  in prepaids and other assets
              
              (3,156,171)
              
              363,782(Decrease)/increase
                  in accrued interest payable
              
              (4,742,294)
              
              16,265,162(Decrease)/increase
                  in accounts payable, accrued expenses and other
              
              (4,162,891)
              
              121,024NET
                  CASH PROVIDED BY OPERATING ACTIVITIES
              
              119,221,927
              
              44,889,704CASH
                  FLOWS FROM INVESTING ACTIVITIES:From
                  available-for-sale securities:Purchases
              
              (706,141,244)
              
              (1,743,844,856)Sales
              
              -
              
              172,040,665Principal
                  repayments
              
              711,094,904
              
              561,313,859Purchases
                  of property and equipment
              
              (2,836,259)
              
              (325,523)NET
                  CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
              
              2,117,401
              
              (1,010,815,855)CASH
                  FLOWS FROM FINANCING ACTIVITIES:Decrease
                  in restricted cash
              
              1,230,000
              
              5,927,000(Decrease)/Increase
                  net borrowings under repurchase agreements
              
              (30,711,112)
              
              946,669,631Net
                  proceeds from trust preferred securities offering
              
              -
              
              48,443,337Decrease
                  in warehouse lines of credit, drafts payable and other secured
                  borrowings
              
              (143,678,566)
              
              -Stock
                  issuance and other costs
              
              (428,659)
              
              (43,930)Purchases
                  of treasury stock
              
              (4,500,326)
              
              -Cash
                  dividends paid
              
              (2,645,853)
              
              (11,241,953)NET
                  CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
              
              (180,434,241)
              
              989,754,085NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              (59,094,913)
              
              23,827,934CASH
                  AND CASH EQUIVALENTS, Beginning of the period
              
              130,510,948
              
              128,942,436CASH
                  AND CASH EQUIVALENTS, End of the period
              $
              71,416,035
              $
              152,770,370
   
   **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (CONT’D)****(Unaudited)****Six
                  Months Ended June 30,****2006**
              
              **2005**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Cash
                  paid during the period for interest
              $
              125,130,215
              $
              30,279,970SUPPLEMENTAL
                  SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Cash
                  dividends declared and payable, not yet paid
              $
              6,318,383
              $
              8,486,958Unsettled
                  security purchases
              $
              -
              $
              7,169,550See
                  notes to consolidated financial
                  statements.
 
 
 
  
  **OPTEUM INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **June
        30, 2006**
 
 
 **NOTE
        1.**  **ORGANIZATION
        AND SIGNIFICANT ACCOUNTING POLICIES**
 
 **Organization
        and Business Description**
 
 Opteum
        Inc. (“Opteum”) was incorporated in Maryland on September 24, 2003, and
        commenced its planned business activities on December 19, 2003, the date of
        the initial closing of a private issuance of its common stock.
 
 On
        February 6, 2006, Opteum announced that its Board of Directors voted unanimously
        to change its name from Bimini Mortgage Management, Inc. to Opteum Inc. On
        February 10, 2006, the corporate name change was effective and its New York
        Stock Exchange ticker symbol was changed from “BMM” to “OPX.”
 
 Opteum
        was formed to invest primarily in, but not limited to, residential mortgage
        related securities issued by the Federal National Mortgage Association (more
        commonly known as Fannie Mae), the Federal Home Loan Mortgage Corporation
        (more
        commonly known as Freddie Mac) and the Government National Mortgage Association
        (more commonly known as Ginnie Mae). Opteum funds investments in its portfolio
        of mortgage backed securities (“MBS”) through borrowings under repurchase
        agreements. Opteum attempts to earn a net interest spread between the yield
        on
        the investments in MBS and its borrowing costs.
 
 Opteum
        has elected to be taxed as a real estate investment trust ("REIT") under
        the
        Internal Revenue Code of 1986, as amended (the “Code”). In order to maintain its
        REIT qualification, Opteum must comply with a number of requirements under
        federal tax law, including that it must distribute at least 90% of its annual
        REIT taxable income to its stockholders, subject to certain adjustments.
        The
        portfolio management activity mentioned above comprises the REIT qualifying
        operations of the Company.
 
 On
        September 29, 2005, Opteum executed a definitive merger agreement with Opteum
        Financial Services, LLC (“OFS”), a privately held home mortgage lender
        headquartered in Paramus, New Jersey. The transaction, in which OFS became
        a
        wholly-owned taxable REIT subsidiary (“TRS”) of Opteum, closed on November 3,
        2005 (see Note 2). OFS acquires and originates mortgages that are either
        sold to
        third parties or securitized by Opteum Mortgage Acceptance Corporation (“OMAC”).
        OFS services the mortgages securitized by OMAC.
 
 As
        used
        in this document, terms such as the parent company, the registrant, “Opteum” and
        discussions related to REIT qualifying activities or the general management
        of
        Opteum’s portfolio of MBS refers to “Opteum Inc.” Further, terms used in this
        document such as, “OFS,” the TRS or non-REIT eligible assets refer to Opteum
        Financial Services, LLC and its consolidated subsidiaries. Discussions relating
        to the “Company” refer to the consolidated entity (the combination of Opteum and
        OFS). The assets and activities that are not REIT eligible, such as mortgage
        origination, acquisition and servicing activities, are conducted by
        OFS.
  **Interim
        Financial Statements**
 
 The
        accompanying interim financial statements reflect all adjustments, consisting
        of
        normal recurring items that, in the opinion of management, are necessary
        for a
        fair presentation of the Company’s financial position, results of operations,
        statement of stockholders’ equity and cash flows for the periods presented.
        These interim financial statements have been prepared in accordance with
        disclosure requirements for interim financial information and accordingly,
        they
        may not include all of the information and footnotes required by U.S. generally
        accepted accounting principles (“GAAP”) for annual financial statements. The
        operating results for the interim period ended June
        30,
        2006, are not
        necessarily indicative of results that can be expected for the year ended
        December 31, 2006. The operating results of the interim period ended June
        30,
        2005, do not include the results of OFS, as the merger closed in November
        2005.
        The financial statements included as part of this Form 10-Q 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,
        2005.
 
 **Basis
        of Presentation and Use of Estimates**
 
 The
        accompanying consolidated financial statements are prepared on the accrual
        basis
        of accounting in accordance with GAAP. The preparation of financial statements
        in conformity with GAAP requires management to make estimates and assumptions
        that affect the reported amounts of assets and liabilities and disclosure
        of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Significant estimates affecting the accompanying financial statements include
        the fair values of MBS, the prepayment speeds used to calculate amortization
        and
        accretion of premiums and discounts on MBS, the deferred tax liability
        valuation, the valuation allowance on mortgage loans held for sale, the
        valuation of retained interests, trading and the fair value of mortgage
        servicing rights.
 
 **Consolidation**
 
 The
        accompanying June 30, 2006, consolidated financial statements include the
        accounts of Opteum and its wholly-owned subsidiary, OFS, as well the
        wholly-owned and majority-owned subsidiaries of OFS. All inter-company accounts
        and transactions have been eliminated from the consolidated financial
        statements. The financial statements for June 30, 2005, do not include the
        results of OFS, as the merger was finalized in November 2005.
 
 As
        further described in Note
        11,
        Opteum has a
        common share investment in two trusts used in connection with the issuance
        of
        Opteum’s junior subordinated notes. Pursuant to the accounting guidance provided
        in Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46, *Consolidation
        of Variable Interest Entities* ,
        Opteum’s common share investment in the trusts are not consolidated in the
        financial statements of Opteum, and accordingly, these investments are accounted
        for using the equity method.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include cash on hand and highly liquid investments with
        original maturities of three months or less. The carrying amount of cash
        equivalents approximates its fair value at June 30, 2006, and December 31,
        2005.
 
 Restricted
        cash represents cash held on deposit as collateral with certain repurchase
        agreement counterparties. Such amounts may be used to make principal and
        interest payments on the related repurchase agreements.
 
 **Valuation
        of Mortgage Backed Securities**
 
 The
        valuation of the Company’s investments in MBS is governed by SFAS No.
        107, *Disclosures about Fair Value of Financial Instruments* .
        SFAS
        No. 107, defines the fair value of a financial instrument as the amount at
        which
        the instrument could be exchanged in a current transaction between willing
        parties. All REIT securities are reflected in the financial statements at
        their
        estimated fair value as of June 30, 2006, and December 31, 2005. Estimated
        fair values for MBS are based on the average of third-party broker quotes
        received and/or independent pricing sources when available. However, the
        fair
        values reported reflect estimates and may not necessarily be indicative of
        the
        amounts the Company could realize in a current market exchange.
 
 In
        accordance with GAAP, the Company classifies its investments in MBS as either
        trading investments, available-for-sale investments or held-to-maturity
        investments. Management determines the appropriate classification of the
        securities at the time they are acquired and evaluates the appropriateness
        of
        such classifications at each balance sheet date. Although the Company intends
        to
        hold its MBS until maturity, it may, from time to time, sell any of its MBS
        as
        part of the overall management of the business. The Company classifies all
        of
        its securities as available-for-sale and assets so classified are carried
        on the
        balance sheet at fair value and unrealized gains or losses arising from changes
        in fair value are reported as other comprehensive income or loss as a component
        of stockholders' equity.
  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.   The decision is based on the credit quality
        of the issue (agency versus non-agency and for non-agency, the credit
        performance of the underlying collateral), the security prepayment speeds,
        the
        length of time the security has been in an unrealized loss position and our
        ability and intent to hold securities. At June 30, 2006, the
        Company did not
        hold any non-agency securities in its portfolio. If, in management's judgment,
        an other-than-temporary impairment exists, the cost basis of the security
        is
        written down in the period to fair value and the unrealized loss is recognized
        of current period earnings.
 
 **Mortgage
        Loans Held for Sale**
  Mortgage
        loans held for sale represent mortgage loans originated and held by the
        Company pending
        sale to investors. The mortgages are carried at the lower of cost or market
        as
        determined by outstanding commitments from investors or current investor
        yield
        requirements calculated on the aggregate loan basis. Deferred net fees or
        costs
        are not amortized during the period the loans are held for sale, but are
        recorded when the loan is sold. T he
        Company generally, but not always, sells or securitizes loans with servicing rights
        retained. These transfers of financial assets are accounted for as sales
        for
        financial reporting purposes when control over the assets has been surrendered.
        Control over transferred assets is surrendered when (i) the assets have been
        isolated from the
        Company ;
        (ii)
        the purchaser obtains the right, free of conditions that constrain such
        purchaser from taking advantage of that right, to pledge or exchange the
        transferred assets and (iii) the
        Company does not
        maintain effective control over the transferred assets through an agreement
        to
        repurchase them before their maturity. These transactions are treated as
        sales
        in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 140 *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishment of
        Liabilities* .
        Gains
        or losses on such sales are recognized at the time legal title transfers
        to the
        purchaser and are based upon the difference between the sales proceeds from
        the
        purchaser and the allocated basis of the loan sold, adjusted for net deferred
        loan fees and certain direct costs and selling costs. A valuation allowance
        is
        recorded to adjust mortgage loans held for sale to the lower of cost or market.
  **Retained
        Interest, Trading**
  The
        Company uses
        warehouse loan arrangements to finance the origination and purchase of pools
        of
        fixed and adjustable-rate residential first mortgage loans (the “Mortgage
        Loans”). Subsequent to their origination or purchase, OFS either sells these
        loans to third-party institutional investors through bulk sale arrangements
        or
        through securitization transactions. T he
        Company generally makes several representations and warranties regarding the performance
        of the Mortgage Loans in connection with each sale or securitization. The
        Company accumulates the desired amount of Mortgage Loans and securitizes them in
        order
        to create marketable securities.
 
 The
        Company ,
        pursuant to a purchase and sale agreement, transfers the Mortgage Loans to
        OMAC,
        the wholly-owned special purpose entity created for the execution of these
        securitizations.
 
 OMAC
        then
        sells the Mortgage Loans to an institutional third-party to serve as Depositor,
        pursuant to a Mortgage Loan Purchase and Servicing Agreement (“P&S
        Agreement”). Under this P&S Agreement, the
        Company makes
        general representations and warranties for Mortgage Loans sold by the
        Company .
 
 The
        Depositor then deposits the Mortgage Loans into a Real Estate Mortgage
        Investment Conduit trust (the “REMIC”) where the rights to such Mortgage Loans
        are pooled and converted into marketable debt securities pursuant to the
        P&S
        Agreement. These securities, issued by the REMIC, are divided into different
        classes of certificates (the “Certificates”) with varying claims to payments
        received on the Mortgage Loans. These Certificates are transferred to the
        Depositor in exchange for all of its rights in the Mortgage Loans deposited
        into
        the REMIC. Certain of these Certificates are offered to the public (the “Public
        Certificates”) pursuant to a prospectus. These Public Certificates are sold to
        underwriters on the closing date pursuant to an underwriting agreement. The
        proceeds from the sale of the Public Certificates to the underwriters (less
        an
        underwriting discount) and the remaining non-publicly offered Certificates
        are
        transferred to the
        Company as
        consideration for the Mortgage Loans sold to the Depositor pursuant to the
        P&S Agreement.
 
 Finally, the
        Company transfers the proceeds from the sale of the Public Certificates and the
        non-publicly offered Certificates representing the residual interest in the
        REMIC to OMAC pursuant to the P&S Agreement. The additional non-publicly
        offered Certificates, representing prepayment penalties and
        over-collateralization fundings (the “Underlying Certificates”) are held by OMAC
        in anticipation of a net interest margin (“NIM”) securitization. Subsequent to a
        securitization transaction as described above, the
        Company executes
        an additional securitization or “resecuritization” of the Underlying
        Certificates being held by OMAC. This NIM securitization is typically transacted
        as follows:
 
 OMAC
        deposits the Underlying Certificates into a trust (the “NIM Trust”) pursuant to
        a deposit trust agreement. The NIM Trust is a Delaware statutory trust. The
        NIM
        Trust, pursuant to an indenture, issues (i) notes (the “NIM Notes”) representing
        interests in the Underlying Certificates and (ii) an owner trust certificate
        (the “Owner Trust Certificate”) representing the residual interest in the NIM
        Trust. The NIM Notes are sold to third parties via private placement
        transactions and the Owner Trust Certificate is transferred from OMAC to the
        Company in
        consideration for the deposit of the Underlying Certificates. The Owner Trust
        Certificates from the
        Company’s various
        securitizations represent the retained interest, trading on the consolidated
        balance sheet and are carried at fair value with changes in fair value reflected
        in earnings.
 
 **Mortgage
        Servicing Rights**
 
 The
        Company recognizes mortgage servicing rights (“MSRs”) as an asset when separated from
        the underlying mortgage loans in connection with the sale of such loans.
        Upon
        sale of a loan, the
        Company measures
        the retained MSRs by allocating the total cost of originating a mortgage
        loan
        between the loan and the servicing right based on their relative fair values.
        The estimated fair value of MSRs is determined by obtaining a market valuation
        from a specialist who brokers MSRs. To determine the market valuation, the
        broker uses a valuation model that incorporates assumptions relating to the
        estimate of the cost of servicing the loan, a discount rate, a float value,
        an
        inflation rate, ancillary income of the loan, prepayment speeds and default
        rates that market participants use for acquiring similar servicing rights.
        Gains
        or losses on the sale of MSRs are recognized when title and all risks and
        rewards have irrevocably passed to the purchaser of such MSRs and there are
        no
        significant unresolved contingencies.
 
 In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets* .
        SFAS
        156 amends SFAS 140 with respect to the accounting for separately-recognized
        servicing assets and liabilities. SFAS 156 requires all separately-recognized
        servicing assets and liabilities to be initially measured at fair value and
        permits companies to elect, on a class-by-class basis, to account for servicing
        assets and liabilities on either a lower of cost or market value basis or
        a fair
        value measurement basis. T he
        Company elected
        to early adopt SFAS 156 as of January 1, 2006, and to measure all mortgage
        servicing assets at fair value (and as one class). Servicing assets and
        liabilities at December 31, 2005, were accounted for at the lower of amortized
        cost or market value. As a result of adopting SFAS 156, the
        Company recognized a $2.6 million after-tax ($4.3 million pre-tax) increase in retained
        earnings as of January 1, 2006, representing the cumulative effect adjustment
        of
        re-measuring all servicing assets and liabilities that existed at December
        31,
        2005, from a lower of amortized cost or market basis to a fair value basis.
 
 **Property
        and Equipment, net**
 
 Property
        and equipment, net, consisting primarily of computer equipment, office
        furniture, leasehold improvements, land and building, is recorded at acquisition
        cost and depreciated using the straight-line method over the estimated useful
        lives of the assets. Asset lives range from three years to thirty years
        depending on the type of asset. Property and equipment at June 30, 2006,
        and December 31, 2005, is net of accumulated depreciation of $2.4 and $0.6
        million, respectively. Depreciation expense for the six and three months
        ended
        June 30, 2006, was $1.8 and $0.9 million, respectively, and was $33,911 and
        $21,943 for the six and three months ended June 30, 2005,
        respectively.
 
 **Goodwill
        and Other Intangible Assets**
  Goodwill
        represents the excess of the purchase price over the fair value of net assets
        acquired in a business combination. T he
        Company’s goodwill
        all arose from the OFS merger. Contingent consideration paid in subsequent
        periods under the terms of the OFS merger agreement, if any, would be considered
        acquisition costs and classified as goodwill.
  In
        accordance with SFAS No. 142, *Goodwill
        and Other Intangible Assets,* the
        Company will
        subject its goodwill to at least an annual assessment for impairment by applying
        a fair value-based test. If the carrying value exceeds the fair value, goodwill
        is impaired. To date, there has been no impairment charge recorded for the
        Company’s goodwill.
  **Derivative
        Assets and Derivative Liabilities**
 
 The
        Company’s r isk
        management objective for its portfolio of MBS is focused on protecting the
        net
        interest spread over the Company’s funding cost and involves the use of various
        caps, forward starting caps, interest rate swaps or options on interest rate
        swaps (swaptions) designed as fair value derivative instruments to protect
        earnings from an unexpected change due to a decline in the net interest spread
        on the MBS portfolio. In accordance with SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        as
        amended, the
        Company’s caps,
        forward starting caps, interest rate swaps or swaptions are recorded at their
        fair value with changes in fair value recorded in current earnings.
  The
        Company’s mortgage
        committed pipeline includes interest rate lock commitments (“IRLCs”) that have
        been extended to borrowers who have applied for loan funding and meet certain
        defined credit and underwriting criteria. T he
        Company classifies and accounts for the IRLCs as freestanding derivatives. Accordingly,
        IRLCs are recorded at their fair value with changes in fair value recorded
        to
        current earnings. The fair value of IRLCs is 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 levels of interest rates and the committed rates.
        T he
        Company uses
        other derivative instruments to economically hedge the IRLCs, which are also
        classified and accounted for as freestanding derivatives.
  The
        Company’s risk
        management objective for its mortgage loans held for sale includes the use
        of
        mortgage forward delivery contracts designed as fair value derivative
        instruments to protect earnings from an unexpected change due to a decline
        in
        value. T he
        Company’s mortgage
        forward delivery contracts are recorded at their fair value with changes
        in fair
        value recorded in current earnings.
  The
        Company’s r isk
        management objective for its retained interest, trading involves the use
        of
        various caps, interest rate swaps or options on interest rate swaps (swaptions)
        designed as fair value derivative instruments to protect earnings from an
        unexpected change due to a decline in value of the retained interest, trading.
  IRLCs
        and
        derivative assets or liabilities arising from the
        Company’s derivative activities are included in either receivables or accounts payable
        and
        accrued liabilities in the accompanying consolidated balance sheet.
        T he
        Company also
        evaluates its contractual arrangements, assets and liabilities for the existence
        of embedded derivatives. As of June 30, 2006 and December 31, 2005 there
        were no
        embedded derivatives.
  **Repurchase
        Agreements**
 
 The
        Company finances the acquisition of its MBS through the use of repurchase
        agreements. Under these repurchase agreements, the Company sells securities
        to a
        repurchase counterparty and agrees to repurchase the same securities in the
        future for a price that is higher than the original sales price. The difference
        between the sales price that the Company receives and the repurchase price
        that
        the Company pays represents interest paid to the repurchase counterparty.
        Although structured as a sale and repurchase obligation, a repurchase agreement
        operates as a financing under which the Company pledges its securities as
        collateral to secure a loan which is equal in value to a specified percentage
        of
        the estimated fair value of the pledged collateral. The Company retains
        beneficial ownership of the pledged collateral. At the maturity of a repurchase
        agreement, the Company is required to repurchase the underlying MBS and
        concurrently receives back its pledged collateral from the repurchase
        counterparty or, with the consent of the repurchase counterparty, the Company
        may renew such agreement at the then prevailing rate. These repurchase
        agreements may require the Company to pledge additional assets to the repurchase
        counterparty in the event the estimated fair value of the existing pledged
        collateral declines. As of June 30, 2006, and December 31, 2005, the
        Company did not have any margin calls on its repurchase agreements that it
        was
        not able to satisfy with either cash or additional pledged collateral.
 
 Original
        terms to maturity of the Company’s repurchase agreements generally, but not
        always, range from one month to twelve months; however, the Company is not
        precluded from entering into repurchase agreements with shorter or longer
        maturities. Repurchase agreements are reflected in the financial statements
        at
        their costs, which approximates their fair value because of the short-term
        nature of these instruments. Should a counterparty decide not to renew a
        repurchase agreement at maturity, the Company must either refinance elsewhere
        or
        be in a position to satisfy this obligation. If, during the term of a repurchase
        agreement, a counterparty files for bankruptcy, the Company could experience
        difficulty recovering its pledged assets and may have an unsecured claim
        against
        the counterparty's assets for the difference between the amount received
        by the
        Company and the estimated fair value of the collateral pledged to such
        counterparty.
 
 **Interest
        Income Recognition on MBS**
 
 MBS
        are
        recorded at cost on the date the MBS are purchased or sold, which is generally
        the trade date. Realized gains or losses from MBS transactions are determined
        based on the specific identified cost of the MBS. Interest income is accrued
        based on the outstanding principal amount of the MBS and their stated
        contractual terms. Premiums and discounts associated with the purchase of
        the
        MBS are amortized or accreted into interest income over the estimated lives
        of
        the MBS adjusted for estimated prepayments using the effective interest method.
        Adjustments are made using the retrospective method to the effective interest
        computation each reporting period. The adjustment is based on the actual
        prepayment experiences to date and the present expectation of future prepayments
        of the underlying mortgages and/or the current value of the indices underlying
        adjustable rate mortgage securities versus index values in effect at the
        time of
        purchase or the last adjustment period.
 
 **Gain
        on Sale of Loans**
 
 The
        Company recognizes gain (or loss) on the sale of loans.  Gains or losses on such
        sales are recognized at the time legal title transfers to the purchaser of
        such
        loans based upon the difference between the sales proceeds from the purchaser
        and the allocated basis of the loan sold, adjusted for net deferred loan
        fees
        and certain direct costs and selling costs. T he
        Company defers
        net loan origination costs and fees as a component of the loan balance on
        the
        balance sheet. Such costs are not amortized and are recognized into income
        as a
        component of the gain or loss upon sale. Accordingly, salaries, commissions,
        benefits and other operating expenses of $30.2 million and $14.2 million
        during
        the six and three months ended June 30, 2006, respectively, were capitalized
        as
        direct loan origination costs. Loan fees related to the origination and funding
        of mortgage loans held for sale were $3.1 million and $1.5 million during
        the
        six and three months ended June 30, 2006. The net loss on sale of loans for
        the
        six and three months ended June 30, 2006, was $2.1 million and $9.1 million,
        respectively.
 
 **Servicing
        Fee Income**
 
 Servicing
        fee income is generally a fee based on a percentage of the outstanding principal
        balances of the mortgage loans serviced by the
        Company (or by a
        subservicer where the
        Company is the
        master servicer) and is recorded as income as the installment payments on
        the
        mortgages are received by the
        Company or the
        subservicer.
 
 **Comprehensive
        Income (Loss)**
  In
        accordance with SFAS No. 130, *Reporting
        Comprehensive Income* ,
        the
        Company is required to separately report its comprehensive income (loss)
        each
        reporting period. Other comprehensive income refers to revenue, expenses,
        gains
        and losses that, under GAAP, are included in comprehensive income but are
        excluded from net income, as these amounts are recorded directly as an
        adjustment to stockholders’ equity. Other comprehensive income (loss) arises
        from unrealized gains or losses generated from changes in market values of
        securities classified as available-for-sale.
 
 Comprehensive
        (loss) income is as follows:
 
 **Six
                  Months Ended June 30,**
              **Three
                  Months Ended June 30,****2006**
              
              **2005**
              **2006**
              
              **2005**Net
                  (loss) income
              $
              (8,776,004)
              $
              19,126,238
              $
                  (3,688,868)
              $
              8,218,399Realized
                  gain on available-for-sale securities, net
              -
              
              (1,982,382)
              -
              
              -Unrealized
                  loss on available-for-sale securities, net
              (33,991,361)
              
              (19,993,799)
              (22,176,263)
              
              (454,738)Comprehensive
                  (loss) income
              $
              (42,767,365)
              $
              (2,849,943)
              $
                  (25,865,131)
              $
              7,763,661
 
 **Stock-Based
        Compensation**
 
 The
        Company adopted SFAS No. 123(R), *Share-Based
        Payment* ,
        on
        January 1, 2006, and this adoption did not have an impact on the Company,
        as the
        Company had previously accounted for stock-based compensation using the fair
        value based method prescribed by SFAS No. 123, *Accounting
        for Stock-Based Compensation* .
        For
        stock and stock-based awards issued to employees, a compensation charge is
        recorded against earnings based on the fair value of the award. For transactions
        with non-employees in which services are performed in exchange for the Company’s
        common stock or other equity instruments, the transactions are recorded on
        the
        basis of the fair value of the service received or the fair value of the
        equity
        instruments issued, whichever is more readily measurable at the date of
        issuance.
 
 **Earnings
        Per Share**
 
 The
        Company follows the provisions of SFAS No. 128, *Earnings
        per Share* ,
        and the
        guidance provided in the FASB’s Emerging Issues Task Force (“EITF”) Issue No.
        03-6, *Participating
        Securities and the Two-Class Method under FASB Statement No. 128, Earnings
        Per Share* ,
        which
        requires companies with complex capital structures, common stock equivalents
        or
        two (or more) classes of securities that participate in the declared dividends
        to present both basic and diluted earnings per share (“EPS”) on the face of the
        statement of operations. Basic EPS is calculated as income available to common
        stockholders divided by the weighted average number of common shares outstanding
        during the period. Diluted EPS is calculated using the “if converted” method for
        common stock equivalents. However, the common stock equivalents are not included
        in computing diluted EPS if the result is anti-dilutive.
 
 Effective
        July 9, 2004, outstanding shares of Class B Common Stock, participating and
        convertible into Class A Common Stock, became entitled to receive dividends
        in
        an amount equal to the dividends declared on each share of Class A Common
        Stock
        if, as and when authorized and declared by the Board of Directors. Following
        the
        provisions of EITF 03-6, shares of the Class B Common Stock are included
        in the
        computation of basic EPS using the two-class method and, consequently, is
        presented separately from Class A Common Stock.
 
 The
        shares of Class C Common Stock are not included in the basic EPS
        computation as these shares do not have participation rights. The outstanding
        shares of Class C Common Stock, totaling 319,388 shares, are not included
        in the computation of diluted EPS for the Class A Common Stock as the conditions
        for conversion into shares of Class A Common Stock were not met.
 
 **Income
        Taxes**
 
 Opteum
        has elected to be taxed as a REIT under the Code. As further described below,
        Opteum’s TRS, OFS, is a taxpaying entity for income tax purposes and is taxed
        separately from Opteum. Opteum will generally not be subject to federal income
        tax on its taxable net income to the extent that Opteum distributes its taxable
        net income to its stockholders and satisfies the ongoing REIT requirements,
        including meeting certain asset, income and stock ownership tests. A REIT
        must
        generally distribute at least 90% of its net taxable income to its stockholders,
        of which 85% generally must be distributed within the taxable year, in order
        to
        avoid the imposition of an excise tax. The remaining balance may be distributed
        up to the end of the following taxable year, provided the REIT elects to
        treat
        such amount as a prior year distribution and meets certain other
        requirements.
 
 OFS
        and
        its activities are subject to corporate income taxes and the applicable
        provisions of SFAS No. 109, *Accounting
        for Income Taxes* .
        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
        basis. 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.
  **Recent
        Accounting Pronouncements**
 
 In
        February 2006, the FASB issued SFAS No. 155, *Accounting
        for Certain Hybrid Financial Instruments — an amendment of FASB Statements
        No. 133 and 140* .
        SFAS
        155 permits an entity to measure at fair value any financial instrument that
        contains an embedded derivative that otherwise would require bifurcation.
        As
        permitted, the Company early adopted SFAS 155 in the first quarter of 2006.
        Adoption did not have any material effect on the Company’s financial condition,
        results of operations or cash flows.
 
 See
        Mortgage Servicing Rights above for a description of the adoption of SFAS
        No.
        156, *Accounting
        for Servicing of Financial Assets* .
  In
        July
        2006, the FASB issued *FASB
        Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an
        interpretation of FASB Statement No. 109* (FIN 48), which clarifies the accounting for uncertainty in tax positions.
        This Interpretation requires that the Company recognize in its financial
        statements, the impact of a tax position, if that position is more likely
        than
        not of being sustained on audit, based on the technical merits of the position.
        The provisions of FIN 48 are effective as of the beginning of the 2007
        fiscal year, with the cumulative effect, if any, of the change in accounting
        principle recorded as an adjustment to opening retained earnings. The Company
        is
        currently evaluating the impact, if any, of adopting FIN 48 on the
        financial statements.
 
 **NOTE
        2.**  **ACQUISITION
        OF OPTEUM FINANCIAL SERVICES, LLC**
 
 On
        November 3, 2005, Opteum acquired 100% of the equity interests of OFS
        through a newly formed wholly-owned subsidiary of Opteum. OFS is a mortgage
        lender that originates loans nationwide. The results of operations of OFS
        have
        been included in the Company’s consolidated financial statements since November
        3, 2005. During the six months ended June 30, 2006, the Company has increased
        the aggregate purchase price by $1.0 million for additional legal and accounting
        fees incurred and it has made insignificant modifications to the allocation
        of
        the purchase price to the net assets acquired, based on final valuations
        and
        completion of analysis. See Note 2 to the financial statements included in
        the
        Company’s Form 10-K for 2005 for a complete description.
 
 **NOTE
        3.**  **MORTGAGE
        LOANS HELD FOR SALE, NET**
 
 Upon
        the
        closing of a residential mortgage loan or shortly thereafter, OFS will either
        securitize or sell as whole loans its mortgage assets. OFS also sells mortgage
        loans insured or guaranteed by various government-sponsored entities and
        private
        insurance agencies in an effort to maximize profits. The insurance or guaranty
        is provided primarily on a nonrecourse basis to OFS, except where limited
        by the
        Federal Housing Administration and Veterans Administration and their respective
        loan programs. At June 30, 2006, OFS serviced approximately $8.4 billion
        of
        mortgage loans sold into the secondary market. All of OFS’ loans held for sale
        are pledged as collateral under the various financing arrangements described
        in Note
        8. Mortgage
        loans held for sale consist of the following as of June 30, 2006:
  Mortgage
                  loans held for sale
              $
              742,302,240Deferred
                  loan origination costs—and others
              
              14,949,090Valuation
                  allowance
              
              (412,987)$
              756,838,343
 
 **NOTE
        4.**  **RETAINED
        INTEREST, TRADING**
 
 Retained
        interest, trading is the subordinated interests retained by OFS from OFS’
various securitizations and includes the over-collateralization and residual
        net
        interest spread remaining after payments to the Public Certificates and NIM
        Notes. Retained interest, trading represents the present value of estimated
        cash
        flows to be received from these subordinated interests in the future. The
        subordinated interests retained are classified as “trading securities” and are
        reported at fair value with unrealized gains or losses reported in
        earnings.
  All
        of
        OFS’ securitizations were structured and are accounted for as sales in
        accordance with SFAS No. 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        Generally, to meet the sale treatment requirements of SFAS No. 140, the REMIC
        Trust is structured as a “qualifying special purpose entity” or QSPE, which
        specifically limits the REMIC Trust’s activities, and OFS surrenders control
        over the mortgage loans upon their transfer to the REMIC Trust.
  **Valuation
        of Investments.** OFS
        classifies its retained interests as trading securities and therefore records
        these securities at their estimated fair value. In order to value these unrated
        and unquoted retained interests, OFS utilizes either pricing available directly
        from dealers or calculates their present value by projecting their future
        cash
        flows on a publicly-available analytical system. When a publicly-available
        analytical system is employed, OFS uses the following variable factors in
        estimating the fair value of these assets:
  **Interest
        Rate Forecast** .
        The
        forward London Interbank Offered Rate (“LIBOR”) interest rate curve.
  **Discount
        Rate** .
        The
        present value of all future cash flows utilizing a discount rate assumption
        established at the discretion of OFS to represent market conditions and value.
  **Prepayment
        Forecast** .
        The
        prepayment forecast may be expressed by OFS in accordance with one of the
        following standard market conventions: Constant Prepayment Rate (“CPR”) or
        Percentage of a Prepayment Vector. Prepayment forecasts may be changed as
        OFS
        observes trends in the underlying collateral as delineated in the Statement
        to
        Certificate Holders generated by the REMIC trust’s Trustee for each underlying
        security.
  **Credit
        Performance Forecast** .
        A
        forecast of future credit performance of the underlying collateral pool will
        include an assumption of default frequency, loss severity and a recovery
        lag. In
        general, OFS will utilize the combination of default frequency and loss severity
        in conjunction with a collateral prepayment assumption to arrive at a target
        cumulative loss to the collateral pool over the life of the pool based on
        historical performance of similar collateral by the originator. The target
        cumulative loss forecast will be developed and noted at the pricing date
        of the
        individual security but may be updated by OFS consistent with observations
        of
        the actual collateral pool performance.
  Default
        Frequency may be expressed by OFS in accordance with any of three standard
        market conventions: Constant Default Rate, Percentage of a Standard Default
        Assumption curve or a vector or curve established to meet forecasted performance
        for specific collateral pools.
  Loss
        Severity will be expressed by OFS in accordance with historical performance
        of
        similar collateral and the standard market conventions of a percentage of
        the
        unpaid principal balance of the forecasted defaults lost during the foreclosure
        and liquidation process.
  During
        the first year of a new issue, OFS may balance positive or adverse effects
        of
        the prepayment forecast and the credit performance forecast, thereby allowing
        for deviation between actual and forecasted performance of the collateral
        pool.
        After the first year, OFS will generally adjust the Prepayment and Credit
        Performance Forecasts to replicate actual performance trends without balancing
        adverse and positive effects.
  The
        following table summarizes OFS’ retained interests as of June 30, 2006, and
        December 31, 2005:
  **Series**
              
              **Issue
                  Date**
              
              **June
                  30, 2006**
              
              **December
                  31, 2005**HMAC
                  2004-1
              
              March
                  4, 2004
              $
              2,896,040
              $
              5,096,056HMAC
                  2004-2
              
              May
                  10, 2004
              
              973,031
              
              3,240,431HMAC
                  2004-3
              
              June
                  30, 2004
              
              91,957
              
              1,055,651HMAC
                  2004-4
              
              August
                  16, 2004
              
              2,092,794
              
              3,749,261HMAC
                  2004-5
              
              September
                  28, 2004
              
              4,785,002
              
              6,177,669HMAC
                  2004-6
              
              November
                  17, 2004
              
              10,338,653
              
              14,321,046OMAC
                  2005-1
              
              January
                  31, 2005
              
              11,964,403
              
              14,720,910OMAC
                  2005-2
              
              April
                  5, 2005
              
              12,378,032
              
              11,301,619OMAC
                  2005-3
              
              June
                  17, 2005
              
              13,614,114
              
              14,656,477OMAC
                  2005-4
              
              August
                  25, 2005
              
              8,114,027
              
              12,551,775OMAC
                  2005-5
              
              November
                  23, 2005
              
              6,036,633
              
              11,139,697OMAC
                  2006-1
              
              March
                  23, 2006
              
              10,387,287
              
              -OMAC
                  2006-2
              
              June
                  26, 2006
              
              4,723,979
              
              -Total
              
              
              $
              88,395,952
              $
              98,010,592
 
  Key
        economic assumptions used in measuring the fair value of retained interests
        at
        the date of securitization resulting from securitizations completed during
        2005
        and 2006 were as follows:
 
 **June
                  30, 2006**
              **December
                  31, 2005**Prepayment
                  speeds (CPR)
              36.26%
              28.65%Weighted-average-life
              4.18
              2.83Expected
                  credit losses
              0.74%
              1.07%Discount
                  rates
              16.81%
              14.90%Interest
                  rates
              Forward
                  LIBOR Yield curve
              Forward
                  LIBOR Yield curve
 
 At
        June
        30, 2006, and December 31, 2005, key economic assumptions and the sensitivity
        of
        the current fair value of retained interests to the immediate 10% and 20%
        adverse change in those assumptions are as follows:
 
 June
                  30, 2006
              
              December
                  31, 2005Balance
                  Sheet Carrying value of retained interests - fair value
              $
              88,395,952
              $
              98,010,592Weighted
                  average life (in years)
              
              5.24
              
              2.62Prepayment
                  assumption (annual rate)
              
              32.28%
              
              32.53%Impact
                  on fair value of 10% adverse change
              $
              (8,847,221)
              $
              (7,817,000)Impact
                  on fair value of 20% adverse change
              $
              (15,581,981)
              $
              (16,089,000)Expected
                  Credit losses (annual rate)
              
              0.58%
              
              0.61%Impact
                  on fair value of 10% adverse change
              $
              (3,461,968)
              $
              (3,247,000)Impact
                  on fair value of 20% adverse change
              $
              (6,898,938)
              $
              (6,419,000)Residual
                  Cash-Flow Discount Rate
              
              12.78%
              
              13.96%Impact
                  on fair value of 10% adverse change
              $
              (4,128,810)
              $
              (3,804,000)Impact
                  on fair value of 20% adverse change
              $
              (7,924,214)
              $
              (7,392,000)Interest
                  rates on variable and adjustable loans and bonds
              
              Forward
                  LIBOR Yield Curve
              
              Forward
                  LIBOR Yield CurveImpact
                  on fair value of 10% adverse change
              $
              (33,543,511)
              $
              (21,265,000)Impact
                  on fair value of 20% adverse change
              $
              (52,553,733)
              $
              (34,365,000)
 
 
 These
        sensitivities are entirely hypothetical and should be used with caution.
        As the
        figures indicate, changes in fair value based upon 10% and 20% variations
        in
        assumptions generally cannot be extrapolated to greater or lesser percentage
        variations because the relationship of the change in assumption to the change
        in
        fair value may not be linear. Also, in this table, the effect of the variation
        in a particular assumption on the fair value of the retained interest is
        calculated without changing any other assumption. In reality, changes in
        one
        factor may result in changes in another which may magnify or counteract the
        sensitivities. To estimate the impact of a 10% and 20% adverse change of
        the
        Forward LIBOR curve, a parallel shift in the forward LIBOR curve was assumed
        based on the Forward LIBOR curve at June 30, 2006.
 
 Static
        pool loss percentages are calculated by dividing projected future credit
        losses
        (at the time of securitization) and actual losses incurred as of the date
        indicated by the original balance of each pool of assets. The following static
        pool loss percentages are calculated based upon all OFS securitizations that
        have been completed to date:
 
 
 **Series**
              **Issue
                  Date**
              **Original
                  Unpaid Principal Balance**
              **Projected
                  Aggregate Static Pool Loss Percentage**
              **Static
                  Pool Loss Percentage**
                **Through
                  June 30, 2006**
              **Static
                  Pool Loss Percentage**
                **Through
                  December 31, 2005**HMAC
                  2004-1
              March
                  4, 2004
              $
                  309,710,005
              0.13%
              0.04%
              0.01%HMAC
                  2004-2
              May
                  10, 2004
              $
                  388,737,548
              0.17%
              0.21%
              0.12%HMAC
                  2004-3
              June
                  30, 2004
              $
                  417,055,285
              0.16%
              0.09%
              0.06%HMAC
                  2004-4
              August
                  16, 2004
              $
                  410,122,752
              0.33%
              0.02%
              0.01%HMAC
                  2004-5
              September
                  28, 2004
              $
                  413,874,856
              0.46%
              0.00%
              0.00%HMAC
                  2004-6
              November
                  17, 2004
              $
                  761,026,691
              0.56%
              0.03%
              0.01%OMAC
                  2005-1
              January
                  31, 2005
              $
                  802,625,137
              0.58%
              0.05%
              0.01%OMAC
                  2005-2
              April
                  5, 2005
              $
                  883,987,488
              0.50%
              0.01%
              0.00%OMAC
                  2005-3
              June
                  17, 2005
              $
                  937,116,704
              0.45%
              0.00%
              0.00%OMAC
                  2005-4
              August
                  25, 2005
              $
                  1,321,738,691
              0.75%
              0.00%
              0.00%OMAC
                  2005-5
              November
                  23, 2005
              $
                  986,276,688
              0.77%
              0.00%
              0.00%OMAC
                  2006-1
              March
                  23, 2006
              $
                  934,441,049
              0.65%
              0.00%
              -OMAC
                  2006-2
              June
                  26, 2006
              $
                  491,571,939
              0.90%
              -
              -Total
              
              $
                  9,058,284,833
 
 
 
 The
        table
        below summarizes certain cash flows received from and paid to securitization
        trusts:
 
 **For
                  the Six Months Ended June 30, 2006**
              
              **For
                  the Three Months Ended June 30, 2006**Proceeds
                  from securitizations
              $
              1,436,837,754
              $
              497,532,754Servicing
                  fees received
              
              9,252,461
              
              4,660,106Servicing
                  advances paid
              
              1,550,373
              
              1,215,103Cash
                  flows received on retained interests
              
              2,008,777
              
              992,669
 
 The
        following information presents quantitative information about delinquencies
        and
        credit losses on securitized financial assets as of June 30, 2006, and December
        31, 2005:
 
 **As
                  of Date**
              
              **Total
                  Principal Amount of Loans**
              
              **Principal
                  Amount of Loans Greater than 60 Days Past Due**
              
              **Net
                  Credit Losses**June
                  30, 2006
              $
              6,817,453,679
              $
              113,956,163
              $
              2,058,234December
                  31, 2005
              $
              6,363,279,281
              $
              57,871,123
              $
              912,990
 
  **NOTE
        5.**  **MORTGAGE
        SERVICING RIGHTS, NET**
 
 As
        permitted by the effective date provisions of SFAS No. 156, the Company has
        early adopted SFAS No. 156 as of January 1, 2006 with respect to the valuation
        of its MSRs. (See Note 1 - Mortgage Servicing Rights.) Activities for MSRs
        are
        summarized as follows at June 30, 2006:
  For
                  the Six Months Ended June 30, 2006Balance
                  at beginning of period (at cost)
              $
              
              86,081,594Adjustment
                  to fair value upon adoption of SFAS 156 at January 1, 2006
              
              
              4,298,225Additions
              
              
              17,087,360Changes
                  in fair Value:Changes
                  in fair value
              
              (9,685,346)Change
                  in fair value due to change in valuation assumptions
              
              (1,144,733)
              (10,830,079)Balance
                  at end of period
              $
              
              96,637,099
 
  The
        Company elected to account for all originated MSRs as one class and, therefore,
        all MSRs are carried at fair value. As a result of the early adoption of
        SFAS
        156, the carrying value of the MSRs has been increased by approximately $4.3
        million (pre-tax) as of January 1, 2006. As required by the provisions of
        SFAS
        156, the net of tax effect was recorded as a cumulative effect adjustment
        to
        retained earnings of OFS as of January 1, 2006. In addition, changes in value
        due to run-offs of the portfolio are recorded as valuation adjustments instead
        of amortization.
  The
        fair
        value of MSRs is determined using discounted cash flow techniques. During
        the
        second quarter of 2006, OFS increased the MSR value in the aggregate by
        $3.3 million primarily as a result of additions to the servicing portfolio
        and changes in market conditions. Estimates of fair value involve several
        assumptions, including the key valuation assumptions about market expectations
        of future prepayment rates, interest rates and discount rates. Prepayment
        rates
        are projected using a prepayment model. The model considers key factors,
        such as
        refinance incentive, housing turnover, seasonality and aging of the pool
        of
        loans. Prepayment speeds incorporate expectations of future rates implied
        by the
        forward LIBOR/swap curve, as well as collateral specific information.
  At
        June
        30, 2006, and December 31, 2005, key economic assumptions and the sensitivity
        of
        the current fair value of MSR cash flows to the immediate 10 percent and
        20
        percent adverse change in those assumptions are as follows: (Note - base
        case
        prepayment and discount rate assumptions are a weighted average of the values
        applied to the various mortgage loans).
 
 At
                  June 30, 2006
              
              At
                  December 31, 2005Prepayment
                  assumption (annual rate) (PSA)
              
              417.9
              
              254.0Impact
                  on fair value of 10% adverse change
              $
              (3,467,265)
              $
              (3,615,000)Impact
                  on fair value of 20% adverse change
              $
              (6,596,466)
              $
              (6,936,000)MSR
                  Cash-Flow Discount Rate
              
              14.30%
              
              10.74%Impact
                  on fair value of 10% adverse change
              $
              (3,923,392)
              $
              (4,856,000)Impact
                  on fair value of 20% adverse change
              $
              (7,487,117)
              $
              (9,280,000)
 
 These
        sensitivities are entirely hypothetical and should be used with caution.
        As the
        figures indicate, changes in fair value based upon 10% and 20% variations
        in
        assumptions generally cannot be extrapolated to greater or lesser percentage
        variation because the relationship of the change in assumption to the change
        in
        fair value may not be linear. Also, in this table, the effect of the variation
        in a particular assumption on the fair value of the MSR is calculated without
        changing any other assumption. In reality, changes in one factor may result
        in
        changes in another which may magnify or counteract the sensitivities.
 
 **NOTE
        6.**  **MORTGAGE
        BACKED SECURITIES**
 
 At
        June 30, 2006, and December 31, 2005, all of Opteum's MBS were classified
        as available-for-sale and, as such, are reported at their estimated fair
        value.
        Estimated fair value was determined based on the average of third-party broker
        quotes received and/or independent pricing sources when available.
 
 At
        June
        30, 2006, Opteum had financed MBS with a historical amortized cost of
        $17.7  million
        with the party from which it acquired such MBS. These MBS are included at
        a fair
        value of $17.4 million and a corresponding repurchase agreement obligation
        of
        $19.0 million at June 30, 2006.
 
 The
        following are the carrying values of Opteum's MBS portfolio at June 30,
        2006, and December 31, 2005:
 
 
 **June
                  30, 2006**
              
              **December
                  31, 2005**Adjustable
                  Rate Mortgages
              $
              2,319,096,678
              $
              2,006,767,437Fixed
                  Rate and Balloons Mortgages
              
              697,145,510
              
              733,366,217Hybrid
                  Arms
              
              391,045,826
              
              753,895,705Totals
              $
              3,407,288,014
              $
              3,494,029,359
 
 The
        following table presents the components of the carrying value of Opteum's
        MBS
        portfolio at June 30, 2006, and December 31, 2005:
 
  **June
                  30, 2006**
              
              **December
                  31, 2005**Principal
                  balance
              $
              3,396,909,813
              $
              3,457,887,912Unamortized
                  premium
              
              123,320,155
              
              115,133,248Unaccreted
                  discount
              
              (2,452,745)
              
              (2,497,423)Gross
                  unrealized gains
              
              615,979
              
              265,615Gross
                  unrealized losses
              
              (111,105,188)
              
              (76,759,993)Carrying
                  value/estimated fair value
              $
              3,407,288,014
              $
              3,494,029,359
 
  The
        following table presents, for Opteum's MBS with gross unrealized losses,
        the
        estimated fair value and gross unrealized losses aggregated by investment
        category at June 30, 2006:
 
 **Loss
                  Position Less than 12 Months**
              **Loss
                  Position More than 12 Months**
              **Total****Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**Hybrid
                  Arms and Balloons
              $
              191,778,336
              $
              (2,506,896)
              $
              183,428,500
              $
              (8,442,849)
              $
              375,206,836
              $
              (10,949,745)Adjustable
                  Rate Mortgages
              
              1,287,872,457
              
              (29,922,497)
              
              808,180,997
              
              (33,709,309)
              
              2,096,053,454
              
              (63,631,806)Fixed
                  Rate Mortgages
              
              189,957,106
              
              (4,551,138)
              
              507,188,404
              
              (31,972,499)
              
              697,145,510
              
              (36,523,637)$
              1,669,607,899
              $
              (36,980,531)
              $
              1,498,797,901
              $
              (74,124,657)
              $
              3,168,405,800
              $
              (111,105,188)
  The
        following table presents, for Opteum's MBS with gross unrealized losses,
        the
        estimated fair value and gross unrealized losses aggregated by investment
        category at December 31, 2005:
  **Loss
                  Position Less than 12 Months**
              **Loss
                  Position More than 12 Months**
              **Total****Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**Hybrid
                  Arms and Balloons
              $
              563,661,156
              $
              (8,409,428)
              $
              $141,675,752
              $
              (4,510,901)
              $
              705,336,908
              $
              (12,920,329)Adjustable
                  Rate Mortgages
              
              1,648,085,054
              
              (27,917,630)
              
              270,945,493
              
              (8,944,837)
              
              1,919,030,547
              
              (36,862,467)Fixed
                  Rate Mortgages
              
              425,260,838
              
              (10,762,306)
              
              346,435,009
              
              (16,214,890)
              
              771,695,847
              
              (26,977,197)$
              2,637,007,048
              $
              (47,089,364)
              $
              759,056,254
              $
              (29,670,628)
              $
              3,396,063,302
              $
              (76,759,993)
 
 At
        June
        30, 2006, all of Opteum's MBS had contractual maturities greater than 30
        months.
        Actual maturities of MBS are generally shorter than stated contractual
        maturities. Actual maturities of Opteum's MBS are affected by the contractual
        lives of the underlying mortgages, periodic payments of principal and
        prepayments of principal.
 
 The
        decline in fair value of MBS is not considered to be other-than-temporary.
        Accordingly, the write down to fair value is recorded in other comprehensive
        loss as an unrealized loss. The factors considered in making this determination
        include: the expected cash flow from the MBS, the general quality of the
        MBS
        owned, any credit protection available, current market conditions and the
        magnitude and duration of the historical decline in market prices as well
        as
        Opteum's ability and intention to hold the MBS.
 
 **NOTE
        7.**  **EARNINGS
        PER SHARE**
 
 Effective
        November 3, 2005, the Company issued 1,223,208 shares of Class A Redeemable
        Preferred Stock in connection with the acquisition of OFS. After January
        1,
        2006, and prior to March 31, 2006, holders of Class A Redeemable Preferred
        Stock
        were entitled to receive dividends according to the formula described in
        the
        Company’s amended Articles of Incorporation. For the Company’s first quarter
        2006 dividend, declared on March 10, 2006, the shares of Class A Redeemable
        Preferred Stock, although considered to be participating securities, did
        not
        receive a dividend pursuant to the formula. Following the provisions of EITF
        03-6, for the six and three month periods ended June 30, 2006, the Class
        A
        Redeemable Preferred Stock, a participating security, was excluded in the
        computation of basic EPS using the two-class method. EITF 03-6 discusses
        the
        allocation of losses to nonconvertible and convertible participating securities
        when using the two-class method. Losses are only allocated to a participating
        security if this security has a contractual obligation to share in the loss.
        There was no such obligation for the Class A Redeemable Preferred Stock.
        Therefore, for the six and three months ended June 30, 2006, the shares of
        Class
        A Redeemable Preferred Stock were not allocated any of the loss in the
        computation of basic EPS, even though it is a participating
        security.
 
 The
        conversion of the Class A Redeemable Preferred Stock into shares of Class
        A
        Common Stock was approved by the stockholders at the Company’s 2006 Annual
        Meeting of Shareholders on April 28, 2006, and the shares of Class A Redeemable
        Preferred Stock were converted into shares of Class A Common Stock on that
        date.
        For purposes of the EPS computation, the conversion of the shares of Class
        A
        Redeemable Preferred Stock into shares of Class A Common Stock has been
        accounted for as of April 28, 2006, and is included in the computation of
        basic
        EPS for the Class A Common Stock as of that date.
 
 As
        a
        result of the conversion of the Class A Redeemable Preferred Stock, the EPS
        presentation for these securities is no longer presented, beginning with
        the
        periods ended June 30, 2006.
 
 The
        Company has dividend eligible stock incentive plan shares that were outstanding
        during the six and three months ended June 30, 2006. These stock incentive
        plan
        (or "phantom") shares have dividend participation rights, but no contractual
        obligation to share in losses. Since there is no such obligation, phantom
        shares
        are not included, pursuant to EITF 03-6, in the six and three months ended
        June
        30, 2006 basic EPS computation for the Class A Common Stock, even though
        they
        are a participating security. For the six and three months ended computation
        of
        diluted EPS for the Class A Common Stock, phantom shares totaling 612,268
        shares
        at June 30, 2006, are excluded as their inclusion would be
        anti-dilutive.
 
 The
        table
        below reconciles the numerators and denominators of the basic and diluted
        EPS.
 
 **(Unaudited)**
              **(Unaudited)****Six
                  Months Ended June 30,**
              **Three
                  Months Ended June 30,****2006**
              
              **2005**
              **2006**
              
              **2005**Basic
                  and diluted EPS of Class A Common Stock:Numerator:
                  net (loss) income allocated to the shares of Class A Common Stock
              $
              (8,662,402)
              $
              18,838,279
              $
                  (3,641,129)
              $
              8,094,686Denominator:
                  basic and diluted:Shares
                  of Class A Common Stock outstanding at the balance sheet date
              
              24,354,114
              
              20,385,936
              24,354,114
              
              20,385,936Dividend
                  eligible equity plan shares issued as of the balance sheet
                  date
              
              -
              
              512,072
              -
              
              516,961Effect
                  of weighting
              
              (649,206)
              
              (51,529)
              (383,781)
              
              (6,108)Weighted
                  average shares-basic and diluted
              
              23,704,908
              
              20,846,479
              23,970,333
              
              20,896,789Basic
                  and diluted EPS of Class A Common Stock
              $
              (0.37)
              $
              0.90
              $
                  (0.15)
              $
              0.39Basic
                  and diluted EPS of Class B Common Stock:Numerator:
                  net (loss) income allocated to Class B Common Stock
              $
              (113,602)
              $
              287,959
              $
                  (47,751)
              $
              123,713Denominator:
                  basic and diluted:Shares
                  of Class B Common Stock outstanding at the balance sheet date
              
              319,388
              
              319,388
              319,388
              
              319,388Effect
                  of weighting
              
              -
              
              -
              -
              
              -Weighted
                  average shares-basic and diluted
              
              319,388
              
              319,388
              319,388
              
              319,388Basic
                  and diluted EPS of Class B Common Stock
              $
              (0.36)
              $
              0.90
              $
                  (0.15)
              $
              0.39
 
 
 **NOTE
        8.**  **WAREHOUSE
        LINES OF CREDIT AND DRAFTS PAYABLE**
 
 OFS
        issues drafts or wires at loan settlement in order to facilitate the closing
        of
        mortgage loans held for sale. Drafts payable represent mortgage loans in
        respect
        of which a loan closing has occurred prior to quarter end, but the related
        drafts have not cleared the respective bank. Upon clearing the bank, the
        drafts
        are funded by the appropriate warehouse line of credit. Warehouse and
        aggregation lines of credit and loan sale agreements accounted for as financing
        consisted of the following at June 30, 2006:
  **Outstanding
                  Principal Balance at**
                **June
                  30, 2006**Warehouse
                  and aggregate lines of credit:A
                  committed warehouse line of credit for $100.0 million between OFS
                  and
                  Residential Funding Corporation ("RFC"). The agreement expires
                  on
                  September 30, 2006. The agreement provides for interest rates based
                  upon
                  one month LIBOR plus a margin between 1.25% and 1.50% depending
                  on the
                  product that was originated or acquired.
              $
              6,691,253A
                  committed warehouse line of credit for $850.0 million between OFS
                  and JP
                  Morgan Chase. The agreement expires on May 30, 2007 and is expected
                  to be
                  renewed prior to its expiration. The agreement provides for interest
                  rates
                  based upon one month LIBOR plus a margin of 0.60% to 1.50% depending
                  on
                  the product originated or acquired.
              
              148,111,110An
                  aggregation facility for $1.0 billion between OFS and Citigroup
                  Global
                  Markets Realty Inc. to aggregate loans pending securitization.
                  The
                  agreement expires on February 28, 2007. The agreement provides
                  for
                  interest rates based upon one month LIBOR plus a margin of
                  0.50%.
              
              50,182,230A
                  $750.0 million purchase and security agreement between OFS and
                  UBS Warburg
                  Real Estate Securities, Inc. (“UBS Warburg”). The facility is due upon
                  demand and can be cancelled by either party upon notification to
                  the
                  counterparty. OFS incurs a charge for the facility based on one
                  month
                  LIBOR plus 1.00%. The facility is secured by loans held for sale
                  and cash
                  generated from sales to investors.
              
              104,602,632Drafts
                  payable
              
              15,260,490Loan
                  sale agreements accounted for as financings:An
                  uncommitted $500.0 million purchase agreement between OFS and Colonial
                  Bank. The facility is due upon demand and can be cancelled by either
                  party
                  upon notification to the counterparty. OFS incurs a charge for
                  the
                  facility based on one month LIBOR plus 0.50% for the first $300.0
                  million
                  purchased and one month LIBOR plus 0.75**%**for
                  the amount used above and beyond $300.0 million.****The
                  facility is secured by loans held for sale and cash generated from
                  sales
                  to investors.
              
              412,122,071Total
              $
              736,969,786
 
  In
        addition to the RFC, JP Morgan Chase, Citigroup Global Markets, UBS Warburg
        and
        Colonial Bank facilities, OFS has purchase and sale agreements with Fannie
        Mae.
        The agreements allow OFS to accelerate the sale of its mortgage loan inventory,
        resulting in a more effective use of its warehouse facilities. OFS has a
        combined capacity of $3.2 billion under these purchase and sale agreements.
        There were no amounts outstanding under these agreements at June 30, 2006.
        The
        agreements are not committed facilities and may be terminated at the discretion
        of either party.
  The
        foregoing facilities are secured by mortgage loans and other assets of
        OFS.  In the case of the JP Morgan Chase facility, Opteum was required to
        provide a parent guaranty. The foregoing facilities contain various covenants
        pertaining to tangible
        net worth, net income, available cash and liquidity, leverage ratio ,
        current
        ratio and servicing delinquency.  In the case of the JP Morgan Chase
        facility, there are also tangible net worth, available cash and liquidity
        and
        leverage ratio covenants that pertain to Opteum. At June 30, 2006, OFS
        was
        not in compliance with respect to one covenant with one lender. The covenant
        pertained to net income at June 30, 2006. OFS has obtained a waiver of the
        covenant violation from the lender.
 
 **NOTE
        9.**  **OTHER
        SECURED BORROWINGS**
 
 Other
        secured borrowings consisted of the following at June 30, 2006:
  **Outstanding
                  Principal Balance at**
                **June
                  30, 2006**A
                  committed warehouse line of credit for $150.0 million between OFS
                  and JP
                  Morgan Chase that allows for a sublimit for MSRs. The agreement
                  expires
                  May 30, 2007 and is expected to be renewed prior to its expiration.
                  The
                  agreement provides for an interest rate based on LIBOR plus 1.50%
                  to 1.85%
                  depending on collateral type.
              $
              71,435,442Citigroup
                  Global Realty Inc. working capital line of credit secured by the
                  retained
                  interests in securitizations through OMAC 2006-2. The facility
                  expires on
                  October 31, 2006. The agreement provides for an interest rate based
                  on
                  LIBOR plus 2.00%.
              
              33,389,990$
              104,825,432
 
 **NOTE
        10.**  **REPURCHASE
        AGREEMENTS**
 
 Opteum
        has entered into repurchase agreements to finance the acquisition of most
        of its
        MBS. The repurchase agreements are effectively short-term borrowings that
        bear
        interest at rates that have historically moved in close relationship to LIBOR.
        At June 30, 2006, Opteum had $3.3 billion of repurchase agreement
        borrowings with a net weighted average borrowing rate of 5.08% that were
        collateralized by MBS with a fair value at June 30, 2006, of $3.4 billion
        and
        restricted cash of $0.3 million. At December 31, 2005, Opteum had $3.3
        billion of repurchase agreement borrowings with a net weighted average borrowing
        rate of 4.15% that were collateralized by MBS with a fair value at December
        31,
        2005, of $3.5 billion and restricted cash of $2.3 million.
 
 At
        June 30, 2006, Opteum's repurchase agreements had remaining maturities as
        summarized below:
 
 **OVERNIGHT**
                **(1
                  DAY OR LESS)**
              
              **BETWEEN
                  2 AND**
                **30
                  DAYS**
              
              **BETWEEN
                  31 AND**
                **90
                  DAYS**
              
              **GREATER
                  THAN**
                **90
                  DAYS**
              
              **TOTAL**Agency-Backed
                  Mortgage Backed securities:Amortized
                  cost of securities sold, including accrued interest
                  receivable
              $
              —
              $
              1,843,789,784
              $
              687,967,255
              $
              818,475,995
              $
              3,350,233,034Fair
                  market value of securities sold, including accrued interest
                  receivable
              $
              —
              $
              1,794,765,144
              $
              671,886,428
              $
              781,345,823
              $
              3,247,997,395Repurchase
                  agreement liabilities associated with these securities
              $
              —
              $
              1,812,218,000
              $
              686,979,000
              $
              807,690,250
              $
              3,306,887,250Net
                  weighted average borrowing rate
              
              —
              
              5.07%
              
              4.99%
              
              5.16%
              
              5.08%
 
 At
        December 31, 2005, Opteum's repurchase agreements had remaining maturities
        as summarized below:
 
 **OVERNIGHT**
                **(1
                  DAY OR LESS)**
              
              **BETWEEN
                  2 AND**
                **30
                  DAYS**
              
              **BETWEEN
                  31 AND**
                **90
                  DAYS**
              
              **GREATER
                  THAN**
                **90
                  DAYS**
              
              **TOTAL**Agency-Backed
                  Mortgage Backed securities:Amortized
                  cost of securities sold, including accrued interest
                  receivable
              $
              —
              $
              906,106,459
              $
              813,436,832
              $
              1,533,016,956
              $
              3,252,560,247Fair
                  market value of securities sold, including accrued interest
                  receivable
              $
              —
              $
              893,159,892
              $
              791,259,152
              $
              1,498,980,224
              $
              3,183,399,268Repurchase
                  agreement liabilities associated with these securities
              $
              —
              $
              914,262,355
              $
              857,995,007
              $
              1,565,341,000
              $
              3,337,598,362Net
                  weighted average borrowing rate
              
              —
              
              4.22%
              
              4.01%
              
              4.19%
              
              4.15%
 
 Opteum
        has entered into contracts and paid commitment fees to three counterparties
        providing for an aggregate of $1.7 billion in committed repurchase facilities at
        pre-determined borrowing rates and haircuts for a 364 day period following
        the
        commencement date of each contract. Opteum has no obligation to utilize these
        repurchase facilities and at June 30, 2006, had approximately $0.5 billion
        outstanding under these repurchase lines.
 
 At
        June 30, 2006, Opteum's repurchase agreements had the following
        counterparties, amounts-at-risk and weighted average remaining maturities:
 
 
 **Repurchase
                  Agreement Counterparties**
              
              **Amount
                  Outstanding ($000)**
              
              **Amount
                  at Risk(1) ($000)**
              **Weighted
                  Average Maturity of Repurchase Obligations in
                  Days**
              **Percent
                  of Total Amount Outstanding**Deutsche
                  Bank Securities, Inc.
              $
              980,859
              
              11,419
              194
              29.66
              %JP
                  Morgan Securities
              
              747,306
              
              22,796
              24
              22.60Washington
                  Mutual
              
              357,109
              
              13,420
              10
              10.80Nomura
                  Securities International, Inc.
              
              312,260
              
              10,782
              44
              9.44RBS
                  Greenwich Capital
              
              198,199
              
              5,861
              37
              5.99Countrywide
                  Securities Corp
              
              194,649
              
              6,641
              113
              5.89BNP
                  Paribas Securities Corp
              
              167,528
              
              5,834
              64
              5.07UBS
                  Investment Bank, LLC
              
              131,313
              
              3,405
              55
              3.97Goldman
                  Sachs
              
              103,786
              
              3,522
              35
              3.14Merrill
                  Lynch
              
              53,952
              
              1,481
              3
              1.63Bear
                  Stearns & Co. Inc.
              
              22,399
              
              1,462
              7
              0.68Daiwa
                  Securities America Inc.
              
              19,732
              
              (255)
              7
              0.60Lehman
                  Brothers
              
              9,155
              
              310
              31
              0.28Cantor
                  Fitzgerald
              
              8,640
              
              386
              6
              0.25HSBC
                  Securities (USA) Inc.
              
              0
              
              483
              0
              0.00**Total**
              **$**
              **3,306,887**
              
              **87,547**
              
              **100**
              **%**
 
 
 (1)  Equal
        to
        the fair value of securities sold, plus accrued interest income, minus the
        sum
        of repurchase agreement liabilities, plus accrued interest expense.
 
 At
        December 31, 2005, Opteum's repurchase agreements had the following
        counterparties, amounts-at-risk and weighted average remaining maturities:
 
 
 
 **Repurchase
                  Agreement Counterparties**
              
              **Amount
                  Outstanding ($000)**
              
              **Amount
                  at Risk(1) ($000)**
              **Weighted
                  Average Maturity of Repurchase Obligations in
                  Days**
              **Percent
                  of Total Amount Outstanding**Deutsche
                  Bank Securities, Inc.
              $
              894,748
              
              12,018
              135
              26.81
              %Nomura
                  Securities International, Inc.
              
              623,631
              
              27,010
              122
              18.69Cantor
                  Fitzgerald
              
              467,638
              
              15,958
              70
              14.01Washington
                  Mutual
              
              375,345
              
              11,630
              7
              11.25Goldman
                  Sachs
              
              207,525
              
              7,438
              44
              6.22Bear
                  Stearns & Co. Inc.
              
              167,610
              
              6,096
              157
              5.02UBS
                  Investment Bank, LLC
              
              158,781
              
              5,059
              93
              4.76Merrill
                  Lynch
              
              128,119
              
              (7,949)
              96
              3.84JP
                  Morgan Securities
              
              115,807
              
              1,652
              151
              3.47Morgan
                  Stanley
              
              73,505
              
              1,767
              26
              2.20Lehman
                  Brothers
              
              62,643
              
              2,399
              87
              1.88Countrywide
                  Securities Corp
              
              22,930
              
              1,238
              86
              0.69Daiwa
                  Securities America Inc.
              
              19,732
              
              39
              188
              0.58Bank
                  of America Securities, LLC
              
              19,584
              
              815
              27
              0.58**Total**
              **$**
              **3,337,598**
              
              **85,170**
              
              **100**
              **%**
 
 
 (1)  Equal
        to
        the fair value of securities sold, plus accrued interest income, minus the
        sum
        of repurchase agreement liabilities, plus accrued interest expense.
 
 
 **NOTE
        11.**  **TRUST
        PREFERRED SECURITIES**
  On
        May 17, 2005, Opteum completed a private offering of $50.0 million of trust
        preferred securities of Bimini Capital Trust I, a Delaware statutory business
        trust sponsored by Opteum (“BCTI”). BCTI used the proceeds of the private
        offering, together with Opteum’s investment of $1.6 million in BCTI common
        equity securities, to purchase $51.6 million aggregate principal amount of
        Opteum’s BCTI Junior Subordinated Notes with terms that parallel the terms of
        the BCTI trust preferred securities.
 
 The
        BCTI
        trust preferred securities and Opteum’s BCTI Junior Subordinated Notes have a
        fixed rate of interest until March 30, 2010, of 7.61% and thereafter,
        through maturity in 2035, the rate will float at a spread of 3.30% over the
        prevailing three-month LIBOR rate.  The BCTI trust preferred securities and
        Opteum’s BCTI Junior Subordinated Notes require quarterly interest distributions
        and are redeemable at Opteum’s option, in whole or in part and without penalty,
        beginning March 30, 2010 and at any date thereafter.  Opteum’s BCTI
        Junior Subordinated Notes are subordinate and junior in right of payment
        of all
        present and future senior indebtedness. The proceeds from the private offering
        net of costs were approximately $48.5 million.
  On
        October 5, 2005, Opteum completed a private offering of $50.0 million of
        trust
        preferred securities of Bimini Capital Trust II, a Delaware statutory business
        trust sponsored by Opteum (“BCTII”). BCTII used the proceeds of the private
        offering, together with Opteum’s investment of $1.5 million in BCTII common
        equity securities, to purchase $51.5 million aggregate principal amount of
        Opteum’s BCTII Junior Subordinated Notes with terms that parallel the terms of
        the BCTII trust preferred securities.
 
 The
        BCTII
        trust preferred securities and Opteum’s BCTII Junior Subordinated Notes have a
        fixed rate of interest until December 15, 2010, of 7.8575% and thereafter,
        through maturity in 2035, the rate will float at a spread of 3.50% over the
        prevailing three-month LIBOR rate. The BCTII trust preferred securities and
        Opteum’s BCTII Junior Subordinated Notes require quarterly interest
        distributions and are redeemable at Opteum’s option, in whole or in part and
        without penalty, beginning December 15, 2010, and at any date thereafter.
        Opteum’s BCTII Junior Subordinated Notes are subordinate and junior in right of
        payment of all present and future senior indebtedness. The proceeds from
        the
        private offering net of costs were approximately $48.5 million.
 
 Each
        trust is a variable interest entity pursuant to FIN No. 46, because the
        holders of the equity investment at risk do not have adequate decision making
        ability over the trust’s activities. Because Opteum’s investment in each trust’s
        common equity securities was financed directly by the applicable trust as
        a
        result of its loan of the proceeds to Opteum, that investment is not considered
        to be an equity investment at risk pursuant to FIN No. 46. Since Opteum’s common
        share investments in BCTI and BCTII are not a variable interest, Opteum is
        not
        the primary beneficiary of the trusts. Therefore, Opteum has not consolidated
        the financial statements of BCTI and BCTII into its financial statements. 
Based on the aforementioned accounting guidance, the accompanying consolidated
        financial statements present Opteum’s BCTI and BCTII Junior Subordinated Notes
        issued to the trusts as liabilities and Opteum’s investments in the common
        equity securities of BCTI and BCTII as assets. For financial statement purposes,
        Opteum records payments of interest on the Junior Subordinated Notes issued
        to
        BCTI and BCTII as interest expense.
 
 **NOTE
        12.**  **CAPITAL
        STOCK**
 
 **Changes
        in Class A Common Stock**
 
 During
        the six and three months ended June 30, 2006, the Company issued a total
        of
        21,995 and 11,880 shares of Class A Common Stock, respectively, to four of
        its
        independent directors for the payment of director fees for services
        rendered.
 
 During
        the six and the three months ended June 30, 2006, the Company issued 68,968
        and
        35,527 shares of its Class A Common Stock, respectively, to Opteum employees
        pursuant to the terms of the stock incentive plan phantom share grants (see Note
        14 ).
 
 On
        April
        28, 2006, the Company issued a total of 1,223,208 shares of Class A Common
        Stock
        in conjunction with the conversion of the Class A Redeemable Preferred Stock
        (see Note 7).
 
 During
        the six months ended June 30, 2006, the Company retired 1.1 million shares
        of
        Class A Common Stock.
 
 **Dividends**
 
 On
        May
        31, 2006, the Company's Board of Directors declared a $0.25 per share cash
        dividend to the holders of its dividend eligible securities on the record
        date
        of June 21, 2006. Dividends were payable on 24,354,114 shares of Class A
        Common Stock, 600,030 phantom shares granted under the Company's stock incentive
        plan (see Note 14 )
        and
        319,388 shares of Class B Common Stock. The shares of Class A Common Stock
        include the shares of Class A Redeemable Preferred Stock that was converted
        on
        April 28, 2006. The distribution totaling $6,318,383 was paid on July 7,
        2006.
 
 On
        March
        10, 2006, the Company’s Board of Directors declared a $0.11 per share cash
        dividend to the holders of its dividend eligible securities. Dividends were
        payable on 23,083,498 shares of Class A Common Stock, 650,320 phantom shares
        granted under the Company’s stock incentive plan (see Note 14) and 319,388
        shares of Class B Common Stock. No dividends were paid on the Class A Redeemable
        Preferred Stock as the provisions of a formula in the Company’s amended Articles
        of Incorporation were not met. The distribution totaling $2,645,853 was paid
        on
        April 7, 2006.
 
 **Other
        Classes of Common and Preferred Stock**
 
 There
        was
        no change in the number of issued and outstanding shares of the Company’s Class
        B Common Stock and Class C Common Stock. The conversion of the outstanding
        shares of Class A Redeemable Preferred Stock into Class A Common Stock was
        approved by the Company’s stockholders at the Company’s 2006 Annual Meeting of
        Stockholders on April 28, 2006, and the outstanding shares of Class A Redeemable
        Preferred Stock were converted into 1,223,208 shares of Class A Common Stock
        on
        that date.
 
 **NOTE
        13.**  **TRANSACTIONS
        WITH RELATED PARTIES**
 
 In
        January 2006, four of the independent directors received a total of 10,115
        shares of Class A Common Stock, valued at $98,116, as compensation for
        their activities as directors. The fifth independent director received $26,250
        of cash compensation.
 
 In
        April 2006, four of the independent directors received a total of 11,880
        shares of Class A Common Stock, valued at $98,129, as compensation for
        their activities as directors. The fifth independent director received $26,250
        of cash compensation.
 
 In
        January 2005, the four independent directors received a total of 5,968 shares
        of
        Class A Common Stock, valued at $92,027, as compensation for their activities
        as
        directors.
  In
        April
        2005, the four independent directors received a total of 6,164 shares of
        Class A
        Common Stock, valued at $84,015, as compensation for their activities as
        directors.
  **NOTE
        14.**  **STOCK
        INCENTIVE PLAN**
  On
        December 1, 2003, Opteum adopted the 2003 Long Term Incentive Compensation
        Plan (the “2003 Plan”) to provide Opteum with the flexibility to use stock-based
        awards as part of an overall compensation package to provide a means of
        performance-based compensation to attract and retain qualified personnel.
        The
        2003 Plan was amended and restated in March 2004. Key employees, directors
        and consultants are eligible to be granted stock options, restricted stock,
        phantom shares, dividend equivalent rights and other stock-based awards under
        the 2003 Plan. Subject to adjustment upon certain corporate transactions
        or
        events, a maximum of 4,000,000 shares of Class A Common Stock (but not more
        than
        10% of the Class A Common Stock outstanding on the date of grant) may be
        awarded
        under the 2003 Plan.
 
 During
        the six and three months ended June 30, 2006, Opteum granted 215,389
        and 14,605 phantom
        shares to employees with an aggregate fair value of $2.0 million and $0.1
        million, respectively. Each phantom share represents a right to receive a
        share
        of Opteum’s Class A Common Stock. Dividend equivalent rights were also
        granted on these phantom shares.
  Phantom
        share awards are valued at the fair value of Opteum’s Class A Common Stock
        at the date of the grant. The total grant date value of all awards since
        the
        2003 Plan’s inception is $ 9.8 million.
        The phantom awards do not have an exercise price. The grant date fair value
        is
        being amortized as compensation expense on a straight-line basis over the
        vesting period of the respective award.  The phantom shares vest, based on
        the employees’ continuing employment, following a schedule as provided in
        the award agreements, for periods through March 15,
        2009 .
  As
        of
        June 30, 2006, a total of 733,850 phantom
        stock awards have been granted since the inception of the 2003 Plan, however,
        2,090 shares were forfeited during 2005. The future compensation charge that
        was
        eliminated by the forfeiture totaled $31,852. Of the remaining phantom shares, 279,954 phantom
        shares have fully vested and 451,806 phantom
        shares remain unvested.  No phantom share awards have expired. Of the
        vested phantom shares, a total 103,407 shares of Class A Common Stock were
        distributed (issued to grantees or surrendered to pay income taxes) during
        the
        six months ended June 30, 2006. A total of 118,492 shares of Class A Common
        Stock have been distributed since inception. As of June 30, 2006, 613,268 phantom
        shares remain outstanding.  Total compensation expense recognized for the
        six and three months ended June 30, 2006, was $1.4 million and $0. 7
        million ,
        respectively, and for the six and three months ended June 30, 2005, was $1.0
        million and $0.6 million, respectively. Dividends paid on phantom shares
        are
        charged to retained earnings when declared.
 
 **NOTE
        15.**  **SAVINGS
        INCENTIVE PLAN**
 
 Opteum’s
        employees have the option to participate in the Bimini Mortgage Management,
        Inc.
        401K Plan (the “Plan”). Under the terms of the Plan, eligible employees can make
        tax-deferred 401(k) contributions and at Opteum’s sole discretion, Opteum can
        match the employees’ contributions. For the six and three months ended June 30,
        2006 Opteum made 401(k) matching contributions of $37,777 and $17,721,
        respectively and for the six and three months ended June 30, 2005, Opteum
        made
        401(k) matching contributions of $18,547, as the plan became effective in
        April
        of 2005.
  OFS’
        employees have the option to participate in The Company Savings and Incentive
        Plan (the “OFS Plan”). Under the terms of the OFS Plan, eligible employees can
        make tax-deferred 401(k) contributions and at OFS’ sole discretion, OFS can
        match the employees’ contributions as well as make annual profit-sharing
        contributions to the OFS Plan. For the six and three months ended June 30,
        2006,
        OFS made 401(k) matching contributions of $459,234 and $212,406,
        respectively.
  **NOTE
        16.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 **Loans
        Sold to Investors** .
        Generally, OFS is not exposed to significant credit risk on its loans sold
        to
        investors. In the normal course of business, OFS provides certain
        representations and warranties during the sale of mortgage loans which obligate
        it to repurchase loans which are subsequently unable to be sold through the
        normal investor channels. The repurchased loans are secured by the related
        real
        estate properties and can usually be sold directly to other permanent investors.
        There can be no assurance, however, that OFS will be able to recover the
        repurchased loan value either through other investor channels or through
        the
        assumption of the secured real estate.
  OFS
        recognizes a liability for the estimated fair value of this repurchase
        obligation at the inception of each mortgage loan sale based on the anticipated
        repurchase levels and historical experience. The liability is recorded as
        a
        reduction of the gain on sale of mortgage loans and included as part of other
        liabilities in the accompanying financial statements.
  Changes
        in this liability for the six months ended June 30, 2006:
  Balance—Beginning
                  of period
              $
              2,037,980Provision
              
              1,567,105Charge-Offs
              
              (896,036)Balance—End
                  of period
              $
              2,709,049
 
  **Loan
        Funding and Delivery Commitments** .
        At June
        30, 2006, OFS had commitments to fund loans approximating $341.9 million.
        OFS
        hedges the interest rate risk of such commitments primarily with mandatory
        delivery commitments. The remaining commitments to fund loans with agreed-upon
        rates are anticipated to be sold through “best-efforts” and investor programs.
  **Net
        Worth Requirements** .
        OFS is
        required to maintain certain specified levels of minimum net worth to maintain
        its approved status with Fannie Mae, HUD and other investors. At June 30,
        2006,
        the highest minimum net worth requirement applicable to OFS was approximately
        $1.7 million.
 
 **Contractual
        Obligations and Commitments**
 
 The
        following table provides information with respect to the Company’s contractual
        obligations at June 30, 2006 (dollars in thousands):
 
 Payments
                  Due by PeriodContractual
                  Obligations
              
              Total
              
              Less
                  than 1 year
              
              1-3
                  years
              
              3-5
                  years
              
              More
                  than 5 yearsRepurchase
                  agreements
              $
              3,306,887
              $
              3,306,887
              $
              -
              $
              -
              $
              -Warehouse
                  lines of credit
              
              721,710
              
              721,710
              
              -
              
              -
              
              -Drafts
                  payable
              
              15,260
              
              15,260
              
              -
              
              -
              
              -Other
                  secured borrowings
              
              104,825
              
              104,825
              
              -
              
              -
              
              -Junior
                  subordinated notes
              
              103,097
              
              -
              
              -
              
              103,097
              
              -Operating
                  leases
              
              17,296
              
              5,909
              
              8,079
              
              2,472
              
              836Total
              $
              4,269,075
              $
              4,154,591
              $
              8,079
              $
              105,569
              $
              836
 
 
 **Legal
        Proceedings** .
        The
        Company is involved in various lawsuits and claims, both actual and potential,
        including some that it has asserted against others, in which monetary and
        other
        damages are sought. These lawsuits and claims relate primarily to contractual
        disputes arising out of the ordinary course of the Company’s business. The
        outcome of such lawsuits and claims is inherently unpredictable. However,
        management believes that, in the aggregate, the outcome of all lawsuits and
        claims involving the Company will not have a material effect on the Company’s
        consolidated financial position or liquidity; however, any such outcome may
        be
        material to the results of operations of any particular period in which costs,
        if any, are recognized.
  **NOTE
        17.**  **SEGMENTS**
 
 The
        Company follows SFAS No. 131, *Disclosures
        about Segments of an Enterprise and Related Information.* The
        Company operates in two reportable segments: as a REIT and as an originator
        of
        mortgage loans.
 
 Certain
        of the Company’s operations are qualifying activities under the REIT provisions
        of the Code. The REIT activities primarily involve investing in residential
        mortgage-related securities by Opteum. As a REIT, Opteum’s activities are not
        subject to federal income tax as long as the net taxable earnings from REIT
        activities are distributed to Opteum’s stockholders and certain other conditions
        are satisfied.
 
 On
        November 3, 2005, Opteum acquired OFS. OFS is a mortgage lender that
        originates loans. OFS currently has 42 offices and is active in 46 states.
        Goodwill associated with the OFS merger was $3.1 million at June 30,
        2006.
 
 The
        accounting policies of the segments are the same as those described in the
        summary of significant accounting policies in Note 1. The
        Company evaluates the performance of its REIT segment and mortgage origination
        business segment based on operating results. Each of the business segments’ net
        income or loss includes direct costs attributable to such segment plus allocated
        corporate-level expenses.
 
 The
        following tables show summarized financial information for the six and three
        months ended June 30, 2006, concerning the Company’s reportable segments. Figures
        reflect the elimination of inter-company transactions between Opteum and
        OFS.
 
 
 (Amounts
                  in thousands)
              
              OPTEUM
              
              OFS
              
              Consolidated
                  TotalSix
                  months
                ended
                June
                  30, 2006
              
              Six
                  months
                ended
                June
                  30, 2006
              
              Six
                  months
                ended
                June
                  30, 2006Net
                  interest income
              $
              12,214
              $
              7,044
              $
              19,258Other
                  revenues, net
              
              70
              
              2,979
              
              3,049Direct
                  operating expenses
              
              (546)
              
              -
              
              (546)General
                  and administrative expenses
              
              (5,157)
              
              (37,714)
              
              (42,871)Income
                  (loss) before income taxes
              
              6,582
              
              (27,691)
              
              (21,109)Income
                  tax benefit
              
              -
              
              12,333
              
              12,333Total
                  assets
              
              3,519,968
              
              986,809
              
              4,506,777Capital
                  expenditures
              
              687
              
              2,149
              
              2,836
 
 
 
 (Amounts
                  in thousands)
              
              OPTEUM
              
              OFS
              
              Consolidated
                  TotalThree
                  months
                ended
                June
                  30, 2006
              
              Three
                  months
                ended
                June
                  30, 2006
              
              Three
                  months
                ended
                June
                  30, 2006Net
                  interest income
              $
              10,707
              $
              4,069
              $
              14,776Other
                  revenues, net
              
              70
              
              (4,083)
              
              (4,013)Direct
                  operating expenses
              
              (227)
              
              -
              
              (227)General
                  and administrative expenses
              
              (3,028)
              
              (19,737)
              
              (22,765)Income
                  (loss) before income taxes
              
              7,523
              
              (19,752)
              
              (12,229)Income
                  tax benefit
              
              -
              
              8,540
              
              8,540
 
 
 For
        the
        six months ended June 30, 2006, general and administrative expenses includes
        depreciation and amortization expense of $372,000 for the REIT and $1.7 million
        for OFS. Other interest expense for OFS was $3.7 million, for the six months
        ended June 30, 2006. For the three months ended June 30, 2006, general and
        administrative expenses includes depreciation and amortization expense of
        $188,000 for the REIT and $888,000 million for OFS. Other interest expense
        for
        OFS was $1.9 million, for the three months ended June 30, 2006.The following
        information is provided to reconcile the above segment amounts to the amounts
        shown in the accompanying consolidated financial statements. During
        the consolidation process, Opteum’s loans receivable totaling $88.9 million,
        accrued interest of $0.8 million and the related interest income for the
        six and
        three months ended June 30, 2006 of $4.0 million and $2.2 million, respectively,
        are eliminated against corresponding liabilities and expenses recorded in
        OFS’
segment financial statements. There were no inter-segment gross revenues
        during
        the period ended June 30, 2006, except for this interest and, therefore,
        all
        other revenues were from external sources.
 
 No
        single
        customer accounted for more than 10% of revenues at OFS. For the six months ended
        June
        30, 2006, approximately 95.2 %
        of the
        REIT interest income was derived from MBS issued or guaranteed by U.S.
        governmental or quasi-governmental agencies.
 
 **NOTE
        18.**  **INCOME
        TAXES**
 
 As
        more
        fully described in Note
        2, Opteum
        acquired OFS on November 3, 2005. OFS is a TRS, which is a taxpaying entity
        for
        U.S. federal income tax purposes and is taxed separately from Opteum. There
        is
        no tax provision for the Company for the six and three months ended June
        30,
        2005, as this was prior to the acquisition of OFS, and Opteum was solely
        a
        non-taxpaying REIT during this period. At November 3, 2005, OFS recorded
        a
        deferred tax liability of approximately $22.6 million related to the difference
        as of such date in the carrying amount and the tax basis of the originated
        MSRs,
        among other items.
 
 The
        income tax benefit is as follows for the six and three months ended June
        30,
        2006:
 
 
 **Deferred
                  income tax benefit:**
              
              Six
                  Months ended June 30, 2006
              
              Three
                  Months ended June 30, 2006Federal
              $
              15,025,484
              $
              8,624,312State
              
              1,674,348
              
              961,053Total
                  deferred income tax benefit
              
              16,699,832
              
              9,585,365**Deferred
                  income tax (expense)**:Federal
              
              (3,928,773)
              
              (941,216)State
              
              (437,778)
              
              (104,212)Total
                  deferred income tax (expense)
              
              (4,366,551)
              
              (1,045,428)Total
                  deferred income tax benefit
              $
              12,333,281
              $
              8,539,937
 
 
 The
        effective income tax (benefit) for the six and three months ended June 30,
        2006,
        differs from the amount determined by applying the statutory Federal rate
        of 35%
        as follows:
 
 Six
                  months
                ended
                  June 30, 2006
              
              Three
                  months ended June 30, 2006Net
                  loss, if taxed at the Federal tax rate
              $
              13,721,035
              $
              7,948,731Exclusion
                  of REIT Taxable Income
              
              (2,612,773)
              
              (260,503)Permanent
                  tax differences
              
              (12,837)
              
              (5,057)State
                  tax benefit, net of Federal tax effect
              
              1,237,856
              
              856,766Total
                  deferred income tax benefit
              $
              12,333,281
              $
              8,539,937
 
 The
        tax
        effected cumulative temporary differences that give rise to deferred tax
        assets
        and liabilities as of June 30, 2006, are as follows:
 
 **Deferred
                  tax assets:**Federal
                  tax loss carry-forward
              $
              16,446,944State
                  tax loss carry-forward
              
              2,999,443Mark-to-market
                  adjustments
              
              176,791**Total
                  gross deferred tax assets**
              $
              19,623,178**Deferred
                  tax liabilities:**Capitalized
                  cost of mortgage servicing rights
              $
              (23,212,525)Loan
                  origination and other amounts
              
              (2,423,284)Intangible
                  assets
              
              (1,691,074)**Total
                  gross deferred tax liabilities**
              $
              (27,326,883)**Net
                  deferred tax liabilities**
              $
              (7,703,705)
 
 Management
        believes that the deferred tax assets will more likely than not be realized
        due
        to the reversal of the deferred tax liabilities and expected future taxable
        income. As of June 30, 2006, the Company had an estimated federal tax net
        operating loss carry-forward of $24.3 million, which expires in 2025, and
        is
        fully available to offset future taxable income.
 
 **Tax
        differences on REIT income**
 
 Taxable
        net income, as generated by Opteum’s qualifying REIT activities, is computed
        differently from Opteum’s financial statement net income as computed in
        accordance with GAAP. Depending on the number and size of the various items
        or
        transactions being accounted for differently, the differences between Opteum’s
        taxable net income and Opteum’s financial statement net income can be
        substantial and each item can affect several years. Opteum's most significant
        items and transactions currently being accounted for differently include
        restricted stock awards, depreciation of property and equipment and the
        accounting for debt issuance costs.
 
 For
        the
        six months ended June 30, 2006, Opteum's taxable net income was approximately
        $0.8 million greater than Opteum's financial statement net income. Substantially
        all of this amount is attributable to phantom stock awards. The future deduction
        of phantom stock compensation against taxable net income is uncertain both
        as to
        the year (as the timing of the tax impact of each restricted stock award
        is up
        to each employee who has received a grant) and as to the amount (the amount
        of
        the tax impact is measured at the fair value of the shares as of a future
        date
        and this amount may be greater than or less than the financial statement
        deduction already taken by Opteum). Since inception through June 30, 2006,
        Opteum's taxable net income is approximately $3.7 million greater than Opteum's
        financial statement net income as reported in its financial statements.
 
 REIT
        taxable net income is calculated according to the requirements of the Internal
        Revenue Code rather than GAAP. For the year ending December 31, 2006, we
        intend
        to distribute at least 90% of our REIT taxable net income in order to retain
        our
        tax qualification status as a REIT. The following table reconciles GAAP net
        income to REIT taxable net income for the six and three months ended June
        30,
        2006:
  **Six
                  Months ended**
                **June
                  30, 2006**
              
              **Three
                  months ended**
                **June
                  30, 2006**GAAP
                  net loss
              $
              (8,776,004)
              $
              (3,688,880)Plus:
                  GAAP net loss of taxable REIT subsidiary included above
              
              15,357,749
              
              11,211,895GAAP
                  net income from REIT operations
              6,581,745
              
              7,523,015Add:
                  inter-company interest paid on loans
              
              4,048,871
              
              2,216,542Add:
                  estimated book depreciation and amortization
              
              174,690
              
              87,345Less:
                  estimated tax depreciation and amortization
              
              (171,826)
              
              (85,913)Phantom
                  share book/tax differences, net
              
              604,327
              
              266,033Other
                  book/tax differences, net
              
              (44,666)
              
              (21,239)REIT
                  Taxable Net Income
              $
              11,193,141
              $
              9,985,783
 
 We
        believe that the foregoing reconciliation of our REIT taxable net income
        is
        useful to investors because REIT taxable net income is directly related to
        the
        amount of dividends we are required to distribute in order to maintain our
        REIT
        tax qualification status. However, because REIT taxable net income is an
        incomplete measure of our financial performance and involves differences
        from
        net income computed in accordance with GAAP, our REIT taxable net income
        should
        be considered as supplementary to, and not as a substitute for, our net income
        computed in accordance with GAAP as a measure of our financial
        performance.
 
 
 **ITEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS.**
 **Forward-Looking
        Statements**
  When
        used
        in this Quarterly Report on Form 10-Q, in future filings with the
        Securities and Exchange Commission (the “Commission”) or in press releases or
        other written or oral communications, statements which are not historical
        in
        nature, including those containing words such as “anticipate,” “estimate,”
“should,” “expect,” “believe,” “intend” and similar expressions, are intended to
        identify “forward-looking statements” within the meaning of Section 27A of
        the Securities Act of 1933, as amended (the “Securities Act”), and
        Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
  These
        forward-looking statements are subject to various risks and uncertainties,
        including, but not limited to, those described or incorporated by reference
        in
        Part II - Item 1A - Risk Factors of this Form 10-Q. These and other risks,
        uncertainties and factors, including those described in reports that the
        Company
        files from time to time with the Commission, could cause the Company’s actual
        results to differ materially from those reflected in such forward-looking
        statements. All forward-looking statements speak only as of the date they
        are
        made and the Company does not undertake, and specifically disclaims, any
        obligation to update or revise any forward-looking statements to reflect
        events
        or circumstances occurring after the date of such statements.
 
 The
        following discussion of our financial condition and results of operations
        should
        be read in conjunction with the consolidated financial statements and related
        notes included elsewhere in this report.
 
 **Introduction
        and Overview**
 
 As
        used
        in this document, discussions related to the parent company, the registrant,
        “Opteum” and to real estate investment trust (“REIT”) qualifying activities or
        the general management of Opteum’s portfolio of mortgage backed securities
        (“MBS”) refer to “Opteum Inc.” Further, as used in this document, “OFS,”
Opteum’s taxable REIT subsidiary (“TRS”) or non-REIT eligible assets refer to
        Opteum Financial Services, LLC and its consolidated subsidiaries. Discussions
        relating to the “Company” refer to the consolidated entity (the combination of
        Opteum and OFS). The assets and activities that are not REIT eligible, such
        as
        mortgage origination, acquisition and servicing activities, are conducted
        by
        OFS.
 
 Opteum
        Inc., formerly Bimini Mortgage Management, Inc., was formed in September
        2003 to
        invest primarily in but not limited to, residential mortgage related securities
        issued by the Federal National Mortgage Association (more commonly known
        as
        Fannie Mae), the Federal Home Loan Mortgage Corporation (more commonly known
        as
        Freddie Mac) and the Government National Mortgage Association (more commonly
        known as Ginnie Mae). Opteum attempts to earn a return on the spread between
        the
        yield on its assets and its costs, including the interest expense on the
        funds
        it borrows. It generally intends to borrow between eight and twelve times
        the
        amount of its equity capital in an attempt to enhance its returns to
        stockholders. This leverage may be adjusted above or below this range to
        the
        extent management or the Company’s Board of Directors deems necessary or
        appropriate. For purposes of this calculation, Opteum treats its junior
        subordinated notes as an equity capital equivalent. Opteum is self-managed
        and
        self-advised.
 
 In
        evaluating Opteum’s assets and their performance, Opteum’s management team
        primarily evaluates these critical factors: asset performance in differing
        interest rate environments, duration of the security, yield to maturity,
        potential for prepayment of principal and the market price of the investment.
 
 On
        September 29, 2005, Opteum executed a definitive merger agreement with Opteum
        Financial Services, LLC (“OFS”), a privately held home mortgage lender
        headquartered in Paramus, New Jersey. OFS presently operates out of 42 offices
        and is active in 46 states. The transaction, in which OFS became a wholly-owned
        taxable REIT subsidiary (“TRS”) of Opteum, closed on November 3, 2005. At the
        Company’s 2006 Annual Meeting of Stockholders, which took place on April 28,
        2006, the Company’s shareholders approved the conversion of 1,223,208 shares of
        Class A Redeemable Preferred Stock, which were issued in conjunction with
        the
        OFS merger, into shares of Class A Common Stock. OFS acquires and originates
        mortgages that are either sold to third parties or securitized by a wholly-owned
        special purpose entity, Opteum
        Mortgage Acceptance Corporation (“OMAC”). OFS services the mortgages securitized
        by OMAC.
 
 **Critical
        Accounting Policies**
 
 Opteum’s
        accounting policies are described in Note 1 to the Consolidated Financial
        Statements. Opteum has identified the following accounting policies that
        are
        critical to the presentation of our financial statements and that require
        critical accounting estimates by management.
 
 Opteum’s
        financial statements are prepared in accordance with U.S. generally accepted
        accounting principles (“GAAP”). These accounting principles require Opteum to
        make some complex and subjective decisions and assessments. Its most critical
        accounting policies involve decisions and assessments which could significantly
        affect its reported assets and liabilities, as well as its reported revenues
        and
        expenses. Opteum believes that all of the decisions and assessments upon
        which
        its financial statements are based were reasonable at the time made based
        upon
        information available to it at that time. Management has identified its most
        critical accounting policies to be the following:
 
 **Mortgage
        Backed Securities**
 
 The
        Company’s investments
        in MBS are classified as available-for-sale securities. As a result, changes
        in
        fair value are recorded as a balance sheet adjustment to accumulated other
        comprehensive income (loss), which is a component of stockholders' equity,
        rather than through the statement of operations. The Company’s MBS have fair
        values determined by management based on the average of third-party broker
        quotes received and/or by independent pricing sources when available. Because
        the price estimates may vary to some degree between sources, management must
        make certain judgments and assumptions about the appropriate price to use
        to
        calculate the fair values for financial reporting purposes. Alternatively,
        management could opt to have the value of all of its positions in MBS determined
        by either an independent third-party pricing source or do so internally based
        on
        managements own estimates. Management believes pricing on the basis of
        third-party broker quotes is the most consistent with the definition of fair
        value described in Statement of Financial Accounting Standards (“SFAS”) No. 107, *Disclosures
        about the Fair Value of Financial Instruments.*
 
 **Retained
        Interest, Trading**
 
 Retained
        interest, trading is the subordinated interests retained by the Company from
        the
        Company’s various securitizations and includes the over-collateralization and
        residual net interest spread remaining after payments to the Public Certificates
        and NIM Notes. (See Notes 1 and 4 in the accompanying consolidated financial
        statements.) Retained interest, trading represents the present value of
        estimated cash flows to be received from these subordinated interests in
        the
        future. The subordinated interests retained are classified as “trading
        securities” and are reported at fair value with unrealized gains or losses
        reported in earnings. In order to value these unrated and unquoted retained
        interests, the Company utilizes either pricing available directly from dealers
        or calculates their present value by projecting their future cash flows on
        a
        publicly-available analytical system. When a publicly-available analytical
        system is employed, the Company uses the following variable factors in
        estimating the fair value of these assets:
  **Interest
        Rate Forecast** .
        The
        forward London Interbank Offered Rate (“LIBOR”) interest rate curve.
  **Discount
        Rate** .
        The
        present value of all future cash flows utilizing a discount rate assumption
        established at the discretion of the Company to represent market conditions
        and
        value.
  **Prepayment
        Forecast** .
        The
        prepayment forecast may be expressed by the Company in accordance with one
        of
        the following standard market conventions: Constant Prepayment Rate (“CPR”) or
        Percentage of a Prepayment Vector. Prepayment forecasts are made utilizing
        Citigroup Global Markets Yield Book and/or management estimates based on
        historical experience. Conversely, prepayment speed forecasts could have
        been
        based on other market conventions or third-party analytical systems. Prepayment
        forecasts may be changed as OFS observes trends in the underlying collateral
        as
        delineated in the Statement to Certificate Holders generated by the REMIC
        trust’s Trustee for each underlying security.
  **Credit
        Performance Forecast** .
        A
        forecast of future credit performance of the underlying collateral pool will
        include an assumption of default frequency, loss severity and a recovery
        lag. In
        general, the Company will utilize the combination of default frequency and
        loss
        severity in conjunction with a collateral prepayment assumption to arrive
        at a
        target cumulative loss to the collateral pool over the life of the pool based
        on
        historical performance of similar collateral by the originator. The target
        cumulative loss forecast will be developed and noted at the pricing date
        of the
        individual security but may be updated by the Company consistent with
        observations of the actual collateral pool performance.
  At
        June
        30, 2006, and December 31, 2005, key economic assumptions and the sensitivity
        of
        the current fair value of retained interests to the immediate 10% and 20%
        adverse change in those assumptions are as follows:
 
 June
                  30, 2006
              
              December
                  31, 2005Balance
                  Sheet Carrying value of retained interests - fair value
              $
              88,395,952
              $
              98,010,592Weighted
                  average life (in years)
              
              5.24
              
              2.62Prepayment
                  assumption (annual rate)
              
              32.28%
              
              32.53%Impact
                  on fair value of 10% adverse change
              $
              (8,847,221)
              $
              (7,817,000)Impact
                  on fair value of 20% adverse change
              $
              (15,581,981)
              $
              (16,089,000)Expected
                  Credit losses (annual rate)
              
              0.58%
              
              0.61%Impact
                  on fair value of 10% adverse change
              $
              (3,461,968)
              $
              (3,247,000)Impact
                  on fair value of 20% adverse change
              $
              (6,898,938)
              $
              (6,419,000)Residual
                  Cash-Flow Discount Rate
              
              12.78%
              
              13.96%Impact
                  on fair value of 10% adverse change
              $
              (4,128,810)
              $
              (3,804,000)Impact
                  on fair value of 20% adverse change
              $
              (7,924,214)
              $
              (7,392,000)Interest
                  rates on variable and adjustable loans and bonds
              
              Forward
                  LIBOR Yield Curve
              
              Forward
                  LIBOR Yield CurveImpact
                  on fair value of 10% adverse change
              $
              (33,543,511)
              $
              (21,265,000)Impact
                  on fair value of 20% adverse change
              $
              (52,553,733)
              $
              (34,365,000)
 
 
 These
        sensitivities are entirely hypothetical and should be used with caution.
        As the
        figures indicate, changes in fair value based upon 10% and 20% variations
        in
        assumptions generally cannot be extrapolated to greater or lesser percentage
        variations because the relationship of the change in assumption to the change
        in
        fair value may not be linear. Also, in this table, the effect of the variation
        in a particular assumption on the fair value of the subordinated interest
        is
        calculated without changing any other assumption. In reality, changes in
        one
        factor may result in changes in another that may magnify or counteract the
        sensitivities. To estimate the impact of a 10% and 20% adverse change of
        the
        Forward LIBOR curve, a parallel shift in the forward LIBOR curve was assumed
        based on the Forward LIBOR curve at June 30, 2006.
 
 **Mortgage
        Servicing Rights**
 
 The
        Company recognizes mortgage servicing rights (“MSR”) as assets when separated
        from the underlying mortgage loans in connection with the sale of such loans.
        Upon sale of a loan, the Company measures the retained MSRs by allocating
        the
        total cost of originating a mortgage loan between the loan and the servicing
        right based on their relative fair values. Gains or losses on the sale of
        MSRs
        are recognized when title and all risks and rewards have irrevocably passed
        to
        the purchaser of such MSRs and there are no significant unresolved
        contingencies.
  In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets* ("SFAS
        156"). The Company elected to early adopt SFAS 156 as of January 1, 2006,
        and to
        measure all mortgage servicing assets at fair value (and as one class). (See
        Notes 1 and 5 in the accompanying consolidated financial
        statements.)
  To
        facilitate hedging of the MSR portfolio, management has elected to utilize
        an
        internal model for valuation purposes. Accordingly, fair value is estimated
        based on internally generated expected cash flows considering market prepayment
        estimates, historical prepayment rates, portfolio characteristics, interest
        rates and other economic factors.
  At
        June
        30, 2006, and December 31, 2005, key economic assumptions and the sensitivity
        of
        the current fair value of MSR cash flows to the immediate 10 percent and
        20
        percent adverse change in those assumptions are as follows:
 
 At
                  June 30, 2006
              
              At
                  December 31, 2005Prepayment
                  assumption (annual rate) (PSA)
              
              417.9
              
              254.0Impact
                  on fair value of 10% adverse change
              $
              (3,467,265)
              $
              (3,615,000)Impact
                  on fair value of 20% adverse change
              $
              (6,596,466)
              $
              (6,936,000)MSR
                  Cash-Flow Discount Rate
              
              14.30%
              
              10.74%Impact
                  on fair value of 10% adverse change
              $
              (3,923,392)
              $
              (4,856,000)Impact
                  on fair value of 20% adverse change
              $
              (7,487,117)
              $
              (9,280,000)
 
 These
        sensitivities are entirely hypothetical and should be used with caution.
        As the
        figures indicate, changes in fair value based upon 10% and 20% variations
        in
        assumptions generally cannot be extrapolated to greater or lesser percentage
        variations because the relationship of the change in assumption to the change
        in
        fair value may not be linear. Also, in this table, the effect of the variation
        in a particular assumption on the fair value of the MSR is calculated without
        changing any other assumption. In reality, changes in one factor may result
        in
        changes in another which may magnify or counteract the sensitivities.
 
 **Income
        Recognition**
 
 Interest
        income on MBS is accrued based on the actual coupon rate and the outstanding
        principal amount of the underlying mortgages. Premiums and discounts are
        amortized or accreted into interest income over the estimated lives of the
        MBS
        using the effective yield method adjusted for the effects of estimated
        prepayments based on SFAS No. 91, *Accounting
        for Nonrefundable Fees and Costs Associated with Originating or Acquiring
        Loans
        and Initial Direct Costs of Leases;* an
        amendment of FASB Statements No. 13, 60 and 65 and a rescission of FASB
        Statement No. 17. Adjustments are made using the retrospective method to
        the effective interest computation each reporting period based on the actual
        prepayment experiences to date and the present expectation of future prepayments
        of the underlying mortgages. To make assumptions as to future estimated rates
        of
        prepayments, the Company currently uses actual market prepayment history
        for the
        securities it owns and for similar securities that the Company does not own
        and
        current market conditions. If the estimate of prepayments is incorrect, the
        Company is required to make an adjustment to the amortization or accretion
        of
        premiums and discounts that would have an impact on future income.
 
 With
        respect to mortgage loans held for sale, interest income and interest expense
        are recognized as earned or incurred. Loans are placed on a non-accrual status
        when concern exists as to the ultimate collectibility of principal or interest.
        Loans return to accrual status when principal and interest become current
        and
        are anticipated to be fully collectible. The Company recognizes gain (or
        loss)
        on the sale of these loans.  Gains or losses on such sales are recognized
        at the time legal title transfers to the purchaser of such loans based upon
        the
        difference between the sales proceeds from the purchaser and the allocated
        basis
        of the loan sold, adjusted for net deferred loan fees and certain direct
        costs
        and selling costs. The Company defers net loan origination costs and fees
        as a
        component of the loan balance on the balance sheet. Such costs are not amortized
        and are recognized into income as a component of the gain or loss upon sale.
        Accordingly, salaries, commissions, benefits and other operating expenses
        of
        $30.2 million and $14.2 million during the six and three months ended June
        30,
        2006, respectively, were capitalized as direct loan origination costs.
 
 Servicing
        fee income is generally a fee based on a percentage of the outstanding principal
        balances of the mortgage loans serviced by the Company (or by a sub-servicer
        where the Company is the master servicer) and is recorded as income as the
        installment payments on the mortgages are received by the Company or the
        subservicer.
 
 
 **Financial
        Condition**
 
 All
        of
        Opteum’s assets at June 30, 2006, were acquired with the proceeds of
        private placements and public offerings of Class A Common Stock, private
        placements of junior subordinated notes and the use of leverage. Opteum received
        net proceeds after offering costs of approximately $141.7 million in the
        private placements, which closed on December 19, 2003, January 30,
        2004 and February 17, 2004. Opteum received net proceeds of approximately
        $66.1 million in the initial public offering, which closed on
        September 21, 2004. On September 24, 2004, Opteum received an
        additional $9.8 million of net proceeds pursuant to the underwriters'
        exercise of their over-allotment option. Opteum received net proceeds of
        approximately $66.7 million (including the underwriters’ exercise of their
        over-allotment option) in a secondary public offering of Class A Common
        Stock which closed on December 21, 2004. Opteum received total net proceeds
        of approximately $48.5 million in connection with the privately placed issuance
        of trust preferred securities of Bimini Capital Trust I on May 17, 2005.
        Opteum
        received total net proceeds of approximately $48.5 million in connection
        with
        the privately placed issuance of trust preferred securities of Bimini Capital
        Trust II in October 2005.
 
 **Mortgage
        Related Securities**
 
 At
        June 30, 2006, Opteum held $3.4 billion of agency or government MBS at
        fair value in Opteum’s portfolio. Opteum’s portfolio of MBS will typically be
        comprised of adjustable-rate MBS, fixed-rate MBS, hybrid adjustable-rate
        MBS and
        balloon maturity MBS. Opteum seeks to acquire low duration assets that offer
        high levels of protection from mortgage prepayments. Although the duration
        of an
        individual asset can change as a result of changes in interest rates, Opteum
        strives to maintain a portfolio with an effective duration of less than 2.0.
        The
        stated contractual final maturity of the mortgage loans underlying Opteum’s
        portfolio of MBS generally ranges up to 30 years. However, the effect of
        prepayments of the underlying mortgage loans tends to shorten the resulting
        cash
        flows from Opteum’s investments substantially. Prepayments occur for various
        reasons, including refinancings of underlying mortgages and loan payoffs
        in
        connection with home sales. In order to reduce leverage and to reduce the
        effect
        of an increase in the forward yield curve and LIBOR curve, Opteum did not
        reinvest all of the proceeds of the mortgage loan prepayments and scheduled
        principal payments that occurred during the second quarter of 2006. The last
        time mortgage assets were added to the Opteum portfolio was on April 27,
        2006.
 
 As
        of
        June 30, 2006, Opteum’s portfolio of MBS had a weighted average yield on
        assets of 4.78% and a net weighted average borrowing cost of 5.08%. Prepayments
        on the loans underlying Opteum’s MBS can
        alter
        the timing of the cash flows from the underlying loans to the Company. As
        a
        result, Opteum gauges the interest rate sensitivity of its assets by measuring
        their effective duration. While modified duration measures the price sensitivity
        of a bond to movements in interest rates, effective duration captures both
        the
        movement in interest rates and the fact that cash flows to a mortgage related
        security are altered when interest rates move. Accordingly, when the contract
        interest rate on a mortgage loan is substantially above prevailing interest
        rates in the market, the effective duration of securities collateralized
        by such
        loans can be quite low because of expected prepayments. Although some of
        the
        fixed-rate MBS in Opteum’s portfolio are collateralized by loans with a lower
        propensity to prepay when the contract rate is above prevailing rates, their
        price movements track securities with like contract rates and therefore exhibit
        similar effective duration. The value of Opteum’s portfolio will change as
        interest rates rise or fall. See Effect on Fair Value below.
 
 The
        following tables summarize Opteum’s agency and government mortgage related
        securities as of June 30, 2006:
 
 **Asset
                  Category**
              
              **Market
                  Value**
              **Percentage
                  of**
                **Entire**
                **Portfolio**
              **Weighted**
                **Average**
                **Coupon**
              **Weighted**
                **Average**
                **Maturity
                  in**
                **Months**
              **Longest**
                **Maturity**
              **Weighted**
                **Average
                  Coupon**
                **Reset
                  in Months**
              **Weighted**
                **Average**
                **Lifetime
                  Cap**
              **Weighted**
                **Average**
                **Periodic
                  Cap**Adjustable-Rate
                  MBS
              $
              2,319,096,678
              68.06%
              4.70%
              329
              1-Apr-44
              5.09
              10.22%
              1.84%Fixed-Rate
                  MBS
              $
              653,659,358
              19.18%
              6.48%
              254
              1-Apr-36
              n/a
              n/a
              n/aHybrid
                  Adjustable-Rate MBS
              $
              391,045,826
              11.48%
              4.80%
              333
              1-Nov-35
              18.16
              10.04%
              1.45%Balloon
                  Maturity MBS
              $
              43,486,152
              1.28%
              4.05%
              42
              1-Feb-11
              n/a
              n/a
              n/aTotal
                  Portfolio
              **$**
              **3,407,288,014**
              **100.00%**
              **5.05%**
              **311**
              **1-Apr-44**
              **6.98**
              **10.20%**
              **1.79%**
 
 **Agency**
              
              **Market
                  Value**
              **Percentage
                  of**
                **Entire
                  Portfolio**Fannie
                  Mae
              $
              2,281,622,803
              66.96%Freddie
                  Mac
              
              608,951,562
              17.87%Ginnie
                  Mae
              
              516,713,649
              15.17%**Total
                  Portfolio**
              $
              3,407,288,014
              100.00%
 
 **Entire
                  Portfolio**Effective
                  Duration (1)
              
              1.42Weighted
                  Average Purchase Price
              $
              102.34Weighted
                  Average Current Price
              $
              100.31
 
 (1)
            Effective
                duration of 1.42 indicates that an interest rate increase of 1% would
                be
                expected to cause a 1.42% decline in the value of the MBS in the
                Company’s
                investment portfolio. 
 As
        of
        June 30, 2006, approximately 49.6% of the Company’s investment portfolio of
        15-year fixed-rate coupon MBS and approximately 46.2% of the 30-year fixed-rate
        coupon MBS contain only loans with principal balances of $85,000 or less.
        Because of the low loan balance on these mortgages, Opteum believes borrowers
        have a lower economic incentive to refinance and have historically prepaid
        more
        slowly than comparable securities.
 
 For
        reference, the table below shows the principal balance of Opteum’s investment
        securities, the net unamortized premium, amortized cost of securities held,
        average cost expressed as a price, the fair market value of investments and
        the
        fair market value expressed as a price for the current quarter and each of
        the
        previous nine quarters
        for the portfolio of MBS securities only.  The data in the table below does
        not include information pertaining to OFS.
 
 **Quarter
                  Ended**
              
              **Principal**
                **Balance
                  of**
                **Investment**
                **Securities
                  Held**
              
              **Unamortized**
                **Premium
                  (Net)**
              
              **Amortized
                  Cost of**
                **Securities
                  Held**
              **Amortized**
                **Cost/Principal**
                **Balance
                  Held**
              
              **Fair
                  Market**
                **Value
                  of**
                **Investment**
                **Securities
                  Held**
              **Fair
                  Market**
                **Value/Principal**
                **Balance
                  Held**At
                  June 30, 2006
              $
              3,396,909,813
              $
              120,867,410
              $
              3,517,777,223
              103.558
              $
              3,407,288,014
              100.306At
                  March 31,2006
              
              3,515,112,798
              
              111,754,082
              
              3,626,866,880
              103.179
              
              3,538,554,210
              100.667At
                  December 31, 2005
              
              3,457,891,363
              
              112,635,825
              
              3,570,527,188
              103.257
              
              3,494,029,359
              101.045At
                  September 30, 2005
              
              3,797,400,645
              
              113,392,661
              
              3,910,793,306
              102.986
              
              3,858,319,701
              101.604At
                  June 30, 2005
              
              3,784,668,467
              
              114,672,670
              
              3,899,341,137
              103.030
              
              3,876,205,996
              102.419At
                  March 31, 2005
              
              3,212,516,823
              
              109,389,703
              
              3,321,906,527
              103.405
              
              3,299,051,561
              102.694At
                  December 31, 2004
              
              2,876,319,085
              
              97,753,097
              
              2,974,072,182
              103.399
              
              2,973,232,897
              103.369At
                  September 30, 2004
              
              1,589,828,988
              
              48,498,955
              
              1,638,327,943
              103.051
              
              1,638,264,065
              103.047At
                  June 30, 2004
              
              1,479,500,209
              
              38,033,673
              
              1,517,533,882
              102.571
              
              1,508,421,270
              101.955At
                  March 31, 2004
              
              1,473,583,661
              
              39,535,014
              
              1,513,118,676
              102.683
              
              1,516,539,744
              102.915
 
 
 **Effect
        on Fair Value**
 
 Another
        component of interest rate risk is the effect changes in interest rates will
        have on the market value of Opteum's assets. Opteum faces the risk that the
        market value of its assets will increase or decrease at different rates than
        that of its liabilities, including its hedging instruments.
 
 Opteum
        primarily assesses its interest rate risk by estimating the duration of its
        assets and the duration of its liabilities. Duration essentially measures
        the
        market price volatility of financial instruments as interest rates change.
        Opteum generally calculates duration using various financial models and
        empirical data and different models and methodologies can produce different
        duration numbers for the same securities.
 
 The
        following sensitivity analysis shows the estimated impact on the fair value
        of
        Opteum's interest rate-sensitive investments at June 30, 2006, assuming
        rates instantaneously fall 100 basis points, rise 100 basis points and rise
        200
        basis points:
 
 **Interest
                  Rates Fall**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **200
                  Basis Points****Adjustable-Rate
                  MBS**(Fair
                  Value$2,319,096,678)Change
                  in fair value
              $
              20,555,814
              $
              (20,555,814)
              $
              (41,111,628)Change
                  as a percent of fair value
              
              0.89%
              
              (0.89)%
              
              (1.77)%**Fixed-Rate
                  MBS**(Fair
                  Value$653,659,358)Change
                  in fair value
              $
              20,366,423
              $
              (20,366,423)
              $
              (40,732,847)Change
                  as a percent of fair value
              
              3.12%
              
              (3.12)%
              
              (6.23)%**Hybrid
                  Adjustable-Rate MBS**(Fair
                  Value $391,045,826)Change
                  in fair value
              $
              6,406,589
              $
              (6,406,589)
              $
              (12,813,177)Change
                  as a percent of fair value
              
              1.64%
              
              (1.64)%
              
              (3.28)%**Balloon
                  Maturity MBS**(Fair
                  Value $43,486,152)Change
                  in fair value
              $
              975,069
              $
              (975,069)
              $
              (1,950,138)Change
                  as a percent of fair value
              
              2.24%
              
              (2.24)%
              
              (4.48)%**Cash**(Fair
                  Value $71,416,035)**Portfolio
                  Total**(Fair
                  Value $3,407,288,014)Change
                  in fair value
              $
              48,303,895
              $
              (48,303,895)
              $
              (96,607,790)Change
                  as a percent of fair value
              
              1.42%
              
              (1.42)%
              
              (2.84)%
 
 The
        table
        below reflects the same analysis presented above but with the figures in
        the
        columns that indicate the estimated impact of a 100 basis point fall or rise
        adjusted to reflect the impact of convexity.
 
 **Interest
                  Rates Fall**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **200
                  Basis Points****Adjustable-Rate
                  MBS**(Fair
                  Value $2,319,096,678)Change
                  in fair value
              $
              15,621,036
              $
              (25,565,555)
              $
              (61,140,579)Change
                  as a percent of fair value
              
              0.67%
              
              (1.10)%
              
              (2.64)%**Fixed-Rate
                  MBS**(Fair
                  Value $653,659,358)Change
                  in fair value
              $
              16,594,826
              $
              (22,914,841)
              $
              (48,400,748)Change
                  as a percent of fair value
              
              2.54%
              
              (3.51)%
              
              (7.40)%**Hybrid
                  Adjustable-Rate MBS**(Fair
                  Value $391,045,826)Change
                  in fair value
              $
              5,098,245
              $
              (7,519,098)
              $
              (16,944,594)Change
                  as a percent of fair value
              
              1.30%
              
              (1.92)%
              
              (4.33)%**Balloon
                  Maturity MBS**(Fair
                  Value $43,486,152)Change
                  in fair value
              $
              953,549
              $
              (975,682)
              $
              (1,926,500)Change
                  as a percent of fair value
              
              2.19%
              
              (2.24)%
              
              (4.43)%**Cash**(Fair
                  Value $71,416,035)**Portfolio
                  Total**(Fair
                  Value $3,407,288,014)Change
                  in fair value
              $
              38,267,656
              $
              (56,975,176)
              $
              (128,412,421)Change
                  as a percent of fair value
              
              1.12%
              
              (1.67)%
              
              (3.77)%
 
 In
        addition to changes in interest rates, other factors impact the fair value
        of
        Opteum's interest rate-sensitive investments and hedging instruments, such
        as
        the shape of the yield curve, market expectations as to future interest rate
        changes and other market conditions. Accordingly, in the event of changes
        in
        actual interest rates, the change in the fair value of Opteum's assets would
        likely differ from that shown above and such difference might be material
        and
        adverse to Opteum's stockholders.
 
 **Liabilities**
 
 In
        May 2005, Opteum completed a private offering of $51.5 million of trust
        preferred securities of Bimini Capital Trust I (“BCTI”) resulting in the
        issuance by Opteum of $50 million of junior subordinated notes. The interest
        rate payable by Opteum on the BCTI junior subordinated notes is fixed for
        the
        first five years at 7.61% and then floats at a spread of 3.30% over three-month
        LIBOR for the remaining 25 years. However, the BCTI junior subordinated notes
        and the corresponding BCTI trust preferred securities are redeemable at Opteum’s
        option at the end of the first five year period and at any subsequent date
        that
        Opteum chooses. In addition, in October 2005, Opteum completed a private
        offering of an additional $51.5 million of trust preferred securities of
        Bimini
        Capital Trust II (“BCTII”) resulting in the issuance by Opteum of an additional
        $50 million of junior subordinated notes. The interest rate on the BCTII
        junior
        subordinated notes and the corresponding BCTII trust preferred securities
        is
        fixed for the first five years at 7.8575% and then floats at a spread of
        3.50%
        over three-month LIBOR for the remaining 25 years. However, the BCTII junior
        subordinated notes and the corresponding BCTII trust preferred securities
        are
        redeemable at Opteum’s option at the end of the first five year period and at
        any subsequent date that Opteum chooses. Opteum attempts to ensure that the
        income generated from available investment opportunities, when the use of
        leverage is employed for the purchase of assets, exceeds the cost of its
        borrowings. However, the issuance of debt at a fixed rate for any long-term
        period, considering the use of leverage, could create an interest rate mismatch
        if Opteum is not able to invest at yields that exceed the interest rates
        of the
        Company’s junior subordinated notes and other borrowings.
 
 Opteum
        has entered into repurchase agreements to finance acquisitions of primarily
        agency and government MBS. None of the counterparties to these agreements
        are
        affiliates of Opteum. These agreements are secured by the MBS and bear interest
        rates that are based on a spread to LIBOR. As of June 30, 2006, Opteum had
        19 master repurchase agreements with various investment banking firms and
        other
        lenders and had outstanding balances under 14 of these agreements.
 
 At
        June 30, 2006, Opteum had approximately $3.3 billion outstanding under
        repurchase agreements with a net weighted average borrowing cost of 5.08%,
        $1.8 billion of which matures between two and 30 days,
        $0.7 billion of which matures between 31 and 90 days and
        $0.8 billion of which matures in more than 90 days. It is Opteum’s
        present intention to seek to renew these repurchase agreements as they mature
        under the then-applicable borrowing terms of the counterparties to our
        repurchase agreements. At June 30, 2006, the repurchase agreements were
        secured by MBS with an estimated fair value of $3.4 billion and a weighted
        average maturity of 311 months.
 
 At
        June 30, 2006, Opteum’s repurchase agreements had the following
        counterparties, amounts outstanding, amounts-at-risk and weighted average
        remaining maturities:
 
 **Repurchase
                  Agreement Counterparties**
              
              **Amount
                  Outstanding ($000)**
              
              **Amount
                  at Risk(1) ($000)**
              **Weighted
                  Average Maturity of Repurchase Obligations in
                  Days**
              **Percent
                  of Total Amount Outstanding**Deutsche
                  Bank Securities, Inc.
              $
              980,859
              
              11,419
              194
              29.66
              %JP
                  Morgan Securities
              
              747,306
              
              22,796
              24
              22.60Washington
                  Mutual
              
              357,109
              
              13,420
              10
              10.80Nomura
                  Securities International, Inc.
              
              312,260
              
              10,782
              44
              9.44RBS
                  Greenwich Capital
              
              198,199
              
              5,861
              37
              5.99Countrywide
                  Securities Corp
              
              194,649
              
              6,641
              113
              5.89BNP
                  Paribas Securities Corp
              
              167,528
              
              5,834
              64
              5.07UBS
                  Investment Bank, LLC
              
              131,313
              
              3,405
              55
              3.97Goldman
                  Sachs
              
              103,786
              
              3,522
              35
              3.14Merrill
                  Lynch
              
              53,952
              
              1,481
              3
              1.63Bear
                  Stearns & Co. Inc.
              
              22,399
              
              1,462
              7
              0.68Daiwa
                  Securities America Inc.
              
              19,732
              
              (255)
              7
              0.60Lehman
                  Brothers
              
              9,155
              
              310
              31
              0.28Cantor
                  Fitzgerald
              
              8,640
              
              386
              6
              0.25HSBC
                  Securities (USA) Inc
              
              0
              
              483
              0
              0.00**Total**
              **$**
              **3,306,887**
              
              **87,547**
              
              **100.00**
              **%**
 
 
 (1)  Equal
        to
        the fair value of securities sold, plus accrued interest income, minus the
        sum
        of repurchase agreement liabilities, plus accrued interest expense.
 
 
 **Equity**
  Accumulated
        other comprehensive loss, as reflected in stockholders’ equity, increased
        approximately $34.0 million
        from December 31, 2005, to June 30, 2006.  This is reflective of
        an overall decline in the fair value of Opteum’s portfolio as compared to the
        original aggregate purchase price of the investments.  Changes in interest
        rates over time are the primary market factor for this value decline; generally,
        as interest rates rise, the value of long-term interest rate sensitive
        securities decline. The value of the majority of Opteum’s assets is driven by
        movements in short-term rates—rates typically inside two years and these rates
        increased substantially over the period. Additionally, as longer term rates
        decreased, prepayment expectations increased resulting in a widening in the
        spreads at which Opteum’s assets are priced.
  The
        Company has negative retained earnings (titled “accumulated deficit” in the
        stockholders’ equity section of the accompanying consolidated financial
        statements) at June 30, 2006, partially because of the consequences of Opteum’s
        tax qualification as a REIT.  As is more fully described in the
        section titled “Future Taxable Income Distributions,” Opteum’s dividends
        are based on its net taxable income, as determined for federal income tax
        purposes and not on its net income computed in accordance with GAAP (as reported
        in the accompanying consolidated financial statements). Taxable
        net income is computed differently from Opteum’s financial statement net income
        as computed in accordance with GAAP. Depending on the number and size of
        the
        various items or transactions being accounted for differently, the differences
        between Opteum’s taxable net income and Opteum’s financial statement net income
        computed in accordance with GAAP can be substantial and each item can affect
        several years. Opteum's most significant items and transactions currently
        being
        accounted for differently include restricted stock awards, depreciation of
        property and equipment and debt issuance costs.
 
 For
        the
        six months ended June 30, 2006, Opteum's taxable net income was approximately
        $0.8 million greater than Opteum's financial statement net income. Substantially
        all of this amount is attributable to the phantom stock awards. The future
        deduction of this temporary difference is uncertain both as to the year (as
        the
        timing of the tax impact of each restricted stock award is up to each employee
        who has received an award) and as to the amount (the amount of the tax impact
        is
        measured at the fair value of the shares as of a future date and this amount
        may
        be greater than or less than the financial statement deduction already taken
        by
        Opteum). Since inception through June 30, 2006, Opteum's taxable net income
        is approximately $3.7 million greater than Opteum's financial statement net
        income as reported in its financial statements.
 
 Therefore,
        to the extent that Opteum’s cumulative net taxable income is greater than
        cumulative financial statement income and Opteum continues to pay out as
        dividends all of its net taxable income, the Company will report a deficit
        in
        retained earnings on its balance sheet.
 
 REIT
        taxable net income is calculated according to the requirements of the Internal
        Revenue Code rather than GAAP. For the year ending December 31, 2006, we
        intend
        to distribute at least 90% of our REIT taxable net income in order to retain
        our
        tax qualification status as a REIT. The following table reconciles GAAP net
        income to REIT taxable net income for the six and three months ended June
        30,
        2006:
 
 
 **Six
                  Months ended**
                **June
                  30, 2006**
              
              **Three
                  months ended**
                **June
                  30, 2006**GAAP
                  net loss
              $
              (8,776,004)
              $
              (3,688,880)Plus:
                  GAAP net loss of taxable REIT subsidiary included above
              
              15,357,749
              
              11,211,895GAAP
                  net income from REIT operations
              6,581,745
              
              7,523,015Add:
                  inter-company interest paid on loans
              
              4,048,871
              
              2,216,542Add:
                  estimated book depreciation and amortization
              
              174,690
              
              87,345Less:
                  estimated tax depreciation and amortization
              
              (171,826)
              
              (85,913)Phantom
                  share book/tax differences, net
              
              604,327
              
              266,033Other
                  book/tax differences, net
              
              (44,666)
              
              (21,239)REIT
                  Taxable Net Income
              $
              11,193,141
              $
              9,985,783
 
 We
        believe that the foregoing reconciliation of our REIT taxable net income
        is
        useful to investors because REIT taxable net income is directly related to
        the
        amount of dividends we are required to distribute in order to maintain our
        REIT
        tax qualification status. However, because REIT taxable net income is an
        incomplete measure of our financial performance and involves differences
        from
        net income computed in accordance with GAAP, our REIT taxable net income
        should
        be considered as supplementary to, and not as a substitute for, our net income
        computed in accordance with GAAP as a measure of our financial
        performance.
 
 **Results
        of Operations**
 
 The
        table
        below shows Opteum’s average investments held, total interest income, yield on
        average earning assets, average repurchase obligations outstanding, interest
        expense, average cost of funds, net interest income and net interest spread
        for
        the quarter ended June 30, 2006, and the nine previous quarters for
        Opteum’s portfolio of MBS securities only.  The data in the table below
        does not include information pertaining to OFS’ results of operations.
 
 RATIOS
        FOR THE QUARTERS HAVE BEEN ANNUALIZED
 
 **Quarter
                  Ended**
              
              **Average**
                **Investment**
                **Securities
                  Held**
              
              **Total
                  Interest Income**
              **Yield
                  on**
                **Average
                  Interest**
                **Earning
                  Assets**
              
              **Average**
                **Balance
                  of**
                **Repurchase**
                **Obligations**
                **Outstanding**
              
              **Interest**
                **Expense**
              **Average**
                **Cost
                  of**
                **Funds**
              
              **Net**
                **Interest**
                **Income**
              **Net**
                **Interest**
                **Spread**June
                  30, 2006
              $
              3,472,921,112
              $
              56,745,891
              6.536%
              $
              3,360,421,038
              $
              42,829,452
              5.098%
              $
              13,916,439
              1.438%March
                  31, 2006
              
              3,516,291,784
              
              42,219,327
              4.803%
              
              3,375,776,594
              
              37,660,857
              4.462%
              
              4,558,470
              0.340%December
                  31, 2005
              
              3,676,174,530
              
              43,139,911
              4.694
                  %
              
              3,533,486,002
              
              35,912,966
              4.065
                  %
              
              7,226,945
              0.629
                  %September
                  30, 2005
              
              3,867,262,849
              
              43,574,308
              4.507
                  %
              
              3,723,603,116
              
              33,101,847
              3.556
                  %
              
              10,472,461
              0.951
                  %June 30,
                  2005
              
              3,587,628,779
              
              36,748,640
              4.097
                  %
              
              3,449,743,973
              
              26,703,422
              3.096
                  %
              
              10,045,218
              1.001
                  %March 31,
                  2005
              
              3,136,142,229
              
              31,069,934
              3.963
                  %
              
              2,976,409,157
              
              19,841,710
              2.667
                  %
              
              11,228,224
              1.296
                  %December 31,
                  2004
              
              2,305,748,481
              
              20,463,071
              3.550
                  %
              
              2,159,890,886
              
              10,824,164
              2.005
                  %
              
              9,638,907
              1.545
                  %September 30,
                  2004
              
              1,573,342,668
              
              11,017,346
              2.801
                  %
              
              1,504,919,407
              
              4,253,337
              1.131
                  %
              
              6,764,009
              1.670
                  %June 30,
                  2004
              
              1,512,480,507
              
              10,959,098
              2.898
                  %
              
              1,452,004,000
              
              4,344,012
              1.197
                  %
              
              6,615,086
              1.702
                  %March 31,
                  2004
              
              871,140,453
              
              7,194,033
              3.303
                  %
              
              815,814,500
              
              2,736,434
              1.342
                  %
              
              4,457,599
              1.962
                  %
 
 As
        indicated in the table above, Net Interest Spread expanded substantially
        in the
        current quarter. The table below decomposes Total Interest Income by quarter.
        Interest income recorded for the quarter is impacted by adjustments that
        are
        made using the retrospective method to the effective interest computation.
        For
        each reporting period, the retrospective adjustment is based on the actual
        prepayment experiences to date and the present expectation of future prepayments
        of the underlying mortgages. The adjustment is also based on the realized
        index
        values underlying adjustable-rate MBS versus projected index values at the
        time
        of purchase. For the current quarter, the retrospective adjustment was quite
        large relative to interest income earned on the portfolio for the quarter.
        This
        is due to the combination of the cumulative nature of the adjustment and
        the
        magnitude of the movement in rates for the quarter. The adjustment was further
        impacted by the composition of the portfolio which is approximately 68.1%
        adjustable-rate MBS securities whose coupons reset within the next 12 months.
        In
        the case of such adjustable-rate securities, income going forward is established
        through application of the effective interest computation employing the ARM’s
        underlying index value in effect at the time of purchase and assuming that
        index
        value is constant going forward. During periods of rising interest rates
        as have
        occurred over the last two years, the values for such indices have been
        increasing above those in effect at the time of purchase. Such increases
        in the
        value of the index underlying ARM MBS are captured by the retrospective
        adjustment since coupon cash flows subsequent to purchase exceed those
        anticipated when the effective interest computation was made.
 
 RATIOS
        FOR THE QUARTERS HAVE BEEN ANNUALIZED
 
 **Quarter
                  Ended**
              **Total
                  Interest Income**
              **Yield
                  on Average Interest Earning Assets**
              **Quarterly
                  Retrospective Adjustment**
              **Expressed
                  as a Yield on Average Interest Earning Assets**
              **Interest
                  Income from Investment Securities Held, Cash and
                  Other**
              **Expressed
                  as a Yield on Average Interest Earning Assets**At
                  June 30, 2006
              $
                  56,745,891
              6.536%
              $
                  14,702,330
              1.693%
              $
                  42,043,561
              4.842%At
                  March 31,2006
              42,219,327
              4.803%
              2,524,824
              0.287%
              39,694,503
              4.515%At
                  December 31, 2005
              43,139,911
              4.694%
              3,248,812
              0.353%
              39,891,099
              4.341%At
                  September 30, 2005
              43,574,308
              4.507%
              4,347,892
              0.450%
              39,226,416
              4.057%At
                  June 30, 2005
              36,748,640
              4.097%
              2,413,146
              0.269%
              34,335,494
              3.828%At
                  March 31, 2005
              31,069,934
              3.963%
              1,012,711
              0.129%
              30,057,223
              3.834%At
                  December 31, 2004
              20,463,071
              3.550%
              1,250,031
              0.217%
              19,213,040
              3.333%At
                  September 30, 2004
              11,017,346
              2.801%
              -
              0.000%
              11,017,346
              2.801%At
                  June 30, 2004
              10,959,098
              2.898%
              -
              0.000%
              10,959,098
              2.898%At
                  March 31, 2004
              7,194,033
              3.303%
              -
              0.000%
              7,194,033
              3.303%
 
 The
        acquisition of OFS in the fourth quarter of 2005 substantially impacted revenues
        earned and expenses incurred making the comparison of Opteum’s results for the
        six and three months ended June 30, 2006 to the comparable prior periods
        difficult.
 
 Consolidated
        net loss for the six and three months ended June 30, 2006, was ($8.8)
        million **** and
        ($3.7) million, respectively, compared to $ 19.1
        million and $8.2 million of net income for the six and three months ended
        June
        30, 2005. Consolidated net loss per diluted share of Class A Common Stock
        was ( $0.37)
        and ($0.15) **** in
        the
        six and three months ended June 30, 2006, respectively, compared to $0.90 and
        $0.39 of per share income, respectively, for the comparable prior periods. For
        the
        six and three months ended June 30, 2006, Opteum had consolidated interest
        income of $ 136.0 million
        and $75.3 million, respectively, and consolidated interest expense of
        $ 116.7 million
        and $60.5 million, respectively.
 
 The
        Company earned $ 19.3
        million and $14.8 million
        of consolidated net interest income for the six and three months ended
        June 30, 2006, and $ 21.3  million and
        $10.3
        million of net interest income for the six and three months ended June 30,
        2005, respectively. These
        figures are not reflected as annualized net yields on invested assets as
        was
        previously reported since the figures represent blended net interest earnings
        on
        both the portfolio of MBS and the mortgage loans held for sale by OFS.
 
 Borrowing
        rates increased during
        the six and three months ended June 30, 2006, faster than the yields on Opteum’s
        current portfolio. This was driven by a ctions
        by
        the Federal Reserve and their resulting impact on various market interest
        rates,
        especially short-term rates. These actions are the primarily cause for the
        erosion of net interest spread earned on Opteum’s portfolio of MBS over Opteum’s
        repurchase agreement funding costs.  The increase in short-term rates also
        had a negative impact on the net interest spread earned by OFS on their mortgage
        loans held for sale over funding costs associated with their warehouse lines
        of
        credit used to fund mortgage loan originations.
 
 At
        June
        30, 2006, OFS owned $756.8 million of mortgage loans which were classified
        as
        mortgage loans held for sale. Gains realized on the sale of mortgage loans
        held
        for sale for the six and three months ended June 30, 2006, were $22.4 million
        and $11.1 million, respectively. Opteum had no such gains for the six and
        three
        months ended June 30, 2005, as those periods predate the acquisition of OFS
        by
        Opteum.
 
 Gains
        on
        the sale of mortgage loans held for sale are reported net of changes in the
        fair
        value of retained interests in securitizations. Net of changes in fair value
        of
        retained interests in securitizations, OFS had losses from sales of mortgages
        held for sale of $2.1 million and $9.1 million for the six and three months
        ended June 30, 2006, respectively.
 
 The
        retained interests in securitizations contain loans originated or purchased
        by
        OFS prior to securitization. These retained interests are classified on the
        accompanying consolidated balance sheet as Retained Interest, Trading. The
        total
        fair market value of these retained interests was approximately $88.4 million
        as
        of June 30, 2006. Fluctuations in value of retained interests are primarily
        driven by projections of future interest rates (the forward LIBOR curve),
        the
        discount rate used to determine the present value of the residual cash flows
        and
        prepayment and loss estimates on the underlying mortgage loans. Due to adverse
        movements in interest rates, particularly forward LIBOR rates, the market
        value
        of the retained interests declined by $24.5 million and $20.2 million,
        respectively, for the six and three months ended June 30, 2006. It is the
        intention of management to hedge these retained interests so as to protect
        earnings from an unexpected change due to a decline in value of the retained
        interests. However, movements in the variables that affect the value of the
        retained interests, in particular forward LIBOR rates and prepayment estimates,
        also affect retrospective adjustments to the effective interest computation
        of
        the Opteum MBS portfolio and the value of the Company’s mortgage servicing
        assets or MSRs. Movements in these two variables have the opposite effect
        on the
        value of the retained interests and the retrospective adjustment to the
        effective interest computation of the Opteum MBS portfolio and the MSRs.
        Since
        movements in these two variables affect reported earnings in an offsetting
        fashion, they tend to naturally hedge the Company’s earnings when taken as a
        whole. Accordingly, management takes this fact into consideration when
        constructing and implementing its hedging strategy.
 
 Changes
        in the fair value of retained interests described above are net of the results
        of any hedge transactions. The results above reflect net losses of $0.1 million
        and $0.1 million, respectively, on hedging transactions for the six and three
        months ended June 30, 2006, respectively. The results of the Company’s hedging
        strategies may have differed had the decline in value not been so materially
        driven by movements in forward LIBOR rates and had such movements not occurred
        so early in the quarter. The results of the hedge strategies were highly
        negatively correlated to the proportional mark to market changes in the retained
        interest positions, but were not in place for the full quarter. Hedge results
        also reflect the fact that movements in the other three variables that affect
        retained interest fair value moved in a favorable direction, offsetting the
        adverse movement in forward rates to some extent.
 
 The
        table
        below provides the details of OFS’s gain/(loss) on the sale of mortgage loans
        held for sale for the six and three months ended June 30, 2006 and June 30,
        2005.
 
 **Gains
        on Sales of Mortgage Assets and Losses on Derivative Instruments**
 (in
        thousands)
 **For
                  the Six months Ending June 30, 2006**
              **For
                  the Six months Ending June 30, 2005**
              **For
                  the Three months Ending June 30, 2006**
              **For
                  the Three months Ending June 30, 2005**Fair
                  Value adjustment of retained interests, trading
              $
              (24,472)
              N/A
              (20,246)
              N/AGain
                  on Sales
              
              45,487
              N/A
              24,658
              N/AFees
                  on brokered loans
              
              3,135
              N/A
              1,586
              N/AGain/(loss)
                  on derivatives
              
              2,521
              N/A
              (881)
              N/ADirect
                  loan origination expenses, deferred
              
              689
              N/A
              (549)
              N/AFees
                  earned, brokering servicing
              
              1,306
              N/A
              535
              N/AWrite
                  off purchased pipeline (Purchase Accounting Adjustment)
              
              (534)
              N/A
              -
              N/A28,132
              N/A
              5,103
              N/ADirect
                  loan origination expenses, reclassified
              (30,204)
              N/A
              (14,252)
              N/ANet
                  gain/(loss) on sale of mortgage loans
              $
              (2,072)
              N/A
              (9,149)
              N/A
 
 OFS
        held
        originated MSRs on approximately $8.4 billion in mortgages with a fair market
        value of approximately $ 96.6
        million as of June 30, 2006. For the six months and three months ended June
        30,
        2006, OFS had net servicing income of $1.8 million and $3.6 million,
        respectively. The results for the six month period were impacted by negative
        fair value adjustments to the MSRs in the first quarter as a result of the
        Company’s early adoption of SFAS 156 on January 1, 2006. For the six and three
        months ended June 30, 2006, the net fair value adjustments to the MSRs were
        a
        decrease of ($10.8) million and ($2.8) million, respectively. In turn, the
        net
        fair value adjustments for the six and three months ended June 30, 2006,
        reflect
        declines in fair value due to run-off of $10.4 million and $4.9 million and
        adjustments due to (decreases)/increases in fair value of ($0.4) million
        and
        $2.1 million, respectively.
 
 Opteum
        did not sell any MBS from the investment portfolio during the six months
        and
        three months ended June 30, 2006. For the six and three month periods ended
        June
        30, 2005, Opteum reported $2.0 million and $0.0 million, respectively, in
        gains
        from sale of MBS.
 
 For
        the
        six months and three months ended June 30, 2006, consolidated general and
        administrative costs at the Company were $ 42.9
        million and $22.8 million, respectively. Operating expenses, which incorporate
        trading costs, commissions and other direct costs, were $0.5 million
        and $0.2 million for the six months and three months ended June 30, 2006,
        respectively.
 
 For
        the
        six and three months ended June 30, 2006, comprehensive income (loss) was
        ($42.8) million including the net unrealized loss on the available-for-sale
        securities of ($34.0) million and ($25.9) million including the net unrealized
        loss on available-for sale securities of ($22.2) million, respectively. For
        the
        six and three months ended June 30, 2005, comprehensive income (loss) was
        ($2.8)
        million including the net unrealized loss on the available-for-sale securities
        of ($20.0) million and $7.8 million including the net unrealized loss on
        available-for-sale securities of ($0.5) million, respectively. The factors
        resulting in the unrealized loss on available-for-sale securities are described
        above.
 
 Comprehensive
        (loss) income is as follows:
 
 **Six
                  Months Ended June 30,**
              **Three
                  Months Ended June 30,****2006**
              
              **2005**
              **2006**
              
              **2005**Net
                  (loss) income
              $
              (8,776,004)
              $
              19,126,238
              $
                  (3,688,868)
              $
              8,218,399Realized
                  gain on available-for-sale securities, net
              -
              
              (1,982,382)
              -
              
              -Unrealized
                  loss on available-for-sale securities, net
              (33,991,361)
              
              (19,993,799)
              (22,176,263)
              
              (454,738)Comprehensive
                  (loss) income
              $
              (42,767,365)
              $
              (2,849,943)
              $
                  (25,865,131)
              $
              7,763,661
 
 
 **Future
        Taxable Income Distributions**
 
 In
        future
        periods, Opteum’s REIT net taxable income may grow to be even greater than
        consolidated GAAP net income as the interest on the $65.0 million loan Opteum
        made to OFS could generate annual net taxable income of $7.2 million. This
        interest is not reported on the Company’s consolidated financial statements as
        it is eliminated in consolidation.
 
 In
        order
        to maintain Opteum’s qualification as a REIT, Opteum is required (among other
        provisions) to distribute dividends to stockholders in an amount at least
        equal
        to, generally, 90% of its net taxable income. Net taxable income is a term
        that
        describes operating results following taxation rules and regulations governed
        by
        various provisions of the Internal Revenue Code. Net taxable income is computed
        differently from net income as computed in accordance with GAAP ("GAAP net
        income"), which is included in the Company’s accompanying consolidated financial
        statements. Depending on the number and size of the various items or
        transactions being accounted for differently, the differences between net
        taxable income and GAAP net income can be substantial and each item can affect
        several reporting periods. Generally, these items are timing or temporary
        differences between years; for example, an item that may be a deduction for
        GAAP
        net income in the current year is not a deduction for net taxable income
        until a
        later year. As
        a
        REIT, Opteum may be subject to a federal excise tax. An excise tax is incurred
        if Opteum distributes less than 85% of its net taxable income by the end
        of the
        calendar year.  Opteum's
        most significant item currently being accounted for differently are restricted
        stock awards.
 
 OFS is
        treated as a taxable REIT subsidiary or TRS of Opteum. OFS is subject to
        corporate income taxes and files separate federal and state income tax returns.
        OFS had interest rate lock commitments (“IRLCs”), along with other instruments
        that are hedges for both these IRLCs and mortgage loans held for sale, and
        both
        are considered derivatives. The changes to the fair value of these derivatives
        from inception to the period end are recorded at their fair value with the
        resulting gain or loss reflected in current period earnings. The result of
        the
        changes in the fair value of these derivatives was a gain of approximately
        $2.5
        million as of June 30, 2006. OFS can recognize a gain in the value of mortgages
        held for sale only when the loans are sold.
 
 **Liquidity
        and Capital Resources**
 
 Opteum’s
        primary source of funds as of June 30, 2006, consisted of repurchase
        agreements totaling $3.3 billion, with a net weighted average borrowing cost
        of
        5.08%. Opteum expects to continue to finance it acquisitions of MBS using
        repurchase agreements. At June 30, 2006, Opteum had master repurchase
        agreements in place with 19 **** counterparties
        and had outstanding balances under 14 of these agreements. These master
        repurchase agreements have no stated expiration but can be terminated at
        any
        time at Opteum’s option or at the option of the counterparty. However, once a
        definitive repurchase agreement under a master repurchase agreement has been
        entered into, it generally may not be terminated by either party. A negotiated
        termination can take place but may involve a fee which would be paid by Opteum.
        As of June 30, 2006, all of the existing repurchase agreements matured in
        less than one year. Increases in short-term interest rates could negatively
        impact the valuation of Opteum’s investment portfolio of MBS, which could limit
        Opteum’s borrowing ability or cause Opteum’s lenders to initiate margin calls.
 
 During
        2005 and the six months ended June 30, 2006, Opteum entered into contracts
        and
        paid commitment fees to three counterparties providing for an aggregate of
        $1.7
        billion in committed repurchase agreement facilities at pre-determined borrowing
        rates and haircuts for a 364 day period following the commencement date of
        each
        contract. Opteum has no obligation to utilize these repurchase agreement
        facilities. Two of these facilities will be eligible for renewal at some
        point
        during the balance of 2006 and one will be eligible for renewal in 2007.
        It is
        the Company’s intention to renew these facilities. However, market conditions
        could change making the renewal of these contractual arrangements more expensive
        or unattainable. In addition, two of the agreements described above are
        available to provide financing for up to $150 million to cover margin
        requirements associated with monthly principal payments on the MBS portfolio.
        During the quarter ended June 30, 2006, $50 million of the $150 million
        aggregate financing available for such purposes was put in place with one
        counterparty.
 
 In
        addition, in order to facilitate the origination of mortgage loans, OFS had
        warehouse lines and aggregation lines of credit outstanding of approximately
        $309.6 million at June 30, 2006. OFS also had approximately $104.8 million
        outstanding on other lines of credit that are secured by the retained interests
        and the originated MSRs with various lenders. The rates on these borrowings
        generally are based on a spread to LIBOR. During the quarter ended June 30,
        2006, OFS entered into a new agreement with JP Morgan Chase that increased
        the
        borrowing capacity of the line it replaced by $633
        million.
 
 For
        liquidity, Opteum will also rely on cash flow from operations, primarily
        monthly
        principal and interest payments to be received on the mortgage related
        securities, as well as any primary securities offerings authorized by the
        Company’s Board of Directors. OFS may generate cash flow from retained interests
        in mortgage securitizations as well as receive funds from originated MSRs
        and
        originated loan fees.
 
 Opteum
        believes that equity and junior subordinated debt capital, combined with
        the
        cash flow from operations and the utilization of borrowings, will be sufficient
        to enable Opteum to meet anticipated liquidity requirements. Various changes
        in
        market conditions could adversely affect liquidity, including increases in
        interest rates, increases in prepayment rates substantially above expectations
        or the reduction of fee income generated through mortgage originations at
        OFS.
        If cash resources are at any time insufficient to satisfy the liquidity
        requirements, Opteum may be required to pledge additional assets to meet
        margin
        calls, liquidate mortgage related securities or sell debt or additional equity
        securities. If required, the sale of mortgage related securities or originated
        mortgage loans held for sale by OFS at prices lower than the carrying value
        of
        such assets would result in losses and reduced income.
 
 Opteum
        may in the future increase capital resources by making additional offerings
        of
        equity and debt securities, including classes of preferred stock, common
        stock,
        commercial paper, medium-term notes, collateralized mortgage obligations
        and
        senior or subordinated notes. All debt securities, other borrowings and classes
        of preferred stock will be senior to the Class A Common Stock in a
        liquidation of the company. Additional equity offerings may be dilutive to
        stockholders' equity or reduce the market price of the Class A Common Stock
        or both. Opteum is unable to estimate the amount, timing or nature of any
        additional offerings as they will depend upon market conditions and other
        factors.
 
 **Off-Balance
        Sheet Arrangements**
 
 As
        discussed previously, OFS pools the loans they originate and purchase and
        securitizes them to obtain long-term financing for its assets. The loans
        are
        transferred to a trust where they serve as collateral for asset-backed bonds,
        which the trust primarily issues to the public. During the second quarter
        of
        2006, OFS
        executed one securitization collateralized by $ 491.6
        million of loans. In addition, OFS held approximately $88.4 million of retained
        interests from securitizations as of June 30, 2006. OFS’
        ability to access the capital markets via the use of securitizations is critical
        to the operations and overall profitability of the business.
 
 External
        factors that are reasonably likely to affect OFS’ ability to continue to
        complete securitizations would be those factors that could disrupt the
        securitization capital market. A disruption in the market could prevent OFS
        from
        being able to sell the securities at a favorable price or at all. Factors
        that
        could disrupt the securitization market include an international liquidity
        crisis such as occurred in the fall of 1998, a terrorist attack, outbreak
        of war
        or other significant event risk or market specific events such as a default
        of a
        comparable type of securitization. If OFS was unable to access the
        securitization market, OFS may still be able to finance its mortgage operations
        by selling the loans to investors in the whole loan market, but at lower
        than
        anticipated margins.
 
 Specific
        items that may affect OFS’ ability to use the securitizations to finance OFS’
specific loans relate primarily to the performance of the loans that have
        been
        securitized. Extremely poor loan performance may lead to poor bond performance
        and investor unwillingness to buy bonds supported by OFS’ collateral. OFS’
financial condition could also have an adverse impact on its ability to access
        the securitization market if there was the perception that its financial
        condition had deteriorated to the point where investors would question OFS’
ability to stand behind its representations and warranties made in connection
        with its securitizations even though Opteum has guaranteed the performance
        of
        OFS’ representation and warranties. It is too early to evaluate the impact of
        the underlying collateral’s performance attributable to the financial
        performance and condition of the past securitizations of OFS. Additionally,
        past
        economic conditions that may have contributed to a favorable performance
        may not
        be an indication of future performance should economic conditions change
        unfavorably.
  OFS
        has
        commitments to borrowers to fund residential mortgage loans as well as
        commitments to purchase and sell mortgage loans to third parties. As of June
        30,
        2006, OFS had outstanding commitments to originate loans of approximately
        $ 341.9 million.
        As of June 30, 2006, OFS had outstanding commitments to sell loans of
        approximately $ 138.0 million.
        The commitments to originate and purchase loans do not necessarily represent
        future cash requirements, as some portion of the commitments are likely to
        expire without being drawn upon or may be subsequently declined for credit
        or
        other reasons.
 **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**
 
 There
        have been no material changes to the Company’s exposure to market risk since
        December 31, 2005. The information set forth under Item 7A - Quantitative
        and
        Qualitative Disclosures About Market Risk in the Company’s amended Annual Report
        on Form 10-K/A for the period ended December 31, 2005, is incorporated herein
        by
        reference.
 
 **ITEM
        4.**  **CONTROLS
        AND PROCEDURES.**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 The
        Company maintains disclosure controls and procedures that are designed to
        ensure
        that information required to be disclosed in the Company’s Exchange Act reports
        is recorded, processed, summarized and reported within the time periods
        specified in the SEC’s rules and forms and that such information is
        accumulated and communicated to the Company’s management, including its Chief
        Executive Officer and Chief Financial Officer, as appropriate, to allow timely
        decisions regarding required disclosure based closely on the definition of
        “disclosure controls and procedures” in Rule 13a-15(e). In designing and
        evaluating the disclosure controls and procedures, management recognized
        that
        any controls and procedures, no matter how well designed and operated, can
        provide only reasonable assurance of achieving the desired control objectives
        and management necessarily was required to apply its judgment in evaluating
        the
        cost-benefit relationship of possible controls and procedures.
 
 As
        of the
        end of the period covered by this report, the Company carried out an evaluation,
        under the supervision and with the participation of the Company’s management,
        including the Company’s Chief Executive Officer and the Company’s Chief
        Financial Officer, of the effectiveness of the design and operation of the
        Company’s disclosure controls and procedures. Based on the foregoing, the
        Company’s Chief Executive Officer and Chief Financial Officer concluded that the
        Company’s disclosure controls and procedures were effective.
 
 **Changes
        in Internal Controls over Financial Reporting**
 
 There
        were no significant changes in the Company’s internal control over financial
        reporting that occurred during the Company’s most recent fiscal quarter that
        have materially affected or are reasonably likely to materially affect, the
        Company’s internal control over financial reporting.
 
 **PART
        II. OTHER INFORMATION.**
 
 **ITEM
        1. LEGAL PROCEEDINGS.**
 
 The
        Company is involved in various lawsuits and claims, both actual and potential,
        including some that it has asserted against others, in which monetary and
        other
        damages are sought. These lawsuits and claims relate primarily to contractual
        disputes arising out of the ordinary course of the Company’s business. The
        outcome of such lawsuits and claims is inherently unpredictable. However,
        management believes that, in the aggregate, the outcome of all lawsuits and
        claims involving the Company will not have a material effect on the Company’s
        consolidated financial position or liquidity; however, any such outcome may
        be
        material to the results of operations of any particular period in which costs,
        if any, are recognized.
  
 **ITEM
        1A. RISK FACTORS.**
 
 During
        the period covered by this report, there were no material changes from the
        risk
        factors previously disclosed under Item 1A - Risk Factors in the Company’s
        amended Annual Report on Form 10-K/A for the period December 31, 2005. The
        information set forth under Item 1A - Risk Factors in the Company’s amended
        Annual Report on Form 10-K/A for the period ended December 31, 2005, is
        incorporated herein by reference.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 The
        information set forth under Part II - Item 4 - Submission of Matters to a
        Vote
        of Security Holders in the Company’s Quarterly Report on Form 10-Q for the
        period ended March 31, 2006, is incorporated herein by reference.
 
 **ITEM
        6.**  **EXHIBITS.**
 
 
 2.1
              Agreement
                  and Plan of Merger,incorporated
                  by reference to Exhibit 2.1 to the Company’s Form 8-K, dated September 29,
                  2005, filed with the SEC on September 30, 20053.1
              Articles
                  of Amendment and Restatement, incorporated by reference toExhibit
                  3.1 tothe
                  Company’s Form S-11/A, filed with the SEC on April 29,
                  20043.2
              Articles
                  Supplementary, incorporated by reference toExhibit
                  3.1 tothe
                  Company’s Form 8-K, dated November 3, 2005, filed with the SEC on November
                  8, 20053.3
              Articles
                  of Amendment, incorporated by reference toExhibit
                  3.1 tothe
                  Company’s Form 8-K, dated February 10, 2006, filed with the SEC on
                  February 15, 20063.4
              Amended
                  and Restated Bylaws, incorporated by reference toExhibit
                  3.2 tothe
                  Company’s Form S-11/A, filed with the SEC on April 29,
                  20044.1
              Specimen
                  Common Stock Certificate incorporated by reference to Exhibit 4.1
                  to the
                  Company’s Form 10-Q for the period ended March 31, 2006, filed with the
                  SEC on May 8, 2006.10.1
              2003
                  Long-Term Incentive Compensation Plan, incorporated by reference
                  toExhibit
                  10.2 tothe
                  Company’s Form S-11/A, effective as of March 31, 2004, filed with the SEC
                  on May 26, 200410.2
              Employment
                  Agreement between Bimini Mortgage Management, Inc. and Jeffrey J.
                  Zimmer, incorporated by reference toExhibit
                  10.3 tothe
                  Company’s Form S-11/A, dated April 12, 2004, filed with the SEC on April
                  29, 200410.3
              Employment
                  Agreement between Bimini Mortgage Management, Inc. and Robert E.
                  Cauley, incorporated by reference toExhibit
                  10.4 tothe
                  Company’s Form S-11/A, dated April 12, 2004, filed with the SEC on April
                  29, 200410.4
              Employment
                  Agreement between Opteum Financial Services, LLC and Peter R.
                  Norden,
                  incorporated by reference toExhibit
                  10.5 tothe
                  Company’s Form 10-K, dated September 29, 2005, filed with the SEC on March
                  10, 200610.5
              Letter
                  Agreement, dated November 4, 2003 from AVM, L.P. to Bimini Mortgage
                  Management, Inc. with respect to consulting services to be provided
                  by AVM, L.P. and Letter Agreement, dated February 10, 2004 from AVM,
                  L.P. to Bimini Mortgage Management with respect to assignment of
                  AVM,
                  L.P.'s rights, interest and responsibilities to III Associates,
                  incorporated by reference to Exhibit 10.5 to the Company’s Form S-11/A,filed
                  with the SEC on May 26, 200410.6
              Agency
                  Agreement, dated November 20, 2003 between AVM, L.P. and Bimini
                  Mortgage Management, Inc., incorporated by reference toExhibit
                  10.6 tothe
                  Company’s Form S-11/A, dated November 20, 2003, filed with the SEC on May
                  26, 200410.7
              2004
                  Performance Bonus Plan, incorporated by reference toExhibit
                  10.7 tothe
                  Company’s Form S-11/A, dated August 13, 2004, filed with the SEC on August
                  25, 200410.8
              Phantom
                  Share Award Agreement between Bimini Mortgage Management, Inc. and
                  Jeffrey J. Zimmer, incorporated by reference toExhibit
                  10.8 tothe
                  Company’s Form S-11/A, dated August 13, 2004, filed with the SEC on August
                  25, 200410.9
              Phantom
                  Share Award Agreement between Bimini Mortgage Management, Inc. and
                  Robert E. Cauley, incorporated by reference toExhibit
                  10.9 tothe
                  Company’s Form S-11/A, dated August 13, 2004, filed with the SEC on August
                  25, 200410.10
              Voting
                  Agreement, among certain stockholders of Bimini Mortgage Management,
                  Inc.,
                  Jeffrey J. Zimmer, Robert E. Cauley, Amber K. Luedke, George H.
                  Haas, IV,
                  Kevin L. Bespolka, Maureen A. Hendricks, W. Christopher Mortenson,
                  Buford
                  H. Ortale, Peter Norden, certain of Mr. Norden’s affiliates, Jason Kaplan,
                  certain of Mr. Kaplan’s affiliates and other former owners of Opteum
                  Financial Services, LLC, incorporated by reference to Exhibit 99(D)
                  to the
                  Company’s Schedule 13D, dated November 3, 2005, filed with the SEC on
                  November 14, 2005*31.1
              Certification
                  of the Principal Executive Officer, pursuant to Rule 13a-14(a)
                  or
                  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 the Principal Financial Officer, pursuant to Rule 13a-14(a)
                  or
                  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 the 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 the 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.
 
  
  
 **Signatures**
 
 Pursuant
        to the requirements of Section 13 or 15(d) the Securities Exchange Act of
        1934, as amended, the registrant has duly caused this report to be signed
        on its
        behalf by the undersigned, thereunto duly authorized.
 
 OPTEUM INC.Date:
                  August 7, 2006
              By:
              /s/
                  Robert E. Cauley
                Robert
                  E. Cauley
                Chief
                  Financial Officer, Chief Investment Officer and
                  Secretary
 
  
 
  
  Exhibit
        Index
 
 Exhibit
        No.
 
 2.1
              Agreement
                  and Plan of Merger,incorporated
                  by reference to Exhibit 2.1 to the Company’s Form 8-K, dated September 29,
                  2005, filed with the SEC on September 30, 20053.1
              Articles
                  of Amendment and Restatement, incorporated by reference toExhibit
                  3.1 tothe
                  Company’s Form S-11/A, filed with the SEC on April 29,
                  20043.2
              Articles
                  Supplementary, incorporated by reference toExhibit
                  3.1 tothe
                  Company’s Form 8-K, dated November 3, 2005, filed with the SEC on November
                  8, 20053.3
              Articles
                  of Amendment, incorporated by reference toExhibit
                  3.1 tothe
                  Company’s Form 8-K, dated February 10, 2006, filed with the SEC on
                  February 15, 20063.4
              Amended
                  and Restated Bylaws, incorporated by reference toExhibit
                  3.2 tothe
                  Company’s Form S-11/A, filed with the SEC on April 29,
                  20044.1
              Specimen
                  Common Stock Certificate incorporated by reference to Exhibit 4.1
                  to the
                  Company’s Form 10-Q for the period ended March 31, 2006, filed with the
                  SEC on May 8, 2006.10.1
              2003
                  Long-Term Incentive Compensation Plan, incorporated by reference
                  toExhibit
                  10.2 tothe
                  Company’s Form S-11/A, effective as of March 31, 2004, filed with the SEC
                  on May 26, 200410.2
              Employment
                  Agreement between Bimini Mortgage Management, Inc. and Jeffrey J.
                  Zimmer, incorporated by reference toExhibit
                  10.3 tothe
                  Company’s Form S-11/A, dated April 12, 2004, filed with the SEC on April
                  29, 200410.3
              Employment
                  Agreement between Bimini Mortgage Management, Inc. and Robert E.
                  Cauley, incorporated by reference toExhibit
                  10.4 tothe
                  Company’s Form S-11/A, dated April 12, 2004, filed with the SEC on April
                  29, 200410.4
              Employment
                  Agreement between Opteum Financial Services, LLC and Peter R.
                  Norden,
                  incorporated by reference toExhibit
                  10.5 tothe
                  Company’s Form 10-K, dated September 29, 2005, filed with the SEC on March
                  10, 200610.5
              Letter
                  Agreement, dated November 4, 2003 from AVM, L.P. to Bimini Mortgage
                  Management, Inc. with respect to consulting services to be provided
                  by AVM, L.P. and Letter Agreement, dated February 10, 2004 from AVM,
                  L.P. to Bimini Mortgage Management with respect to assignment of
                  AVM,
                  L.P.'s rights, interest and responsibilities to III Associates,
                  incorporated by reference to Exhibit 10.5 to the Company’s Form S-11/A,filed
                  with the SEC on May 26, 200410.6
              Agency
                  Agreement, dated November 20, 2003 between AVM, L.P. and Bimini
                  Mortgage Management, Inc., incorporated by reference toExhibit
                  10.6 tothe
                  Company’s Form S-11/A, dated November 20, 2003, filed with the SEC on May
                  26, 200410.7
              2004
                  Performance Bonus Plan, incorporated by reference toExhibit
                  10.7 tothe
                  Company’s Form S-11/A, dated August 13, 2004, filed with the SEC on August
                  25, 200410.8
              Phantom
                  Share Award Agreement between Bimini Mortgage Management, Inc. and
                  Jeffrey J. Zimmer, incorporated by reference toExhibit
                  10.8 tothe
                  Company’s Form S-11/A, dated August 13, 2004, filed with the SEC on August
                  25, 200410.9
              Phantom
                  Share Award Agreement between Bimini Mortgage Management, Inc. and
                  Robert E. Cauley, incorporated by reference toExhibit
                  10.9 tothe
                  Company’s Form S-11/A, dated August 13, 2004, filed with the SEC on August
                  25, 200410.10
              Voting
                  Agreement, among certain stockholders of Bimini Mortgage Management,
                  Inc.,
                  Jeffrey J. Zimmer, Robert E. Cauley, Amber K. Luedke, George H.
                  Haas, IV,
                  Kevin L. Bespolka, Maureen A. Hendricks, W. Christopher Mortenson,
                  Buford
                  H. Ortale, Peter Norden, certain of Mr. Norden’s affiliates, Jason Kaplan,
                  certain of Mr. Kaplan’s affiliates and other former owners of Opteum
                  Financial Services, LLC, incorporated by reference to Exhibit 99(D)
                  to the
                  Company’s Schedule 13D, dated November 3, 2005, filed with the SEC on
                  November 14, 2005*31.1
              Certification
                  of the Principal Executive Officer, pursuant to Rule 13a-14(a)
                  or
                  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 the Principal Financial Officer, pursuant to Rule 13a-14(a)
                  or
                  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 the 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 the 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.