**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**


______________




**FORM
      10-Q**


______________




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


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      quarterly period ended March 31, 2007




OR




 ̈ TRANSITION
      REPORT PURSUANT TO SECTION 13 OR
      15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      transition period from  to




Commission
      file number **001-32216**




______________





**NEW
      YORK MORTGAGE TRUST, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




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




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


(Address
      of Principal Executive Office) (Zip Code)




**(212)
      792-0107**


(Registrant’s
      Telephone Number, Including Area Code)




______________




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


Yes 
      x No  ̈




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




Large
                Accelerated Filer ̈
            Accelerated
                Filer x
            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
      x




The
      number of shares of the registrant’s common stock, par value $.01 per share,
      outstanding on May 1, 2007 was 18,100,531.














**NEW
      YORK MORTGAGE TRUST, INC.**




**FORM
      10-Q**




**Page****Part
                I. Financial Information**Item
                1. Consolidated Financial Statements (unaudited):Consolidated
                Balance Sheets
            3Consolidated
                Statements of Operations
            4Consolidated
                Statements of Stockholders’ Equity
            5Consolidated
                Statements of Cash Flows
            6Notes
                to Consolidated Financial Statements
            8Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            29Forward
                Looking Statement Effects
            29General
            30Presentation
                Format
            31Strategic
                Overview - Continued Operations
            31Strategic
                Overview - Discontinued Operations
            32Financial Overview
                - Continued Operations
            32Financial
                Overview - Discontinued Operations
            33Description
                of Business - Continued Operations
            33Description
                of Business - Discontinued Operations
            34Known
                Material Trends and Commentary - Continued Operations
            34Known
                Material Trends and Commentary - Discontinued
                Operations
            35Significance
                of Estimates and Critical Accounting Policies - General
            35Significance
                of Estimates and Critical Accounting Policies - Continued
                Operations
            35Significance
                of Estimates and Critical Accounting Policies - Discontinued
                Operations
            37Overview
                of Performance
            38Summary
                of Operations and Key Performance Measurements
            38Results
                of Operations and Financial Condition
            39


Balance
                  Sheet Analysis - Asset Quality - Continuing Operations
              39Balance
                  Sheet Analysis - Asset Quality - Discontinued Operations
              44Balance
                  Sheet Analysis - Financing Arrangements - Continuing
                  Operations
              45Balance
                  Sheet Analysis - Financing Arrangements - Discontinued
                  Operations
              45Balance
                  Sheet Analysis - Stockholders’ Equity
              46Securitizations
                  - Continuing Operations
              46Prepayment
                  Experience - Continuing Operations
              48Results
                  of Operations - Continuing Operations
              48Results
                  of Operations - Discontinued Operations
              48Results
                  of Operations - Comparison of Three Months Ended March 31, 2007
                  and March
                  31, 2006
              52Off-
                  Balance Sheet Arrangements - General
              57Liquidity
                  and Capital Resources - Continuing Operations
              57Liquidity
                  and Capital Resources - Discontinued Operations
              58


Inflation
            59Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            59


Interest
                    Rate and Market (Fair Value) Risk
                60Credit
                    Spread Risk
                62Market
                    (Fair Value) Risk
                62Liquidity
                    and Funding Risk
                64Prepayment
                    Risk
                65Credit
                    Risk
                65


Item
                4. Controls and Procedures
            65**Part
                II. Other
                Information**Item
                6. Exhibits
            67Signatures
            68








2







**PART
      I: FINANCIAL INFORMATION**


Item
      1.
      Financial Statements


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


**CONSOLIDATED
      BALANCE SHEETS**


(dollar
      amounts in thousands)




**March
                    31,**
                  **2007**
                  **(unaudited)**
                
                **December
                    31,**
                  **2006********ASSETS**Cash
                    and cash equivalents
                
                $
                1,734
                
                $
                969Restricted
                    cash
                
                
                2,979
                
                
                3,151Investment
                    securities - available for sale
                
                
                447,063
                
                
                488,962Accounts
                    and accrued interest receivable
                
                
                18,272
                
                
                5,189Mortgage
                    loans held in securitization trusts
                
                
                544,046
                
                
                588,160Prepaid
                    and other assets
                
                
                20,544
                
                
                20,951Derivative
                    assets
                
                
                1,300
                
                
                2,632Assets
                    related to discontinued operation
                
                
                126,641
                
                
                212,894**Total
                    Assets**
                
                $
                1,162,579
                
                $
                1,322,908**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY****Liabilities:**Financing
                    arrangements, portfolio investments
                
                $
                434,894
                
                $
                815,313Collateralized
                    debt obligations
                
                
                501,853
                
                
                197,447Accounts
                    payable and accrued expenses
                
                
                6,569
                
                
                5,871Subordinated
                    debentures
                
                
                45,000
                
                
                45,000Derivative
                  liabilities
                
                
                183
                
                
                —Liabilities
                    related to discontinued operation
                
                
                108,960
                
                
                187,705Total
                    liabilities
                
                
                1,097,459
                
                
                1,251,336**Commitments
                    and Contingencies (note 13)****Stockholders’
                    Equity:**Common
                    stock, $0.01 par value, 400,000,000 shares authorized, 18,162,749
                    shares
                  issued
                    and 18,100,531 outstanding at March 31, 2007 and 18,325,187 shares
                  issued
                    and 18,077,880 outstanding at December 31, 2006
                
                
                182
                
                
                183Additional
                    paid-in capital
                
                
                98,888
                
                
                99,509Accumulated
                    other comprehensive loss
                
                
                (5,470
                )
                
                (4,381
                )Accumulated
                    deficit
                
                
                (28,480
                )
                
                (23,739
                )Total
                    stockholders’ equity
                
                
                65,120
                
                
                71,572**Total
                    Liabilities and Stockholders’ Equity**
                
                $
                1,162,579
                
                $
                1,322,908




*See
      notes to consolidated financial statements.*




3







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




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




**For
                  the Three Months Ended**
                **March
                  31,****2007**
              
              **2006****(amounts,
                  except per share****amounts,
                  in thousands)**
                **(unaudited)****Revenue:**Interest
                  income investment securities and loans held in securitization
                  trusts
              
              $
              13,713
              
              $
              17,584Interest
                  expense investment securities and loans held in securitization
                  trusts
              
              
              13,084
              
              
              14,079Net
                  interest income from investment securities and loans held in
                  securitization trusts
              
              
              629
              
              
              3.505Subordinated
                  debentures
              
              
              882
              
              
              885Net
                  interest (expense) income
              
              
              (253
              )
              
              2,620**Other
                  expense:**Realized
                  loss on investment securities
              
              
              —
              
              
              (969
              )**Expenses:**Salaries
                  and benefits
              
              
              345
              
              
              250Marketing
                  and promotion
              
              
              23
              
              
              8Data
                  processing and communications
              
              
              37
              
              
              56Professional
                  fees
              
              
              100
              
              
              94Depreciation
                  and amortization
              
              
              68
              
              
              67Other
              
              
              74
              
              
              87Total
                  expenses
              
              
              647
              
              
              562**(Loss)
                  income from continuing operations**
              
              
              (900
              )
              
              1,089Loss
                  from discontinued operation-net of tax
              
              
              (3,841
              )
              
              (2,885
              )**Net
                  loss**
              
              $
              (4,741
              )
              $
              (1,796
              )Basic
                  and diluted loss per share
              
              $
              (0.26
              )
              $
              (0.10
              )Weighted
                  average shares outstanding - basic and diluted
              
              
              18,078
              
              
              17,967




*See
      notes to consolidated financial statements.*




4





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




**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ EQUITY**




**For
                  the Three Months Ended March 31, 2007****Common**
                **Stock**
              
              **Additional**
                **Paid-In**
                **Capital**
              
              **Stockholders’**
                **Deficit**
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **(Loss)/Income**
              
              **Comprehensive**
                **(Loss)/Income**
              
              **Total**(dollar
                  amounts in thousands)(unaudited)**Balance, January
                  1, 2007 -**
                Stockholders’
                  Equity
              
              $
              183
              
              $
              99,509
              
              $
              (23,739
              )
              $
              (4,381
              )
              
              —
              
              $
              71,572Net
                  loss
              
              
              —
              
              
              —
              
              
              (4,741
              )
              
              —
              
              $
              (4,741
              )
              
              (4,741
              )Dividends
                  declared
              
              
              —
              
              
              (909
              )
              
              —
              
              
              —
              
              
              —
              
              
              (909
              )Vested
                  restricted stock
              
              
              (1
              )
              
              288
              
              
              —
              
              
              —
              
              
              —
              
              
              287Decrease
                  in net unrealized loss on
                available
                  for sale securities
              
              
              —
              
              
              —
              
              
              —
              
              
              241
              
              
              241
              
              
              241Decrease
                  in net unrealized gain on derivative instruments
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,330
              )
              
              (1,330
              )
              
              (1,330
              )Comprehensive
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              $
              (5,830
              )
              
              —**Balance,
                  March 31, 2007 -**
                Stockholders’
                  Equity
              
              $
              182
              
              $
              98,888
              
              $
              (28,480
              )
              $
              (5,470
              )
              
              
              
              $
              65,120




*See
      notes to consolidated financial statements.*




5





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




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**For
                  the Three Months Ended**
                **March
                  31,****2007**
              
              **2006**(dollar
                    amounts in thousands)(unaudited)**Cash
                  Flows from Operating Activities:**Net
                  loss income
              
              $
              (4,741
              )
              $
              (1,796
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              490
              
              
              565Amortization
                  of premium on investment securities and mortgage loans
              
              
              564
              
              
              446Gain
                  on sale of retail lending platform
              
              
              (5,585
              )
              
              —Loss
                  on sale of current period securitized loans
              
              
              —
              
              
              773Loss
                  on sale of securities and related hedges
              
              
              —
              
              
              969Restricted
                  stock compensation expense
              
              
              287
              
              
              264Stock
                  option grants - compensation expense
              
              
              —
              
              
              4Deferred
                  tax benefit
              
              
              —
              
              
              (2,916
              )Change
                  in value of derivatives
              
              
              119
              
              
              (125
              )Loan
                  losses
              
              
              2,971
              
              
              —(Increase)
                  decrease in operating assets:Purchase
                  of mortgage loans held for sale
              
              
              —
              
              
              (213,367
              )Origination
                  of mortgage loans held for sale
              
              
              (300,863
              )
              
              (422,247
              )Proceeds
                  from sales of mortgage loans
              
              
              345,205
              
              
              628,314Due
                  from loan purchasers
              
              
              26,948
              
              
              20,612Escrow
                  deposits - pending loan closings
              
              
              3,303
              
              
              (1,513
              )Accounts
                  and accrued interest receivable
              
              
              199
              
              
              (2,353
              )Prepaid
                  and other assets
              
              
              1,925
              
              
              583Increase
                  (decrease) in operating liabilities:Due
                  to loan purchasers
              
              
              (4,656
              )
              
              (21
              )Accounts
                  payable and accrued expenses
              
              
              (
                  74
              )
              
              (5,861
              )Other
                  liabilities
              
              
              (103
              )
              
              307Net
                  cash provided by operating activities
              
              
              65,989
              
              
              2,638**Cash
                  Flows from Investing Activities:**Restricted
                  cash
              
              
              172
              
              
              2,181Purchase
                  of investment securities
              
              
              —
              
              
              (124,896
              )Principal
                  repayments received on mortgage loans held in securitization
                  trusts
              
              
              43,809
              
              
              40,405Proceeds
                  from sale of investment securities
              
              
              —
              
              
              159,040Principal
                  paydown on investment securities
              
              
              41,945
              
              
              54,475Purchases
                  of property and equipment
              
              
              (369
              )
              
              (626
              )Disposal
                  of fixed assets
              
              
              485
              
              
              —Net
                  cash provided by investing activities
              
              
              86,042
              
              
              130,579





*See
      notes to consolidated financial statements.*




6







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




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




****
              
              **For
                  the Three Months Ended**
                **March
                  31,****2007**
              
              **2006**(dollar
                  amounts in thousands)(unaudited)**Cash
                  Flows from Financing Activities:**Repurchase
                  of common stock
              
              
              —
              
              
              (299
              )Change
                  in financing arrangements, net
              
              
              (150,349
              )
              
              (132,591
              )Dividends
                  paid
              
              
              (917
              )
              
              (3,834
              )Net
                  cash used in financing activities
              
              
              (151,266
              )
              
              (136,724
              )**Net
                  Increase (Decrease) in Cash and Cash
                  Equivalents**
              
              
              765
              
              
              (3,507
              )**Cash
                  and Cash Equivalents - Beginning of Period**
              
              
              969
              
              
              9,056**Cash
                  and Cash Equivalents - End of Period**
              
              $
              1,734
              
              $
              5,549**Supplemental
                  Disclosure**Cash
                  paid for interest
              
              $
              16,171
              
              $
              22,688NON
                  CASH INVESTING ACTIVITIESNon-cash
                  purchase of investment securities
              
              $
              —
              
              $
              60,000**Non
                  Cash Financing Activities**Dividends
                  declared to be paid in subsequent period
              
              $
              909
              
              $
              2,547




*See
      notes to consolidated financial statements.*




7




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**


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





*Organization* —
New
      York Mortgage Trust, Inc. (“NYMT” or the “Company”) is a self-advised real
      estate investment trust ("REIT") that invests in and manages a portfolio of
      mortgage loans and mortgage-backed securities. Until March 31, 2007, when the
      Company sold substantially all of the assets of its mortgage origination
      business and exited the mortgage lending business, the Company originated
      mortgage loans through its wholly-owned subsidiary, The New York Mortgage
      Company, LLC (“NYMC”), which, following the transactions, remains one of the
      Company’s wholly-owned subsidiaries (see note 11).





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




On
        March
        31, 2007, we completed the sale of substantially all of the operating assets
        related to NYMC’s retail mortgage lending platform, to IndyMac Bank, F.S.B.
        (“Indymac”), a wholly-owned subsidiary of Indymac Bancorp, Inc., for a purchase
        price of $13.5 million in cash and the assumption of certain of our
        liabilities by Indymac. Included in the transaction, among other things,
        was the assumption by Indymac of leases held by NYMC for approximately 20
        full
        service and approximately 10 satellite retail mortgage lending offices
        (excluding the lease for the Company’s corporate headquarters, which is being
        assigned, as previously announced, under a separate agreement to Lehman Brothers
        Holding, Inc.), the tangible personal property located in those approximately
        30
        retail mortgage lending offices, NYMC’s pipeline of residential mortgage loan
        applications (the “Pipeline Loans”), escrowed deposits related to the Pipeline
        Loans, customer lists and intellectual property and information technology
        systems used by NYMC in the conduct of its retail mortgage lending platform.
        Indymac assumed the obligations of NYMC under the Pipeline Loans and
        substantially all of NYMC’s liabilities under the purchased contracts and
        purchased assets arising after the closing date. Indymac has also agreed
        to pay
        (i) the first $500,000 in severance expenses with respect to “transferred
        employees” (as defined in the asset purchase agreement filed as Exhibit 10.62 to
        our Annual Report on Form 10-K) and (ii) severance expenses in excess of
        $1.1
        million arising after the closing with respect to transferred employees.
        As part
        of the Indymac transaction, the Company has agreed, for a period of 18 months,
        not to compete with Indymac other than in the purchase, sale, or retention
        of
        mortgage loans. Indymac has hired substantially all of our branch employees
        and
        loan officers and a majority of NYMC employees based out of our corporate
        headquarters.


In
      connection with the sale of the assets of our wholesale mortgage origination
      platform assets on February 22, 2007 and the sale of the assets of our retail
      mortgage lending platform on March 31, 2007 (see note 11), during the fourth
      quarter of 2006, we classified our mortgage lending segment as a discontinued
      operation in accordance with the provisions of Statement of Financial Accounting
      Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of
      Long-Lived Assets”. As a result, we have reported revenues and expenses related
      to the segment as a discontinued operation and the related assets and
      liabilities as assets and liabilities related to the discontinued operation
      for
      all periods presented in the accompanying consolidated financial statements.
      Certain assets, such as the deferred tax asset, and certain liabilities, such
      as
      subordinated debt and liabilities related to leased facilities not assigned
      to
      Indymac will become part of the ongoing operations of NYMT and accordingly,
      have
      not been classified as a discontinued operation in accordance with the
      provisions of SFAS No. 144. (See note 11).


While
        the
        Company sold substantially all of the assets of its wholesale and retail
        mortgage lending platforms and exited the mortgage lending business as of
        March
        31, 2007, it retains certain liabilities associated with that former line
        of
        business. Among these liabilities are the costs associated with the disposal
        of
        the mortgage loans held for sale, potential repurchase and
        indemnification obligations (including early payment defaults) on
        previously sold mortgage loans and remaining lease payment obligations on
        real
        and personal property.




*Basis
      of Presentation* —
The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries. All intercompany accounts and transactions are eliminated in
      consolidation. Certain prior period amounts have been reclassified to conform
      to
      current period classifications. In addition, certain previously reported
      discontinued operation balances have been reclassified to continuing operations,
      including restricted cash, derivative asset balance related to interest rate
      caps and certain accrued expenses.




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


Concurrent
      with the closing of the Company’s initial public offering (“IPO”) on June 24,
      2004, 100,000 of the 2,750,000 shares exchanged for the equity interests of
      NYMC, were placed in escrow through December 31, 2004 and were available to
      satisfy any indemnification claims the Company may have had against Steven
      B.
      Schnall, the Company’s Chairman, and then President and Co-Chief Executive
      Officer, Joseph V. Fierro, the then Chief Operating Officer of NYMC, and each
      of
      their affiliates, as the contributors of NYMC, for losses incurred as a result
      of defaults on any residential mortgage loans originated by NYMC and closed
      prior to the completion of the IPO. As of December 31, 2004, the amount of
      escrowed shares was reduced by 47,680 shares, representing $493,000 for
      estimated losses on loans closed prior to the Company’s IPO. Furthermore, the
      contributors of NYMC amended the escrow agreement to extend the escrow period
      to
      December 31, 2005 for the remaining 52,320 shares. On or about December 31,
      2005, the escrow period was extended for an additional year to December 31,
      2006. During 2006 the Company concluded that all indemnification claims related
      to the escrowed shares have been determined and that no additional losses were
      incurred by the Company as a result of defaults on any residential mortgage
      loans originated by NYMC and closed prior completion of the IPO. Accordingly,
      we
      have concluded that no further indemnification was necessary. The remaining
      52,320 shares were then released from escrow.





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




8




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




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





*Restricted
      Cash* —
      Restricted cash is held by counterparties as collateral for hedging instruments,
      and two letters of credit related to the Company’s lease of office space,
      including its corporate headquarters.





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





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




*Accounts
      and accrued interest receivable —*amounts include $13.5 million related to the sale of the retail mortgage
      lending segment to Indymac. On April 2, 2007, Indymac paid the Company $11.2
      million in cash and established a $2.3 million escrow account to support
      warranties and indemnifications related to the sale. In addition, accrued
      interest receivable for investment securities and mortgage loans held in
      securitization trusts are also included.





*Due
      from Loan Purchasers and Escrow Deposits — Pending Loan
      Closings* —
Amounts
      due from loan purchasers are a receivable for the principal and premium due
      to
      us for loans sold and shipped but for which payment has not yet been received
      at
      period end. Escrow deposits pending loan closing are advance cash fundings
      by us
      to escrow agents to be used to close loans within the next one to three business
      days.





*Mortgage
      Loans Held for Sale* —
      Mortgage loans held for sale represent originated mortgage loans held for sale
      to third party investors. The loans are initially recorded at cost based on
      the
      principal amount outstanding net of deferred direct origination costs and fees.
      The loans are subsequently carried at the lower of cost or fair
      value. Fair value is determined by examining outstanding commitments from
      investors or current investor yield requirements, calculated on an aggregate
      loan basis, less an estimate of the costs to close the loan, and the deferral
      of
      fees and points received, plus the deferral of direct origination costs. Gains
      or losses on sales are recognized at the time title transfers to the investor
      which is typically concurrent with the transfer of the loan files and related
      documentation and are based upon the difference between the sales proceeds
      from
      the final investor and the adjusted book value of the loan sold.





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





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




9




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




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


Estimation
        involves the consideration of various credit-related factors including but
        not
        limited to, the current housing market conditions, loan-to-value ratios,
        delinquency status, historical credit loss severity rates, purchased mortgage
        insurance, the borrower’s credit and other factors deemed to warrant
        consideration. Additionally, we look at the balance of any delinquent loan
        and
        compare that to the value of the property. As many of the loans involved
        in the
        current reserve process were funded in the past six to twelve months, we
        typically rely on the original appraised value of the property, unless there
        is
        evidence that the original appraisal should not be relied upon. If there
        is a
        doubt to the objectivity of the original property value assessment, we either
        utilize various internet based property data services to look at comparable
        properties in the same area, or consult with a realtor in the property’s
        area.
  Comparing
        the current loan balance to the original property value determines the current
        loan-to-value (“LTV”) ratio of the loan. Generally we estimate that a first lien
        loan on a property that goes into a foreclosure process and becomes real
        estate
        owned (“REO”), results is the property being disposed of at approximately 68% of
        the property’s original value. This estimate is based on management’s long term
        experience in similar market conditions. Thus, for a first lien loan that
        is
        delinquent, we will adjust the property value down to approximately 68% of
        the
        original property value and compare that to the current balance of the loan.
        The
        difference, plus an estimate of past interest due, determines the base reserve
        taken for that loan. This base reserve for a particular loan may be adjusted
        if
        we are aware of specific circumstances that may affect the outcome of the
        loss
        mitigation process for that loan. Predominately, however, we use the base
        reserve number for our reserve.
  Reserves
        for second liens are larger than that for first liens as second liens are
        in a
        junior position and only receive proceeds after the claims of the first lien
        holder are satisfied. As with first liens, we may occasionally alter the
        base
        reserve calculation but that is in a minority of the cases and only if we
        are
        aware of specific circumstances that pertain to that specific loan.
  At
          March
          31, 2007, we had a loan loss reserve of $1.2 million on mortgage loans
          held for
          sale, $2.1 million in reserves for indemnifications and repurchase
          requests and had incurred $3.2 million of loan losses during the three
          months ended March 31, 2007.


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




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





*Financing
      Arrangements, Mortgage Loans Held for Sale* —
      Mortgage loans held for sale is typically financed with warehouse
      facilities that are collateralized by loans we originated or purchased from
      third parties. Such financings are recorded at their outstanding principal
      balance with any accrued interest due recorded as an accrued
      expense.





*Collateralized
      Debt Obligations* —
CDOs
      are securities that are issued and secured by ARM loans. For financial reporting
      purposes, the ARM loans held as collateral are recorded as assets of the Company
      and the CDO is recorded as the Company’s debt. Our CDO securitization
      transactions include interest rate caps which are held by the securitization
      trust and recorded as an asset or liability of the Company. (see note
      9).





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





*Subordinated
      Debentures* —
      Subordinated debentures are trust preferred securities that are fully guaranteed
      by the Company with respect to distributions and amounts payable upon
      liquidation, redemption or repayment. These securities are classified as
      subordinated debentures in the liability section of the Company’s consolidated
      balance sheet.





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


10




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




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





*Risk
      Management* —
      Derivative transactions are entered into by the Company solely for risk
      management purposes. The decision of whether or not an economic risk within
      a
      given transaction (or portion thereof) should be hedged for risk management
      purposes is made on a case-by-case basis, based on the risks involved and other
      factors as determined by senior management, including the financial impact
      on
      income, asset valuation and restrictions imposed by the Internal Revenue Code
      among others. In determining whether to hedge a risk, the Company may consider
      whether other assets, liabilities, firm commitments and anticipated transactions
      already offset or reduce the risk. All transactions undertaken to hedge certain
      market risks are entered into with a view towards minimizing the potential
      for
      economic losses that could be incurred by the Company. Under SFAS No. 133,
      “Accounting for Derivative Instruments and Hedging Activities”, as amended and
      interpreted, (“SFAS No. 133”), the Company is required to formally document its
      hedging strategy before it may elect to implement hedge accounting for
      qualifying derivatives. Accordingly, all qualifying derivatives are intended
      to
      qualify as fair value, or cash flow hedges, or free standing derivatives. To
      this end, terms of the hedges are matched closely to the terms of hedged items
      with the intention of minimizing ineffectiveness.





In
      the
      normal course of its mortgage loan origination business, the Company entered
      into contractual interest rate lock commitments (“IRLC”) to extend credit to
      finance residential mortgages. These commitments, which contain fixed expiration
      dates, become effective when eligible borrowers lock-in a specified interest
      rate within time frames established by the Company’s origination, credit and
      underwriting practices. Interest rate risk arises if interest rates change
      between the time of the lock-in of the rate by the borrower and the sale of
      the
      loan. Under SFAS No. 133, the IRLCs are considered undesignated or free-standing
      derivatives. Accordingly, such IRLCs are recorded at fair value with changes
      in
      fair value recorded to current earnings. Mark to market adjustments on IRLCs
      are
      recorded from the inception of the interest rate lock through the date the
      underlying loan is funded. The fair value of the IRLCs is determined by the
      interest rate differential between the contracted loan rate and the currently
      available market rates as of the reporting date.





To
      mitigate the effect of the interest rate risk inherent in providing IRLCs from
      the lock-in date to the funding date of a loan, the Company generally enters
      into forward sale loan contracts (“FSLC”). The FSLCs in place prior to the
      funding of a loan are undesignated derivatives under SFAS No. 133 and are marked
      to market through current earnings. The remaining IRLCs and FLSCs relate to
      the
      mortgage loans held for sale. The Company does not expect to enter in to new
      IRLCs or FLSCs following the disposition of the remaining mortgage loans held
      for sale.





Derivative
      instruments contain an element of risk in the event that the counterparties
      may
      be unable to meet the terms of such agreements. The Company minimizes its risk
      exposure by limiting the counterparties with which it enters into contracts
      to
      banks, investment banks and certain private investors who meet established
      credit and capital guidelines. Management does not expect any counterparty
      to
      default on its obligations and, therefore, does not expect to incur any loss
      due
      to counterparty default. These commitments and option contracts are considered
      in conjunction with the Company’s valuation of its mortgage loans held for
      sale.





The
      Company uses other derivative instruments, including treasury, agency or
      mortgage-backed securities forward sale contracts which are also classified
      as
      free-standing, undesignated derivatives and thus are recorded at fair value
      with
      the changes in fair value recognized in current earnings.





Once
      a
      loan has been funded, the Company’s primary risk objective for its mortgage
      loans held for sale is to protect earnings from an unexpected charge due to
      a
      decline in value. The Company’s strategy is to engage in a risk management
      program involving the designation of FSLCs (the same FSLCs entered into at
      the
      time of rate lock) to hedge most of its mortgage loans held for sale. The FSLCs
      have been designated as qualifying hedges for the funded loans and the notional
      amount of the forward delivery contracts, along with the underlying rate and
      critical terms of the contracts, are equivalent to the unpaid principal amount
      of the mortgage loan being hedged. The FSLCs effectively fix the forward sales
      price and thereby offset interest rate and price risk to the Company.
      Accordingly, the Company evaluates this relationship quarterly and, at the
      time
      the loan is funded, classifies and accounts for the FSLCs as cash flow
      hedges.




11




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




*Interest
      Rate Risk* —
The
      Company hedges the aggregate risk of interest rate fluctuations with respect
      to
      its borrowings, regardless of the form of such borrowings, which require
      payments based on a variable interest rate index. The Company generally intends
      to hedge only the risk related to changes in the benchmark interest rate (London
      Interbank Offered Rate (“LIBOR”) or a Treasury rate).





In
      order
      to reduce such risks, the Company enters into swap agreements whereby the
      Company receives floating rate payments in exchange for fixed rate payments,
      effectively converting the borrowing to a fixed rate. The Company also enters
      into cap agreements whereby, in exchange for a fee, the Company is reimbursed
      for interest paid in excess of a certain capped rate.





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


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


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





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





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





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





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





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





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





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





*Loan
      Origination Fees and Direct Origination Cost* —
The
      Company records loan fees, discount points and certain incremental direct
      origination costs as an adjustment of the cost of the loan and such amounts
      are
      included in gain on sales of loans when the loan is sold. Accordingly, salaries,
      compensation, benefits and commission costs have been reduced by $5.0 million,
      and $6.4 million for the three month periods ended March 31, 2007 and 2006,
      respectively, because such amounts are considered incremental direct loan
      origination costs.




12




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**


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





*Loan
      Commitment Fees* —
      Mortgage loans held for sale: fees received for the funding of mortgage loans
      to
      borrowers at pre-set conditions are deferred and recognized at the date at
      which
      the loan is sold. Mortgage loans held for investment: such fees are deferred
      and
      recognized into interest income over the life of the loan based on the effective
      yield method.





*Employee
      Benefits Plans* —
The
      Company sponsors a defined contribution plan (the “Plan”) for all eligible
      domestic employees. The Plan qualifies as a deferred salary arrangement under
      Section 401(k) of the Internal Revenue Code. Under the Plan, participating
      employees may defer up to 15% of their pre-tax earnings, subject to the annual
      Internal Revenue Code contribution limit. The Company matches contributions
      up
      to a maximum of 25% of the first 5% of salary. Employees vest immediately in
      their contribution and vest in the Company’s contribution at a rate of 25% after
      two full years and then an incremental 25% per full year of service until fully
      vested at 100% after five full years of service. The Company’s total
      contributions to the Plan were $18,495 and $0.1 million for the three month
      periods ended March 31, 2007 and 2006 respectively.




*Stock
      Based Compensation*—The
      Company
      accounts for its stock options and restricted stock grants in accordance
      with SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”) which requires
      all companies to measure compensation costs for all share-based payments,
      including employee stock options, at fair value.





*Marketing
      and Promotion* —
The
      Company charges the costs of marketing, promotion and advertising to expense
      in
      the period incurred.





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





NYMC is
      a taxable REIT subsidiary and therefore, is subject to corporate Federal income
      taxes. Accordingly, deferred tax assets and liabilities are recognized for
      the
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax base upon the change in tax status. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in income in the period that includes the
      enactment date.





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




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


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




13





**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




**2.
      Investment Securities Available for Sale**




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




****
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006******
            
            ****Amortized
                cost
            
            $
            450,637
            
            $
            492,777Gross
                unrealized gains
            
            
            684
            
            
            623Gross
                unrealized losses
            
            
            (4,258
            )
            
            (4,438
            )Fair
                value
            
            $
            447,063
            
            $
            488,962




As
      of
      March 31, 2007, none of the remaining securities with unrealized losses have
      been deemed to be other-than-temporarily impaired. The Company has the intent
      and believes it has the ability to hold such investment securities until
      recovery of their amortized cost. Substantially all of the Company’s investment
      securities available for sale are pledged as collateral for borrowings under
      financing arrangements (see note 7).




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




**March
                  31, 2007****Less
                  than 6 Months**
              
              **More
                  than 6 Months**
                **to
                  24 Months**
              
              **More
                  than 24 Months**
                **to
                  60 Months**
              
              **Total****Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**
              
              **Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**
              
              **Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**
              
              **Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**Agency
                  REMIC CMO Floating Rate
              
              $
              150,045
              
              
              6.58
              %
              $
              —
              
              
              —
              
              $
              —
              
              
              —
              
              $
              150,045
              
              
              6.58
              %Private
                  Label Floaters
              
              
              13,971
              
              
              6.18
              %
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              13,971
              
              
              6.18
              %Private
                  Label ARMs
              
              
              33,726
              
              
              6.15
              %
              
              56,255
              
              
              5.71
              %
              
              173,153
              
              
              5.65
              %
              
              263,134
              
              
              5.73
              %NYMT
                  Retained Securities
              
              
              —
              
              
              —
              
              
              2,596
              
              
              6.98
              %
              
              17,317
              
              
              7.55
              %
              
              19,913
              
              
              7.48
              %Total/Weighted
                  Average
              
              $
              197,742
              
              
              6.48
              %
              $
              58,851
              
              
              5.77
              %
              $
              190,470
              
              
              5.83
              %
              $
              447,063
              
              
              6.11
              %


The
      NYMT
      retained securities includes $2.0 million of residual interests related to
      the
      NYMT 2006-1 transaction. The residual interest carrying-values are determined
      by
      obtaining dealer quotes.




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




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




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




14




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**
 **March
                  31, 2007****Less
                  than 12 Months**
              
              **12
                  Months or More**
              
              **Total****Fair**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses******Agency
                  REMIC CMO floating rate
              
              $
              104,369
              
              $
              352
              
              $
              779
              
              $
              3
              
              $
              105,148
              
              $
              355Private
                  label ARMs
              
              
              —
              
              
              —
              
              
              234,387
              
              
              3,815
              
              
              234,387
              
              
              3,815NYMT
                  retained securities
              
              
              718
              
              
              76
              
              
              2,596
              
              
              12
              
              
              3,314
              
              
              88Total
              
              $
              105,087
              
              $
              428
              
              $
              237,762
              
              $
              3,830
              
              $
              342,849
              
              $
              4,258
 
 **December
                  31, 2006******
              
              **Less
                  than 12 Months**
              
              **12
                  Months or More**
              
              **Total****Fair**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**
              
              **Fair**
                **Value**
              
              **Gross**
                **Unrealized**
                **Losses**Agency
                  REMIC CMO floating rate
              
              $
              966
              
              $
              2
              
              $
              1,841
              
              $
              4
              
              $
              2,807
              
              $
              6Private
                  label floaters
              
              
              22,284
              
              
              80
              
              
              —
              
              
              —
              
              
              22,284
              
              
              80Private
                  label ARMs
              
              
              30,385
              
              
              38
              
              
              248,465
              
              
              4,227
              
              
              278,850
              
              
              4,265NYMT
                  retained securities
              
              
              7,499
              
              
              87
              
              
              —
              
              
              —
              
              
              7,499
              
              
              87Total
              
              $
              61,134
              
              $
              207
              
              $
              250,306
              
              $
              4,231
              
              $
              311,440
              
              $
              4,438
 
 **3**.**Mortgage
        Loans Held for Sale**
  Mortgage
        loans held for sale (included in assets of discontinued operations, see note
        11) consist of the following as of March 31, 2007 and December 31, 2006
        (dollar amounts in thousands):
  ****
              
              **March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Mortgage
                  loans principal amount
              
              $
              60,872
              
              $
              110,804Deferred
                  origination costs - net
              
              
              11
              
              
              138Allowance
                  for loan losses
              
              
              (1,183
              )
              
              (4,042
              )Mortgage
                  loans held for sale
              
              $
              59,700
              
              $
              106,900
  Substantially
        all of the Company’s mortgage loans held for sale are pledged as collateral for
        borrowings under financing arrangements (see note 8).
  The
        following table presents the activity in the Company’s allowance for loan losses
        for the three months ended March 31, 2007 and  2006 (dollar
        amounts in thousands).
  **March
                  31,**
                **2007**
              
              **March
                    31,****2006**Balance at
                  beginning of period
              
              $
              (4,042
              )
              $
              —Provisions
                  for loan losses
              
              
              (379
              )
              
              —Charge-offs
              
              
              3,238
              
              
              —Balance
                  of the end of period
              
              $
              (1,183
              )
              $
              —
 
 **4** . **Mortgage
        Loans Held in Securitization Trusts**
  Mortgage
        loans held in securitization trusts consist of the following as of March
        31,
        2006 and December 31, 2006 (dollar amounts in thousands):
 
 **March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Mortgage
                  loans principal amount
              
              $
              540,549
              
              $
              584,358Deferred
                  origination costs - net
              
              
              3,497
              
              
              3,802Total
                  mortgage loans held in securitization
                  trusts
              
              $
              544,046
              
              $
              588,160
  15




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**March
      31, 2007**


**(unaudited)**




Substantially
      all of the Company’s mortgage loans held in securitization trusts are pledged as
      collateral for borrowings under financing arrangements (see note 7) or for
      the
      collateralized debt obligation (see note 9).





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




**March** **31, 2007**


**Days
                  Late**
              
              **Number
                  of**
                **Delinquent**
                **Loans**
              
              **Total**
                **Dollar
                  Amount**
              
              **%
                  of Loan**
                **Portfolio**30-60
              
              
              2
              
              $
              955
              
              
              0.18
              %61-90
              
              
              1
              
              
              1,346
              
              
              0.25
              %90+
              
              
              6
              
              
              6,377
              
              
              1.18
              %Real
                  estate owned
              
              
              1
              
              $
              625
              
              
              0.12
              %


**December
      31, 2006**


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




16
 
  **NEW
          YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
          31, 2007**
 **(unaudited)**





**5** **.
      Property and Equipment — Net**




Property
      and equipment - net (included in assets of discontinued operations, see note
      11) consist of the following as of March 31, 2007 and December 31, 2006
      (dollar amounts in thousands):




****
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006**Office
                and computer equipment
            
            $
            166
            
            $
            7,800Furniture
                and fixtures
            
            
            157
            
            
            2,200Leasehold
                improvements
            
            
            949
            
            
            1,491Total
                premises and equipment
            
            
            1,272
            
            
            11,491Less:
                accumulated depreciation and amortization
            
            
            (787
            )
            
            (4,975
            )Property
                and equipment - net
            
            $
            485
            
            $
            6,516




**6** . **Derivative
      Instruments and Hedging Activities**





The
      Company enters into derivatives to manage its interest rate and market risk
      exposure associated with its mortgage lending and its mortgage-backed securities
      investment activities. In the normal course of its mortgage loan origination
      business, the Company enters into contractual IRLCs to extend credit to finance
      residential mortgages. To mitigate the effect of the interest rate risk inherent
      in providing IRLCs from the lock-in date to the funding date of a loan, the
      Company generally enters into FSLCs. With regard to the Company’s
      mortgage-backed securities investment activities, the Company uses interest
      rate
      swaps and caps to mitigate the effects of major interest rate changes on net
      investment spread.




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




**March
                31,**
              **2007**
            
            **December
                31,**
              **2006****Derivative
                Assets:**Continuing
                Operations:Interest
                rate caps
            
            $
            1,300
            
            $
            2,011Interest
                rate swaps
            
            
            —
            
            
            621**Total
                derivative assets, continuing operations**
            
            
            1,300
            
            
            2,632Discontinued
                Operation:Forward
                loan sale contracts - loan commitments
            
            
            1
            
            
            48Forward
                loan sale contracts - mortgage loans held for sale
            
            
            —
            
            
            39Forward
                loan sale contracts - TBA securities
            
            
            —
            
            
            84Interest
                rate lock commitments - loan commitments
            
            
            37
            
            
            —**Total
                derivative assets, discontinued operation**
            
            
            38
            
            
            171**Total
                derivative assets**
            
            $
            1,338
            
            $
            2,803**Derivative
                Liabilities:**Continuing
                Operations:Interest
                rate swaps
            
            $
            (183
            )
            $
            —Discontinued
                Operation:Forward
                loan sale contracts - mortgage loans held for sale
            
            
            (11
            )
            
            —Forward
                loan sale contracts - loan commitments
            
            
            (7
            )
            
            (118
            )Interest
                rate lock commitments - mortgage loans held for sale
            
            
            —
            
            
            (98
            )**Total
                derivative liabilities, discontinued operations**
            
            
            (18
            )
            
            (216
            )**Total
                derivative liabilities**
            
            $
            (201
            )
            $
            (216
            )





The
      notional amounts of the Company’s interest rate swaps, interest rate caps and
      forward loan sales contracts as of March 31, 2007 were $285.0 million, $1.5
      billion and $5.4 million, respectively.




17




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




The
      notional amounts of the Company’s interest rate swaps, interest rate caps and
      forward loan sales contracts as of December 31, 2006 were $285.0 million, $1.5
      billion and $142.1 million, respectively





The
      Company estimates that over the next twelve months, approximately $1.2 million
      of the net unrealized losses on the interest rate swaps will be
      reclassified from accumulated OCI into earnings.




**7** . **Financing
      Arrangements, Portfolio Investments**





The
      Company has entered into repurchase agreements with third party financial
      institutions to finance its residential mortgage-backed securities and mortgage
      loans held in the securitization trusts. The repurchase agreements are
      short-term borrowings that bear interest rates based on a spread to LIBOR,
      and
      are secured by the residential mortgage-backed securities and mortgage loans
      held in the securitization trusts which they finance. At March 31, 2007, the
      Company had repurchase agreements with an outstanding balance of $434.9 million
      and a weighted average interest rate of 5.34%. As of December 31, 2006, the
      Company had repurchase agreements with an outstanding balance of $815.3 million
      and a weighted average interest rate of 5.37%. At March 31, 2007 and December
      31, 2006 securities and mortgage loans pledged as collateral for repurchase
      agreements had estimated fair values of $452.0 million and $850.6 million,
      respectively. As of March 31, 2007 all of the repurchase agreements will mature
      within 30 days, with weighted average days to maturity equal to 17 days. The
      Company has available to it $4.6 billion in commitments to provide financings
      through such arrangements with 22 different counterparties with approximately
      $0.4 billion outstanding as of March 31, 2007.




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




**Repurchase
      Agreements by Counterparty**




**Counterparty
                Name**
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006**Countrywide
                Securities Corporation
            
            $
            98,997
            
            $
            168,217Goldman,
                Sachs & Co.
            
            
            59,970
            
            
            121,824J.P.
                Morgan Securities Inc.
            
            
            32,399
            
            
            33,631Nomura
                Securities International, Inc.
            
            
            36,778
            
            
            156,352SocGen/SG
                Americas Securities
            
            
            42,818
            
            
            87,995West
                LB
            
            
            163,932
            
            
            247,294**Total
                Financing Arrangements, Portfolio Investments**
            
            $
            434,894
            
            $
            815,313





**8** . **Financing
      Arrangements, Mortgage Loans Held for Sale**





Financing
      arrangements (included in liabilities of discontinued operations, see note
      11) secured by mortgage loans held for sale consist of the following as of
      March
      31, 2007, and December 31, 2006 (dollar amounts in thousands):


**March
                31,**
              **2007**
            
            **December
                31,**
              **2006**$250
                million master repurchase agreement with Greenwich Capital expired
                on
                February 4, 2007 bearing interest at one-month LIBOR plus spreads
                from
                0.75% to 1.25%. Principal repayments are required 120 days from the
                funding date. (a)
            
            
            —
            
            
            —$120
                million master repurchase agreement as of March 31, 2007 with CSFB
                expiring on June 29, 2007 and $200 million as of December 31, 2006,
                bearing interest at daily LIBOR plus spreads from 0.75% to 2.000%
                depending on collateral (6.36% at March 31, 2007 and 6.36% at December
                31,
                2006). Principal repayments are required 90 days from the funding
                date.
            
            $
            98,636
            
            $
            106,801$300
                million master repurchase agreement with Deutsche Bank Structured
                Products, Inc. expiring on March 26, 2007 bearing interest at 1 month
                LIBOR plus spreads from 0.625% to 1.25% depending on collateral (6.0%
                at
                December 31, 2006). Principal payments are due 120 days from the
                repurchase date. (b)
            
            
            —
            
            
            66,171Total
                Financing Arrangements
            
            $
            98,636
            
            $
            172,972


——————


(a)
            Management
                did not seek renewal of this facility which expired February 4,
                2007. (b)
            The
                line was paid in full and mutually terminated on March 26,
                2007.




18




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




As
      of
      March 31, 2007, the only outstanding financing arrangement was secured by
      mortgage loans held for sale by the Company associated with discontinued
      operations. This arrangement contains various covenants pertaining to, among
      other things, maintenance of certain amounts of net worth, periodic income
      thresholds and working capital. As of March 31, 2007, the Company was in
      compliance with all covenants with the exception of the net income and net
      worth
      covenants under this arrangement for which a waiver has been obtained from
      this
      institution.




**9** . **Collateralized
      Debt Obligations**




The
      Company had CDOs outstanding of $501.9 million with a weighted average interest
      rate of 5.65% as of March 31, 2007 and $197.4 million with a weighted average
      interest rate of 5.72% as of December 31, 2006. The CDOs include amortizing
      interest rate cap contracts with a notional amount of $596.9 million as of
      March
      31, 2007 and a notional amount of $187.5 million as of December 31, 2006, which
      are recorded as an asset of the Company. The Company’s CDOs are secured by ARM
      loans pledged as collateral which are recorded as an asset of the Company.
      The pledged ARM loans included in mortgage loans held in securitization trust,
      have a principal balance of $540.5 million and $204.6 million at March 31,
      2007
      and December 31, 2006, respectively.




**10** . **Subordinated
      Debentures**




On
      September 1, 2005 the Company closed a private placement of $20.0 million of
      trust preferred securities to Taberna Preferred Funding II, Ltd., a pooled
      investment vehicle. The securities were issued by NYM Preferred Trust II and
      are
      fully guaranteed by the Company with respect to distributions and amounts
      payable upon liquidation, redemption or repayment. These securities have a
      fixed
      interest rate equal to 8.35% up to and including July 30, 2010, at which point
      the interest rate is converted to a floating rate equal to one-month LIBOR
      plus
      3.95% until maturity. The securities mature on October 30, 2035 and may be
      called at par by the Company any time after October 30, 2010. In accordance
      with
      the guidelines of SFAS No. 150 “Accounting for Certain Financial Instruments
      with Characteristics of both Liabilities and Equity” (“SFAS No. 150”), the
      issued preferred stock of NYM Preferred Trust II has been classified as
      subordinated debentures in the liability section of the Company’s consolidated
      balance sheet.




On
      March
      15, 2005, the Company closed a private placement of $25.0 million of trust
      preferred securities to Taberna Preferred Funding I, Ltd., a pooled investment
      vehicle. The securities were issued by NYM Preferred Trust I and are fully
      guaranteed by the Company with respect to distributions and amounts payable
      upon
      liquidation, redemption or repayment. These securities have a floating interest
      rate equal to three-month LIBOR plus 3.75%, resetting quarterly (9.10% at March
      31, 2007 and 9.12% at December 31, 2006). The securities mature on March 15,
      2035 and may be called at par by the Company any time after March 15, 2010.
      NYMC
      entered into an interest rate cap agreement to limit the maximum interest rate
      cost of the trust preferred securities to 7.5%. The term of the interest rate
      cap agreement is five years and resets quarterly in conjunction with the reset
      periods of the trust preferred securities. The interest rate cap agreement
      is
      accounted for as a cash flow hedge transaction in accordance with SFAS No.133.
      In accordance with the guidelines of SFAS No. 150, the issued preferred stock
      of
      NYM Preferred Trust I has been classified as subordinated debentures in the
      liability section of the Company’s consolidated balance sheet.




19




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**


**1** **1.
      Discontinued Operation**




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




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




**March
                31,**
              **2007**
            
            **December
                31,**
              **2006**Due
                from loan purchasers
            
            $
            61,403
            
            $
            88,351Escrow
                deposits-pending loan closings
            
            
            511
            
            
            3,814Accounts
                and accrued interest receivable
            
            
            2,142
            
            
            2,488Mortgage
                loans held for sale (see note 3)
            
            
            59,700
            
            
            106,900Prepaid
                and other assets
            
            
            2,362
            
            
            4,654Derivative
                assets (see note 6)
            
            
            38
            
            
            171Property
                and equipment, net (see note 5)
            
            
            485
            
            
            6,516$
            126,641
            
            $
            212,894




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




**March
                31,**
              **2007**
            
            **December
                31,**
              **2006**Financing
                arrangements, mortgage loans held for sale (see note 8)
            
            $
            98,636
            
            $
            172,972Due
                to loan purchasers
            
            
            3,678
            
            
            8,334Accounts
                payable and accrued expenses
            
            
            6,600
            
            
            6,066Derivative
                liabilities (see note 6)
            
            
            18
            
            
            216Other
                liabilities
            
            
            28
            
            
            117$
            108,960
            
            $
            187,705




20




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**


The
      combined results of operations of the assets and liabilities related to the
      discontinued operation for the three months ended March 31, 2007 and 2006 are
      as
      follows (dollar amounts in thousands):




**March
                31,****2007**
            
            **2006****Revenues:**Net
                interest income
            
            $
            596
            
            $
            1,727Gain
                on sale of mortgage loans
            
            
            2,337
            
            
            4,070Loan
                losses
            
            
            (3,161
            )
            
            —Brokered
                loan fees
            
            
            2,135
            
            
            2,777Gain
                on sale of retail lending segment
            
            
            5,160
            
            
            —Other
                income (expense)
            
            
            27
            
            
            (654
            )Total
                net revenues
            
            
            7,094
            
            
            7,920**Expenses:**Salaries,
                commissions and benefits
            
            
            5,006
            
            
            6,091Brokered
                loan expenses
            
            
            1,723
            
            
            2,168Occupancy
                and equipment
            
            
            1,312
            
            
            1,325General
                and administrative
            
            
            2,894
            
            
            4,137Total
                expenses
            
            
            10,935
            
            
            13,721**Loss
                before income tax benefit**
            
            
            (3,841
            )
            
            (5,801
            )Income
                tax benefit
            
            
            —
            
            
            2,916**Loss
                from discontinued operations - net of tax**
            
            $
            (3,841
            )
            $
            (2,885
            )





**12** . **Commitments
      and Contingencies**




*Loans
      Sold to Investors* —
The
      Company is not exposed to long term credit risk on its loans sold to investors.
      In the normal course of business, however, the Company is obligated to
      repurchase loans based on violations of representations and warranties, or
      early
      payment defaults. For
      the
      three months ended March 31, 2007, we repurchased a total of $5.5 million of
      mortgage loans that were originated in either 2005 or 2006, the majority of
      which were due to EPDs. Of the repurchased loans originated in 2006, all were
      Alt-A. As of March 31, 2007 we had approximately $14 million of additional
      repurchase requests pending, against which the Company has taken a reserve
      of
      $1.7 million included in accounts payable and accrued expenses.




*Loans
      Funding and Delivery Commitments* —
At
      March 31, 2007 and December 31, 2006, the Company had commitments to fund loans
      with agreed-upon rates totaling $4.8 million and $104.3 million, respectively.
      The Company hedges the interest rate risk of such commitments and the recorded
      mortgage loans held for sale balances primarily with FSLCs, which totaled $5.3
      million and $142.1 million at March 31, 2007 and December 31, 2006,
      respectively. The remaining commitments to fund loans with agreed-upon rates
      are
      anticipated to be sold through optional delivery contract investor
      programs.




*Outstanding
      Litigation* —
The
      Company is involved in litigation arising in the normal course of business.
      Although the amount of any ultimate liability arising from these matters cannot
      presently be determined, the Company does not anticipate that any such liability
      will have a material effect on its consolidated financial
      statements.




*Leases* —
The
      Company leases its corporate offices and certain retail facilities and equipment
      under short-term lease agreements expiring at various dates through 2013. All
      such leases are accounted for as operating leases. Total rental expense for
      property and equipment amounted to $1.1 million and $1.3 million for the three
      months ended March 31, 2007 and 2006, respectively.




On
      November 13, 2006, the Company entered into an Assignment and Assumption of
      Sublease and an Escrow Agreement, each with Lehman Brothers Holdings Inc.
      (“Lehman”) (collectively, the “Agreements”). Under the Agreements, the Company
      assigned and Lehman has assumed the sublease for the Company’s corporate
      headquarters at 1301 Avenue of the Americas. Pursuant to the Agreements, Lehman
      will fund an escrow account in the amount of $3.0 million for the benefit of
      NYMC. The full escrow amount will be released to the Company if it vacates
      the
      leased space on or before July 1, 2007. For each month beginning in July 2007
      that the Company remains in occupation of the leased space, the escrow amount
      payable to NYMC will be reduced by $200,000. The Company intends to relocate
      its
      corporate headquarters to a smaller facility at a location that is yet to be
      determined.




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




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




21




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




**13** . **Related
      Party Transactions**




Steven
      B.
      Schnall, Chairman of the Board of Directors of the Company and until March
      31,
      2007, President and Co-Chief Executive of the Company, owns a 48% membership
      interest and Joseph V. Fierro, the Chief Operating Officer of the NYMC until
      March 31, 2007, owns a 12% membership interest in Centurion Abstract, LLC
      (“Centurion”), which provided title insurance brokerage services for certain
      title insurance providers. From time to time, NYMC referred its mortgage loan
      borrowers to Centurion for assistance in obtaining title insurance in connection
      with their mortgage loans, although the borrowers had no obligation to utilize
      Centurion’s services. When NYMC’s borrowers elected to utilize Centurion’s
      services to obtain title insurance, Centurion collected various fees and a
      portion of the title insurance premium paid by the borrower for its title
      insurance. Centurion received $0 and $500 in fees and other amounts from NYMC
      borrowers for the three months ended March 31, 2007 and March 31, 2006,
      respectively. NYMC did not economically benefit from such referrals. As of
      March
      31, 2007, the Company exited the mortgage lending business and will no longer
      be
      referring business to Centurion.




**14.**  **Concentrations
      of Credit Risk**




The
      Company has originated loans predominantly in the eastern United States. Loan
      concentrations are considered to exist when there are amounts loaned to a
      multiple number of borrowers with similar characteristics, which would cause
      their ability to meet contractual obligations to be similarly impacted by
      economic or other conditions. At March 31, 2007 and December 31, 2006, there
      were geographic concentrations of credit risk exceeding 5% of the total loan
      balances within mortgage loans held for sale as follows:




****
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006**New
                York
            
            
            36.2
            %
            
            20.9
            %Massachusetts
            
            
            27.8
            %
            
            17.5
            %Pennsylvania
            
            
            10.2
            %
            
            7.4
            %Rhode
                Island
            
            
            5.7
            %
            
            2.9
            %New
                Jersey
            
            
            5.4
            %
            
            12.3
            %New
                Hampshire
            
            
            5.3
            %
            
            3.7
            %




At
      March
      31, 2007 and December 31, 2006, there were geographic concentrations of credit
      risk exceeding 5% of the total loan balances within mortgage loans held in
      the
      securitization trusts as follows:




****
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006**New
                York
            
            
            26.6
            %
            
            26.2
            %Massachusetts
            
            
            14.7
            %
            
            14.4
            %California
            
            
            5.9
            %
            
            6.8
            %





**15** . **Fair
      Value of Financial Instruments**




Fair
      value estimates are made as of a specific point in time based on estimates
      using
      market quotes, present value or other valuation techniques. These techniques
      involve uncertainties and are significantly affected by the assumptions used
      and
      the judgments made regarding risk characteristics of various financial
      instruments, discount rates, estimates of future cash flows, future expected
      loss experience, and other factors.




Changes
      in assumptions could significantly affect these estimates and the resulting
      fair
      values. Derived fair value estimates cannot be necessarily substantiated by
      comparison to independent markets and, in many cases, could not be necessarily
      realized in an immediate sale of the instrument. Also, because of differences
      in
      methodologies and assumptions used to estimate fair values, the Company’s fair
      values should not be compared to those of other companies.




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




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




22




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




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




a. *Investment
      Securities Available for Sale* —
Fair
      value is generally estimated based on market prices provided by five to seven
      dealers who make markets in these financial instruments. If the fair value
      of a
      security is not reasonably available from a dealer, management estimates the
      fair value based on characteristics of the security that the Company receives
      from the issuer and based on available market information.




b. *Mortgage
      Loans Held for Sale* —
Fair
      value is estimated using the quoted market prices for securities backed by
      similar types of loans and current investor or dealer commitments to purchase
      loans.




c. *Mortgage
      Loans Held in the Securitization Trusts* —
      Mortgage loans held in the securitization trusts are recorded at amortized
      cost.
      Fair value is estimated using pricing models and taking into consideration
      the
      aggregated characteristics of groups of loans such as, but not limited to,
      collateral type, index, interest rate, margin, length of fixed-rate period,
      life
      cap, periodic cap, underwriting standards, age and credit estimated using the
      quoted market prices for securities backed by similar types of
      loans.




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




e. *Interest
      Rate Lock Commitments* —
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. The fair value of IRLCs is
      determined in accordance with SAB 105.




f. *Forward
      Sale Loan Contracts* —
The
      fair value of these instruments is estimated using current market prices for
      dealer or investor commitments relative to the Company’s existing
      positions.




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




**March
                31, 2007****Notional**
              **Amount**
            
            **Carrying**
              **Amount**
            
            **Estimated**
              **Fair
                Value****Continuing
                Operations:**Investment
                securities available for sale
            
            $
            449,349
            
            $
            447,063
            
            $
            447,063Mortgage
                loans held in the securitization trusts
            
            
            540,549
            
            
            544,046
            
            
            542,290Commitments
                and contingencies:Interest
                rate swaps
            
            
            285,000
            
            
            (183
            )
            
            (183
            )Interest
                rate caps
            
            
            1,469,636
            
            
            1,300
            
            
            1,300**Discontinued
                Operation:**Mortgage
                loans held for sale
            
            
            60,872
            
            
            60,883
            
            
            61,422Commitments
                and contingencies:Interest
                rate lock commitments - loan commitments
            
            
            4,843
            
            
            (7
            )
            
            (7
            )Interest
                rate lock commitments - mortgage loans held for sale
            
            
            54,571
            
            
            37
            
            
            37Forward
                loan sales contracts - mortgage loans held for sale
            
            
            531
            
            
            (11
            )
            
            (11
            )Forward
                loan sales contracts - loan commitments
            
            $
            4,843
            
            $
            1
            
            $
            1




23




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**


**December
                31, 2006****Notional**
              **Amount**
            
            **Carrying**
              **Amount**
            
            **Estimated**
              **Fair
                Value****Continuing
                Operations:**Investment
                securities available for sale
            
            $
            491,293
            
            $
            488,962
            
            $
            488,962Mortgage
                loans held in the securitization trusts
            
            
            584,358
            
            
            588,160
            
            
            582,504Commitments
                and contingencies:Interest
                rate swaps
            
            
            285,000
            
            
            621
            
            
            621Interest
                rate caps
            
            
            1,540,518
            
            
            2,011
            
            
            2,011**Discontinued
                Operation:**Mortgage
                loans held for sale
            
            
            110,804
            
            
            106,900
            
            
            107,810Commitments
                and contingencies:Interest
                rate lock commitments - loan commitments
            
            
            104,334
            
            
            (118
            )
            
            (118
            )Interest
                rate lock commitments - mortgage loans held for sale
            
            
            106,312
            
            
            (98
            )
            
            (98
            )Forward
                loan sales contracts
            
            $
            142,110
            
            $
            171
            
            $
            171





**16** . **Income
      Taxes**




All
      income tax benefits relate to NYMC and are included in the results of operations
      of the discontinued operations (see note 11). A reconciliation of the statutory
      income tax provision (benefit) to the effective income tax provision for the
      three months ended March 31, 2007 and March 31, 2006, is as follows (dollar
      amounts in thousands).




****
            
            **March
                31,**
              **2007**
            
            **March
                31,**
              **2006**Benefit
                at statutory rate (35%)
            
            $
            (1,659
            )
            $
            (1,649
            )Non-taxable
                REIT income (loss)
            
            
            15
            
            
            (668
            )Transfer
                pricing of loans sold to nontaxable parent
            
            
            —
            
            
            11State
                and local tax benefit
            
            
            (431
            )
            
            (608
            )Miscellaneous
            
            
            12
            
            
            (2
            )Total
                benefit
            
            $
            (2,063
            )
            $
            (2,916
            )




The
      income tax benefit for the three month period ended March 31, 2007 is comprised
      of the following components (dollar amounts in thousands):




****
            
            **Deferred**Federal
            
            $
            (1,632
            )State
            
            
            (431
            )Total
                tax benefit
            
            $
            (2,063
            )




The
      income tax benefit for the three month period ended March 31, 2006 is comprised
      of the following components (dollar amounts in thousands):




****
            
            **Deferred**Federal
            
            $
            (2,308
            )State
            
            
            (608
            )Total
                tax benefit
            
            $
            (2,916
            )




The
      deferred tax asset at March 31, 2007 includes a deferred tax asset of $18.4
      million (included in prepaid and other assets on our consolidated balance
      sheet) and a deferred tax liability of $0.1 million (included
      in accounts payable and accrued expenses on our consolidated balance
      sheet) which represents the tax effect of differences between tax basis and
      financial statement carrying amounts of assets and liabilities. The major
      sources of temporary differences and their deferred tax effect at March 31,
      2007
      are as follows (dollar amounts in thousands):




24




**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




Deferred
                tax assets:Net
                operating loss carryover
            
            $
            21,887Restricted
                stock, performance shares and stock option expense
            
            
            410Mark
                to market adjustment
            
            
            (16
            )Sec.
                267 disallowance
            
            
            268Charitable
                contribution carryforward
            
            
            34GAAP
                reserves
            
            
            1,611Rent
                expense
            
            
            452Loss
                on sublease
            
            
            103Gross
                deferred tax asset
            
            
            24,749Valuation
                allowance
            
            
            (6,332
            )Net
                deferred tax asset
            
            $
            18,417Deferred
                tax liabilities:Depreciation
            
            $
            65Total
                deferred tax liability
            
            $
            65




The
      deferred tax asset at December 31, 2006 includes a deferred tax asset of $18.4
      million and a deferred tax liability of $0.1 million which represents the tax
      effect of differences between tax basis and financial statement carrying amounts
      of assets and liabilities. The major sources of temporary differences and their
      deferred tax effect at December 31, 2006 are as follows (dollar amounts in
      thousands):




Deferred
                tax assets:Net
                operating loss carryover
            
            $
            19,949Restricted
                stock, performance shares and stock option expense
            
            
            410Mark
                to market adjustment
            
            
            2Sec.
                267 disallowance
            
            
            268Charitable
                contribution carryforward
            
            
            35GAAP
                reserves
            
            
            1,399Rent
                expense
            
            
            518Loss
                on sublease
            
            
            121Gross
                deferred tax asset
            
            
            22,702Valuation
                allowance
            
            
            (4,269
            )Net
                deferred tax asset
            
            $
            18,433Deferred
                tax liabilities:Management
                compensation
            
            $
            16Depreciation
            
            
            65Total
                deferred tax liability
            
            $
            81




The
      net
      deferred tax asset is included in prepaid and other assets on the accompanying
      consolidated balance sheet. Management has established a valuation allowance
      for
      the portion of the net deferred tax asset that it believes is more likely than
      not that, based upon the weight of available evidence, will not be
      realized.





Although
      realization is not assured, management believes it is more likely than not
      that
      the remaining deferred tax assets, for which valuation allowance has not been
      established, will be realized. The net operating loss carryforward expires
      at
      various intervals between 2012 and 2027. The charitable contribution
      carryforward will expire in 2011.


The
        Company has evaluated FIN 48, “Accounting for Uncertainty in Income Taxes-an
        interpretation o FASB Statement No. 109” (“FIN 48”), which clarifies the
        accounting for uncertainty in income taxes recognized in an enterprise’s
        financial statements. FIN 48 prescribes a recognition threshold and measurement
        attribute for the financial statement recognition and measurement of a tax
        position taken or expected to be taken in a tax return. FIN 48 also provides
        guidance on derecognition, classification, interest and penalties, accounting
        in
        interim periods, disclosure, and transition. Interest and penalties are accrued
        and reported as interest expenses and other expenses on the consolidated
        statement of income. In addition, the 2003-2006 tax years remain open to
        examination by the major taxing jurisdictions. As of March 31, 2007, the
        adoption of FIN 48 has had no material impact on the Company’s consolidated
        financial statements




**17.**  **Segment
      Reporting**




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




25


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




**18** . **Stock
      Incentive Plans**




***2004
      Stock Incentive Plan***




The
      Company adopted the 2004 Stock Incentive Plan (the “2004 Plan”), during 2004.
      The 2004 Plan provided for the issuance of options to purchase shares of common
      stock, stock awards, stock appreciation rights and other equity-based awards,
      including performance shares, and all employees and non-employee directors
      were
      eligible to receive these awards under the 2004 Plan. During 2004 and 2005,
      the
      Company granted stock options, restricted stock and performance shares to
      certain of its employees and non-employee directors under the 2004 Plan,
      including performance shares awarded to certain employees in connection with
      the
      Company’s November 2004 acquisition of Guaranty Residential Lending, Inc. The
      maximum number of options that could be issued under the 2004 Plan was 706,000
      shares and the maximum number of restricted stock awards that could be granted
      was 794,250.




***2005
      Stock Incentive Plan***




At
      the
      Annual Meeting of Stockholders held on May 31, 2005, the Company’s stockholders
      approved the adoption of the Company’s 2005 Stock Incentive Plan (the “2005
      Plan”). The 2005 Plan replaced the 2004 Plan, which was terminated on the same
      date. The 2005 Plan provides that up to 1,031,111 shares of the Company’s common
      stock may be issued thereunder. The 2005 Plan provides that the number of shares
      available for issuance under the 2005 Plan may be increased by the number of
      shares covered by 2004 Plan awards that were forfeited or terminated after
      March
      10, 2005. On October 12, 2006, the Company filed a registration statement on
      Form S-8 registering the issuance or resale of 1,031,111 shares under the 2005
      Plan. As of March 31, 2007, 171,718 shares awarded under the 2005 Plan had
      been forfeited or terminated.




***Options***




Each
      of
      the 2005 and 2004 Plans provide for the exercise price of options to be
      determined by the Compensation Committee of the Board of Directors
      (“Compensation Committee”) but the exercise price may not to be less than the
      fair market value on the date the option is granted. Options expire ten years
      after the grant date. As of March 31, 2007, 591,500 options have been granted
      pursuant to the Company’s stock incentive plans with a vesting period of two
      years.




The
      Company accounts for the fair value of its grants in accordance with SFAS No.
      123R. The compensation cost charged against income exclusive of option
      forfeitures during the three months ended March 31, 2007 and 2006 was
      approximately $0 and $4,000, respectively. As of March 31, 2007, there was
      no
      unrecognized compensation cost related to non-vested share-based compensation
      awards granted under the stock option plans. No cash was received for the
      exercise of stock options during the three month periods ended March 31, 2007
      and 2006.




A
      summary
      of the status of the Company’s options as of March 31, 2007 and changes during
      the three months then ended is presented below:




****
            
            **Number
                of**
              **Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Outstanding
                at beginning of year, January 1, 2007
            
            
            466,500
            
            $
            9.52Granted
            
            
            —
            
            
            —Canceled
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Outstanding
                at March 31, 2007
            
            
            466,500
            
            $
            9.52Options
                exercisable at March 31, 2007
            
            
            466,500
            
            $
            9.52




A
      summary
      of the status of the Company’s options as of December 31, 2006 and changes
      during the year then ended is presented below:




****
            
            **Number
                of**
              **Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Outstanding
                at beginning of year, January 1, 2006
            
            
            541,500
            
            $
            9.56Granted
            
            
            —Canceled
            
            
            75,000
            
            
            9.83Exercised
            
            
            —
            
            
            —Outstanding
                at end of year, December 31, 2006
            
            
            466,500
            
            $
            9.52Options
                exercisable at year-end
            
            
            466,500
            
            $
            9.52




26


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


**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**




The
      following table summarizes information about stock options at March 31,
      2007:




**Options**
              **Outstanding**
              **Weighted**
              **Average**
              **Remaining**
            
            
            
            **Options
                Exercisable**
            
            Fair
                Value**Range
                of Exercise Prices**
            
            ****Date
                of****
                **Grants**
            
            **Number**
                **Outstanding**
            
            **Contractual**
                      **Life
                        (Years)**
            
            **Exercise**
                **Price**
            
            ****Number****
                **Exercisable**
            
            ****Exercise****
                **Price**
            
            ****of
                Options****
                **Granted**$9.00
            
            
            6/24/04
            
            
            176,500
            
            
            7.5
            
            $
            9.00
            
            
            176,500
            
            $
            9.00
            
            $
            0.39$9.83
            
            
            12/2/04
            
            
            290,000
            
            
            7.9
            
            
            9.83
            
            
            290,000
            
            
            9.83
            
            
            0.29Total
            
            
            
            
            
            466,500
            
            
            7.8
            
            $
            9.52
            
            
            466,500
            
            $
            9.52
            
            $
            0.33




The
      following table summarizes information about stock options at December 31,
      2006:




**Options**
              **Outstanding**
              **Weighted**
              **Average**
              **Remaining**
            
            
            
            **Options
                Exercisable**
            
            Fair
                Value**Range
                of Exercise Prices**
            
            ****Date
                of****
                **Grants**
            
            **Number**
                  **Outstanding**
            
            **Contractual**
                **Life
                  (Years)**
            
            **Exercise**
                  **Price**
            
            ****Number****
                  **Exercisable**
            
            ****Exercise****
                  **Price**
            
            ****of
                  Options****
                  **Granted**$9.00
            
            
            6/24/04
            
            
            176,500
            
            
            7.5
            
            $
            9.00
            
            
            176,500
            
            $
            9.00
            
            $
            0.39$9.83
            
            
            12/2/04
            
            
            290,000
            
            
            7.9
            
            
            9.83
            
            
            290,000
            
            
            9.83
            
            
            0.29Total
            
            
            
            
            
            466,500
            
            
            7.8
            
            $
            9.52
            
            
            466,500
            
            $
            9.52
            
            $
            0.33




The
      fair
      value of each option grant is estimated on the date of grant using the Binomial
      option-pricing model with the following weighted-average
      assumptions:




Risk
                free interest rate
            
            
            4.5
            %Expected
                volatility
            
            
            10
            %Expected
                life
            
            
            10
                yearsExpected
                dividend yield
            
            
            10.48
            %




***Restricted
      Stock***




As
      of
      March 31, 2007, the Company has awarded 684,333 shares of restricted stock
      under
      the 2005 Plan, of which 466,939 shares have fully vested, 171,718 shares
      were forfeited and are available for reissuance, and 45,676 shares were issued
      and are not vested. As of March 31, 2007, the remaining shares of restricted
      stock awarded under the 2005 Plan are subject to vesting periods between 3
      and
      21 months. During the three months ended March 31, 2007, the Company recognized
      non-cash compensation expense of $0.3 million relating to the vested portion
      of
      restricted stock grants. Dividends are paid on all restricted stock issued,
      whether those shares are vested or not. In general, unvested restricted stock
      is
      forfeited upon the recipient’s termination of employment.




A
        summary
        of the status of the Company’s non-vested restricted stock as of March 31, 2007
        and changes during the three months then ended is presented below:
 **Number
                    of**
                  **Non-vested**
                  **Restricted**
                  **Shares**
                
                **Weighted**
                  **Average**
                  **Grant
                    Date**
                  **Fair
                    Value******
                
                ****Non-vested
                    shares at beginning of year, January 1, 2007
                
                
                213,507
                
                $
                6.36Granted
                
                
                —
                
                
                —Forfeited
                
                
                (145,178
                )
                
                5.54Vested
                
                
                (22,653
                )
                
                9.00Non-vested
                    shares as of March 31, 2007
                
                
                45,676
                
                $
                7.83Weighted-average
                    fair value of restricted stock granted during the period
                
                
                —
                
                $
                —


27


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(unaudited)**


A
      summary
      of the status of the Company’s non-vested restricted stock as of December 31,
      2006 and changes during the year then ended is presented below:


**Number
                  of**
                **Non-vested**
                **Restricted**
                **Shares**
              
              **Weighted**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value**Non-vested
                  shares at beginning of year, January 1, 2006
              
              
              221,058
              
              $
              8.85Granted
              
              
              129,155
              
              
              4.36Forfeited
              
              
              (21,705
              )
              
              9.20Vested
              
              
              (115,001
              )
              
              8.37Non-vested
                  shares as of December 31, 2006
              
              
              213,507
              
              $
              6.36Weighted-average
                  fair value of restricted stock granted during the period
              
              
              562,549
              
              $
              4.36




**19.
        Capital Stock and Earnings per Share**
  The
        Company had 400,000,000 shares of common stock, par value $0.01 per share,
        authorized with 18,162,749 shares issued and 18,100,531 outstanding as of
        March
        31, 2007. Of the common stock authorized, 1,031,111 shares (plus forfeited
        shares previously granted) were reserved for issuance as restricted stock
        awards
        to employees, officers and directors pursuant to the 2005 Stock Incentive
        Plan.
        As of March 31, 2007, 1,049,674 shares remain reserved for
        issuance.
  The
        Company calculates basic net income per share by dividing net income (loss)
        for
        the period by weighted-average shares of common stock outstanding for that
        period. Diluted net income (loss) per share takes into account the effect
        of
        dilutive instruments, such as stock options and unvested restricted or
        performance stock, but uses the average share price for the period in
        determining the number of incremental shares that are to be added to the
        weighted-average number of shares outstanding. Since the Company is in a
        loss
        position for the period ended March 31, 2007 and 2006, the calculation of
        basic
        and diluted earnings per share is the same since the effect of common stock
        equivalents would be anti-dilutive.
  The
        following table presents the computation of basic and diluted net earnings
        per
        share for the periods indicated (dollar amounts in thousands, except net
        earnings per share):
  **For
                  three months**
                **ended**
                **March
                  31,**
                **2007**
              
              **For
                  three months**
                **ended**
                **March
                  31,**
                **2006**Numerator:Net
                  loss
              
              $
              (4,741
              )
              $
              (1,796
              )Denominator:Weighted
                  average number of common shares outstanding — basic
              
              
              18,078
              
              
              17,967Net
                  effect of unvested restricted stock
              
              
              —
              
              
              —Performance
                  shares
              
              
              —
              
              
              —Net
                  effect of stock options
              
              
              —
              
              
              —Weighted
                  average number of common shares outstanding — dilutive
              
              $
              18,078
              
              
              17,967Net
                  loss per share — basic
              
              $
              (0.26
              )
              $
              (0.10
              )Net
                  loss per share — diluted
              
              $
              (0.26
              )
              $
              (0.10
              )


28




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




**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




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




·
            our
                business strategy;




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




·
            projected
                acquisitions or joint ventures; and




·
            projected
                capital expenditures.




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




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




·
            our
                proposed portfolio strategy may be changed or modified by our management
                without advance notice to stockholders, and that we may suffer losses
                as a
                result of such modifications or
                changes;





·
            our
                ability to successfully redeploy capital from the sales of our wholesale
                and retail mortgage lending platforms;·
            risks
              associated with the availability of
              liquidity;




·
            risks
                associated with the use of leverage;·
            risks
              associated with non-performing assets;




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




·
            changes
                in interest rates and mortgage prepayment
                rates;




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




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




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




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




·
            the
                other important factors identified, or incorporated by reference
                into this
                report, including, but not limited to those under the captions
                “Management’s Discussion and Analysis of Financial Condition and Results
                of Operations” and “Quantitative and Qualitative Disclosures about Market
                Risk”, and those described under the caption “Part I. Item 1A. Risk
                Factors” in our Annual Report on Form 10-K filed with the Securities and
                Exchange Commission on April 2,
                2007.




29




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




This
      Quarterly Report on Form 10-Q contains market data, industry statistics and
      other data that have been obtained from, or compiled from, information made
      available by third parties. We have not independently verified their
      data.




**General**





New
      York
      Mortgage Trust, Inc. (“NYMT,” the “Company,” “we,” “our” and “us”) is a
      self-advised real estate investment trust ("REIT") that invests in and manages
      a
      portfolio of mortgage loans and mortgage-backed securities. Until March 31,
      2007, the Company through its wholly-owned taxable REIT subsidiary (“TRS”), The
      New York Mortgage Company, LLC (“NYMC”), was also a residential mortgage lending
      company that originated a wide range of mortgage loans.




On
      March
      31, 2007, we completed the sale of substantially all of the operating assets
      related to NYMC’s retail mortgage lending platform, to IndyMac Bank, F.S.B.
      (“Indymac”), a wholly-owned subsidiary of Indymac Bancorp, Inc., for a purchase
      price of $13.5 million in cash and the assumption of certain of our
      liabilities by Indymac. Included in the transaction, among other things,
      was the assumption by Indymac of leases held by NYMC for approximately 20 full
      service and approximately 10 satellite retail mortgage lending offices
      (excluding the lease for the Company’s corporate headquarters, which is being
      assigned, as previously announced, under a separate agreement to Lehman Brothers
      Holding, Inc.), the tangible personal property located in those approximately
      30
      retail mortgage lending offices, NYMC’s pipeline of residential mortgage loan
      applications (the “Pipeline Loans”), escrowed deposits related to the Pipeline
      Loans, customer lists and intellectual property and information technology
      systems used by NYMC in the conduct of its retail mortgage lending platform.
      Indymac assumed the obligations of NYMC under the Pipeline Loans and
      substantially all of NYMC’s liabilities under the purchased contracts and
      purchased assets arising after the closing date. Indymac has also agreed to
      pay
      (i) the first $500,000 in severance expenses with respect to “transferred
      employees” (as defined in the asset purchase agreement filed as Exhibit 10.62 to
      our Annual Report on Form 10-K) and (ii) severance expenses in excess of $1.1
      million arising after the closing with respect to transferred employees. As
      part
      of the Indymac transaction, the Company has agreed, for a period of 18 months,
      not to compete with Indymac other than in the purchase, sale, or retention
      of
      mortgage loans. Indymac has hired substantially all of our branch employees
      and
      loan officers and a majority of NYMC employees based out of our corporate
      headquarters.




On
      February 22, 2007, we sold substantially all of the assets of our wholesale
      mortgage lending platform to Tribeca Lending Corp., a subsidiary of Franklin
      Credit Management Corporation (“Tribeca Lending”), for a purchase price of $0.5
      million. Together, the sale of our retail mortgage lending platform to Indymac
      and the sale of our wholesale mortgage lending platform to Tribeca Lending
      has
      resulted in gross proceeds to NYMT of approximately $14.0 million before fees
      and expenses, and before deduction of approximately $2.3 million, which will
      be
      held in escrow to support warranties and indemnifications provided to Indymac
      by
      NYMC as well as other purchase price adjustments. NYMC recorded a one time
      gain
      on the sale of these assets of $5.2 million.




While
        the
        Company sold substantially all of the assets of its wholesale and retail
        mortgage lending platforms and exited the mortgage lending business as of
        March
        31, 2007, it retains certain liabilities associated with that former line
        of
        business. Among these liabilities are the cost associated with the disposal
        of
        the mortgage loans held for sale, potential repurchase and indemnification
        obligations (including early payment defaults) on previously sold mortgage
        loans
        and remaining lease payment obligations on real and personal property.
 
 The
        Company has reserves of $1.2 million to cover the disposition of the mortgage
        loans held for sale. In addition, the Company has $2.1 million of reserves
        to
        cover known repurchase requests as well as indemnification obligations (where
        the Company agrees to pay for a third party’s losses incurred in holding or
        disposing of a loan that the Company would otherwise have been required to
        repurchase). Until the Company disposes of all the mortgage loans held for
        sale
        and the repurchase periods set forth in the loan sale agreements expire,
        the
        Company may continue to incur losses on these loans.




We
      expect
      to redeploy the net proceeds from the sale of our retail mortgage lending
      platform in high quality mortgage loan securities. We will liquidate the
      remaining inventory of mortgage loans held for sale in the ordinary course
      of
      business. Our Board of Directors, together with our management, will continue
      to
      consider strategic options for NYMT, including a possible sale or merger or
      raising capital under a passive REIT business model.




We
      believe that the disposition of our mortgage lending business will allow us
      to
      meet the following business objectives:




·
            reduce,
                and ultimately eliminate, our taxable REIT subsidiary’s operating
                loses;




·
            enable
                NYMC to retain the economic value of its accumulated net operating
                losses
                for income tax purposes;




·
            increase
                NYMT’s investable capital and financial
                flexibility;




·
            lower
                NYMT’s executive management compensation
                expenses;




·
            significantly
                reduce our potential severance
                obligations;




30




·
            enable
                our management to focus on our mortgage portfolio management operations,
                which consisted of a $1.0 billion investment portfolio as of March
                31, 2007; and




·
            enable
                us to continue to acquire loans for
                securitization.




**Presentation
        Format**
  The
      Management Discussion and Analysis section of this Quarterly Report on Form
      10-Q
      has been separated, wherever possible, into two parts: (1) discussion of the
      ongoing mortgage REIT business that invests in and manages a portfolio of
      mortgage loans and mortgage-backed securities and (2) discussion of the
      discontinued business  (including a discussion of the assets and
      liabilities that are pending disposition or that remain with the Company after
      the sale of the wholesale and retail mortgage lending platforms).




In
      connection with the sale of our wholesale mortgage lending platform assets
      on
      February 22, 2007 and the sale of our retail mortgage lending platform assets
      to
      Indymac on March 31, 2007, we classified certain assets and liabilities related
      to our mortgage lending segment as a discontinued operation in accordance with
      the provisions of Statement of Financial Accounting Standards No. 144. As a
      result, we have reported revenues and expenses related to the segment as a
      discontinued operation and the related assets and liabilities as assets and
      liabilities related to a discontinued operation for all periods presented in
      the
      accompanying consolidated financial statements. Certain assets, such as the
      deferred tax asset, and certain liabilities, such as subordinated debt and
      liabilities related to leased facilities not assigned to Indymac will become
      part of the ongoing operations of NYMT and accordingly, we have not classified
      as a discontinued operation in accordance with the provisions of Statement
      of
      Financial Accounting Standards No. 144. See note 11 in the notes to our
      consolidated financial statements.




**Strategic
      Overview —
      Continuing Operations**




We
        earn
        net interest income from purchased residential mortgage-backed securities,
        adjustable-rate mortgage loans and securitized loans. We have acquired and
        increasingly seek to acquire additional assets that will produce competitive
        returns, taking into consideration the amount and nature of the anticipated
        returns from the investment, our ability to pledge the investment for secured,
        collateralized borrowings and the costs associated with originating, financing,
        managing, securitizing and reserving for these investments.


Our
      Investment portfolio is comprised largely of prime adjustable-rate mortgage
      loans that we either originated or acquired from third parties. We
      aggregate high credit quality, adjustable-rate mortgage loans until we have
      a
      pool of loans of sufficient size to securitize. Historically, we obtained the
      loans we securitize from either our TRS or from third parties. Our first
      securitization occurred on February 25, 2005 and we completed our second and
      third loan securitizations on July 28, 2005 and December 20, 2005, respectively.
      These securitization transactions, through which we financed the adjustable-rate
      and hybrid mortgage loans that we retained, were structured as financings for
      both tax and financial accounting purposes. Therefore, we do not expect to
      generate a gain or loss on sales from these activities, and, following the
      securitizations, the loans are classified on our consolidated balance sheet
      as
      loans held in securitization trusts. From each of our securitizations, we issued
      investment grade securities to third parties and recorded the securitization
      debt as a liability. On March 30, 2006 we completed our fourth securitization,
      New York Mortgage Trust 2006-1. This securitization was structured as a sale
      for
      accounting purposes. The Company holds certain AAA tranches as well as all
      the
      subordinate interests in this transaction.




*Funding
      Diversification* .
      We
      strive to maintain and achieve a balanced and diverse funding mix to finance
      our
      investment portfolio and assets. We rely primarily on repurchase agreements
      and
      collateralized debt obligations (“CDOs”) in order to finance our investment
      portfolio of residential loans and mortgage-backed securities. As of March
      31,
      2007, we have $4.6 billion of commitments to provide repurchase agreement
      financing through 22 different counterparties with approximately $0.4 billion
      outstanding as of March 31, 2007. As of March 31, 2007, we have $0.5 billion
      of
      CDOs. During the three months ended March 31, 2007, we sold approximately $312.9
      million of previously retained securitizations resulting in the permanent
      financing of these securitized loans.  The CDO issuance replaced short-term
      repurchase agreements freeing up approximately $15.6 million in capital needed
      for repurchase agreement margin.




During
      2005, we further diversified our sources of financing with the issuance of
      $45
      million of trust preferred securities classified as subordinated
      debentures.




*Risk
      Management* .
      As a
      manager of mortgage loan investments, we must mitigate key risks inherent in
      these businesses, predominantly credit risk and interest rate risk.




*Investment
      Portfolio Credit Quality* .
      We
      retain in our portfolio only high-credit quality loans that we originated or
      acquired from third parties. High credit quality creates improved portfolio
      liquidity and provides for financing opportunities that are available on
      generally favorable terms. Since we began our portfolio investment operations,
      we have experienced approximately $57,000 to date of credit losses in our
      portfolio.




31




*Interest
      Rate Risk Management* .
      Another
      primary risk to our investment portfolio of mortgage loans and mortgage-backed
      securities is interest rate risk. We use hedging instruments to reduce our
      risk associated with changes in interest rates that could affect our investment
      portfolio of mortgage loans and securities. We hedge our financing costs in
      an
      attempt to maintain a net duration gap of less than one year; as of March 31,
      2007, our net duration gap was approximately 5 months.




As
      we
      acquire mortgage-backed securities or loans, we seek to hedge interest rate
      risk
      in order to stabilize net asset values and earnings during periods of rising
      interest rates. To do so, we use hedging instruments in conjunction with our
      borrowings to approximate the repricing characteristics of such assets. The
      Company utilizes a model based risk analysis system to assist in projecting
      portfolio performances over a scenario of different interest rates and market
      stresses. The model incorporates shifts in interest rates, changes in
      prepayments and other factors impacting the valuations of our financial
      securities, including mortgage-backed securities, repurchase agreements,
      interest rate swaps and interest rate caps. However, given the prepayment
      uncertainties on our mortgage assets, it is not possible to definitively lock-in
      a spread between the earnings yield on our investment portfolio and the related
      cost of borrowings. Nonetheless, through active management and the use of
      evaluative stress scenarios of the portfolio, we believe that we can mitigate
      a
      significant amount of both value and earnings volatility. See further discussion
      of interest rate risk at the “Quantitative And Qualitative Disclosures About
      Market Risk - Interest Rate Risk” section of this document.




*Other
      Risk Considerations* .
      Our
      business is affected by a variety of economic and industry factors. Management
      periodically reviews and assesses these factors and their potential impact
      on
      our business. The most significant risk factors management considers while
      managing the business and which could have a material adverse effect on our
      financial condition and results of operations are:




·
            a
                decline in the market value of our assets due to rising interest
                rates;




·
            increasing
                or decreasing levels of prepayments on the mortgages underlying our
                mortgage-backed securities;




·
            our
                ability to obtain financing to hold mortgage loans prior to their
                sale or
                securitization;


·
              our
                    ability to dispose of the remaining mortgage loans held for sale
                    in a
                    timely and efficient manner;
 ·
                A
                      significant increase in loan losses related to early payment
                      defaults;


·
            the
                overall leverage of our portfolio and the ability to obtain financing
                to
                leverage our equity;




·
            the
                potential for increased borrowing costs and its impact on net
                income;




·
            the
                concentration of our mortgage loans in specific geographic
                regions;




·
            our
                ability to use hedging instruments to mitigate our interest rate
                and
                prepayment risks;




·
            a
                prolonged economic slow down, a lengthy or severe recession or declining
                real estate values could harm our
                operations;




·
            if
                our assets are insufficient to meet the collateral requirements of
                our
                lenders, we might be compelled to liquidate particular assets at
                inopportune times and at disadvantageous
                prices;




·
            if
                we are disqualified as a REIT, we will be subject to tax as a regular
                corporation and face substantial tax liability;
                and




·
            compliance
                with REIT requirements might cause us to forgo otherwise attractive
                opportunities.


**Strategic
          Overview — Discontinued Operations**
 
 As
          part
          of the review of strategic alternatives announced in October of 2006, the
          Company sold substantially all of the assets of its retail and wholesale
          mortgage lending platforms in the first quarter of 2007, and exited the
          mortgage
          lending business. Until March 31, 2007, when we exited the mortgage lending
          business, we relied primarily on secured warehouse facilities for funding
          our
          mortgage loans held for sale. Subsequent to March 31, 2007, the Company
          will
          utilize the CSFB warehouse facility until we dispose of all mortgage loans
          held
          for sale, which is expected to occur in the second quarter of 2007.


**Financial
      Overview —
      Continuing Operations**




*Revenues* .
      Our
      primary sources of income are net interest income on our loans and residential
      investment securities. Net interest income is the difference between interest
      income, which is the income that we earn on our loans and residential investment
      securities and interest expense, which is the interest we pay on borrowings
      and
      subordinated debt.




32




*Expenses* .
      Non-interest expenses we incur in operating our business consist primarily
      of
      salary and employee benefits, and other general and administrative expenses.
      All
      compensation paid to employees of the continuing operations are salary-based
      as
      opposed to commission-based. Accordingly, very few of our expenses are variable
      in nature.




Salary
      and employee benefits consist primarily of the salaries and wages paid to our
      employees, payroll taxes and expenses for health insurance, retirement plans
      and
      other employee benefits.




Other
      general and administrative expenses include expenses for professional fees,
      office supplies, postage and shipping, telephone, insurance, and other
      miscellaneous operating expenses.




**Financial
        Overview —
        Discontinued Operations**
  **Revenues:**
  *Net
        interest Income* .
        We earn
        net interest income on banked loans for the period of time from the closing
        date
        of the loan to the date of sale to a third party.
  *Gain
        on sale of mortage loans*. Income from the gain on sale of mortgage loans to
        third parties is the difference between the sales price and the adjusted
        cost
        basis of originated loans when title transfers. The adjusted cost basis of
        the
        loans includes the original principal amount adjusted for deferrals of
        origination and commitment fees received, net of direct loan origination
        costs
        (including commissions and salaries for employees directly responsible for
        such
        originations) paid.
  *Loan
        Loses* .
        Loan
        losses include reserves for, or actual costs incurred with respect to the
        disposition of non-performing or early payment default loans and performing
        loans sold at distressed prices due to market conditions.
  *Brokered
        loan fees.*Brokered loan fees are fees collected by the Company for loans
        brokered to third parties rather than banked.
  *Gain
        on sale of retail lending segment*. Gain on
        sale of retail lending segment includes a $5.2 million gain from
        the sale of retail mortgage lending platform.
 
 ***Expenses:***
  *Salaries,
        commissions and benefits.* Salary and employee benefits consist primarily of
        the salaries and wages paid to our employees (exclusive of salaries and wages
        allocated to net gain on sale of mortgage loans), payroll taxes and expenses
        for
        health insurance, retirement plans and other employee benefits.
  *Brokered
        loan expenses.* Brokered loan expenses are primarily direct commissions and
        other costs associated with brokered loans when such loans are closed with
        the
        borrower. Costs associated with brokered loans are expensed when incurred.
  *Occupancy
        and equipment expenses.* Occupancy and equipment expenses, which are the
        fixed and variable costs of buildings and equipment, consist of building
        lease
        expenses, furniture and equipment expenses, maintenance, real estate taxes
        and
        other associated costs of occupancy.
  *General
        and administrative*. General and administrative expenses include expenses
        for professional fees, office supplies, postage and shipping, telephone,
        travel
        and entertainment and other miscellaneous operating expenses.
  Many
        of
        our expenses of the discontinued operation were variable in nature and were
        relative to our loan origination production volumes. Variable expenses include
        commissions on loan originations, brokered loan costs and, to a lesser degree,
        office supplies, marketing and promotion and other miscellaneous expenses.
        Fixed
        expenses are primarily occupancy and equipment lease expenses and data
        processing and communications expenses.
  *Loss
        from discontinued operation* .
        Loss
        from discontinued operation on our Consolidated Statements of Operations
        includes all revenues and expenses related to the discontinued mortgage lending
        segment excluding certain costs that will be retained by the Company. Primarily,
        these expenses related to rent expense for locations not being purchased
        and certain allocated payroll expenses for employees remaining with the Company.


**Description
      of Business —
      Continuing Operations**




Prior
      to
      the completion of our IPO on June 29, 2004, our operations were limited to
      the
      mortgage operations described in the preceding section. Beginning in July 2004,
      we began to implement our business plan of investing in high-quality, adjustable
      rate mortgage related securities and residential loans. Our mortgage portfolio,
      consisting primarily of residential mortgage-backed securities and mortgage
      loans held for investment, generates a substantial portion of our earnings.
      In
      managing our investment in a mortgage portfolio, we:




33




·
            invest
                in mortgage-backed securities including ARM securities and collateralized
                mortgage obligation floaters (“CMO
                Floaters”);




·
            generally
                operate as a long-term portfolio
                investor;




·
            finance
                our portfolio by entering into repurchase agreements, warehouse facilities
                for loan aggregation or issue collateral debt obligations relating
                to our
                securitizations; and




·
            generate
                earnings from the return on our mortgage securities and spread income
                from
                our mortgage loan portfolio.




A
      significant risk to our operations, relating to our portfolio management, is
      the
      risk that interest rates on our assets will not adjust at the same times or
      amounts that rates on our liabilities adjust. Even though we retain and invest
      in ARMs, many of the hybrid ARM loans in our portfolio have fixed rates of
      interest for a period of time ranging from two to seven years. Our funding
      costs
      are variable and the maturities are short term in nature. As a result, we use
      derivative instruments (interest rate swaps and interest rate caps) to mitigate,
      but not eliminate, the risk of our cost of funding increasing or decreasing
      at a
      faster rate than the interest on our investment assets.




As
      of
      March 31, 2007, our mortgage securities portfolio consisted of 98% AAA- rated
      or
      Fannie Mae, Freddie Mac or Ginnie Mae-guaranteed (“FNMA/FHLMC/GNMA”) mortgage
      securities as compared to financing rates or lower rated securities.




Such
      assets are evaluated for impairment on a quarterly basis or, if events or
      changes in circumstances indicate that these assets or the underlying collateral
      may be impaired, on a more frequent basis. We evaluate whether these assets
      are
      considered impaired, whether the impairment is other-than-temporary and, if
      the
      impairment is other-than-temporary, recognize an impairment loss equal to the
      difference between the asset’s amortized cost basis and its fair value. We
      recorded an impairment loss of $7.4 million in the fourth quarter of 2005
      because we concluded that we no longer had the intent to hold certain
      lower-yielding mortgage-backed securities until their values recovered. This
      impairment was not due to any underlying credit issues but was related to our
      intent to no longer hold identified lower-yield securities and to re-position
      our portfolio by selling such securities and replacing them with higher yield
      securities with similar credit characteristics in order to earn higher net
      interest spread in the future. The securities were disposed of during the first
      quarter of 2006 resulting in an additional loss of $1.0 million.


The
          loans held in securitization trusts and mortgage
          loans held for investment consisted of high-credit quality prime adjustable
          rate
          mortgages with initial reset periods of no greater than five years or less.
          Our
          portfolio strategy for ARM loan originations is to acquire high-credit
          quality
          ARM loans for our securitization process thereby limiting future potential
          losses.
  **Description
          of Business —
          Discontinued Operation**
 In
        connection with the sale of our wholesale mortgage origination platform assets
        on February 22, 2007 and the sale of our retail mortgage lending platform
        on
        March 31, 2007, we classified our mortgage lending segment as a discontinued
        operation.
  Until
        March 31, 2007, our retail mortgage lending operation contributed to our
        financial results as it either produced some of the loans that ultimately
        collateralized the mortgage securities that we hold in our portfolio or it
        provided us the flexibility to sell the loans for gain on sale revenue. We
        primarily originated prime, first-lien, residential mortgage loans and, to
        a
        lesser extent, second lien mortgage loans, home equity lines of credit, subprime
        loans, and bridge loans. We originated a wide range of mortgage loan products
        including adjustable-rate mortgage (“ARM”) loans which may have an initial fixed
        rate period, and fixed-rate mortgages. Historically, we sold or retained
        and
        aggregated our self-originated, high-quality, shorter-term ARM loans in order
        to
        pool them into mortgage securities. Due to market conditions, starting in
        March,
        2006, NYMC began to sell all loans originated by it to third parties for
        gain on
        sale revenue rather than aggregating for securitization. For the three months
        ended March 31, 2007 and 2006, we originated $435.7 million and $613.8 million
        in mortgage loans for sale to third parties, respectively. We recognized
        gains
        on sales of mortgage loans totaling $2.3 million and $4.1 million for the
        three
        months ended March 31, 2007 and 2006, respectively. This decrease in gains
        is
        attributable to our reduced volume of loans originated and thus sold, and
        increased scrutiny of loans by investors that resulted from the industry
        wide
        increase in early payment default loans (“EPDs”). EPDs, or loans wherein
        borrowers missed one of their first three required mortgage payments, resulted
        in investors either not purchasing loans or purchasing them at a reduced
        negotiated price. On March 31, 2007, we sold substantially all of
        the operating assets of the retail mortgage lending platform to
        Indymac and exited the mortgage lending business.
  Until
        February 22, 2007, our wholesale mortgage lending strategy had been a small
        component of our loan origination operations. We had a network of non-affiliated
        wholesale loan brokers and mortgage lenders who submited loans to us. We
        maintained relationships with these wholesale brokers and, as with retail
        loan
        originations, underwrote, processed, and funded wholesale loans through our
        centralized facilities and processing systems. We also sold broker loans
        to
        third party mortgage lenders for which we received a broker fee. For the
        three
        months ended March 31, 2007 and 2006, we originated $134.8 million and $183.4
        million in brokered loans, respectively. We recognized net brokering income
        totaling $0.4 million and $0.6 million during the three months ended March
        31,
        2007 and 2006, respectively. On February 22, 2007, we sold substantially
        all of
        the assets of our wholesale mortgage lending platform to Tribeca
        Lending.
 **Known
            Material Trends and Commentary — Continuing Operations**
 *Results
          of Operations* .
          We
          expect that our revenues will derive primarily from the difference between
          the
          interest income we earn on our mortgage assets and the costs of our borrowings
          (net of hedging expenses). We expect that our operating expenses will decrease
          going forward due to the elimination of compensation expense attributable
          to
          employees related to our mortgage origination platform. The sale of each
          of our
          retail and wholesale mortgage lending platforms, has resulted in gross
          proceeds
          to NYMT of approximately $14.0 million before fees and expenses, and before
          deduction of approximately $2.3 million which will be held in escrow to
          support
          warranties and indemnifications provided to Indymac by NYMC as well as
          other
          purchase price adjustments. NYMC expects to record a one time taxable gain
          on
          the sale of its assets to Indymac of $5.2 million.
  *Liquidity* .
            We
            depend on the capital markets to finance our investments in mortgage-backed
            securities. As it relates to our investment portfolio, we have either
            issued
            collateralized debt to permanently finance our loan securitizations,
            or entered
            into repurchase agreements for short term financing. Commercial and investment
            banks have provided significant liquidity to finance our operations,
            and while
            management cannot predict the future liquidity environment, we are currently
            unaware of any material reason to prevent continued liquidity support
            in the
            capital markets for our business. See “Liquidity and Capital Resources” below
            for further discussion of liquidity risks and resources available to
            us.
  34


**Known
      Material Trends and Commentary — Discontinued Operations**




*Origination
      Volume*. For the three months ended March 31, 2007 and March 31, 2006,
      NYMC’s total loan originations were to $435.7 million and $613.8 million,
      respectively. This compares to total originations for the industry as a whole
      of
      $653 billion for the three months ended March 31, 2007 versus $626 billion
      for
      the same period in 2006, an increase of 4.3%, as reported by the MBA’s Mortgage
      Finance Forecast dated April 23, 2007. The reason for our decrease in mortgage
      originations while the industry experienced a period over period increase is
      primarily due to the Company’s sale of its wholesale mortgage lending platform
      on February 22, 2007 and, to a lesser degree, the then-pending sale of the
      retail mortgage lending platform to Indymac on March 31, 2007.




*EPDs
      and Loan Sale Environment* .
      Current
      market conditions related to early payment defaults (“EPD”), mortgage loans that
      have missed one of their first three payments due, is an important trend facing
      our industry. As the incidence of EPDs has recently increased dramatically,
      the
      frequency of loans we are requested to repurchase has increased. EPDs pertain
      only to loans originated in our discontinued mortgage lending operation. These
      repurchases are predominately made with cash and are held on the balance sheet
      until they are re-sold. EPD loans are typically re-sold at a loss
      and resulting in a reduction of our working capital.




The
      majority of our EPDs are associated with borrowers whose loans were
      underwritten to loan programs where the borrower was not required to provide
      full income and or asset verification in order to qualify for the loan. These
      alternative documentation programs, also known as “Alternative-A” or “Alt-A”
programs, offered by many investors for whom we originated loans, combined
      with
      reduced amounts of required down payments made it easier for many borrowers
      to
      obtain mortgage financing.





The
      increased incidence of EPDs has made many loan buyers and investors cautious
      when it comes to the due diligence of loans they are purchasing. We have noticed
      a much more cautious approach to loan review across the board by established
      investors with whom we have had long term relationships. The increased number
      of
      EPDs also caused these investors to change their underwriting guidelines during
      the first quarter of this year resulting in further difficulty in selling the
      loans underwritten to the prior guidelines.




For
      the
      three months ended March 31, 2007, we repurchased a total of $5.5 million of
      mortgage loans that were originated in either 2005 or 2006, the majority of
      which were due to EPDs. Of the repurchased loans originated in 2006, all were
      Alt-A. As of March 31, 2007 we had approximately $14 million of additional
      repurchase requests pending, against which the Company has taken a reserve
      of
      $1.7 million included in accounts payable and accrued expenses.




**Significance
      of Estimates and Critical Accounting Policies —
      General**




We
      prepare our consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America, or GAAP, many
      of
      which require the use of estimates, judgments and assumptions that affect
      reported amounts. These estimates are based, in part, on our judgment and
      assumptions regarding various economic conditions that we believe are reasonable
      based on facts and circumstances existing at the time of reporting. The results
      of these estimates affect reported amounts of assets, liabilities and
      accumulated other comprehensive income at the date of the consolidated financial
      statements and the reported amounts of income, expenses and other comprehensive
      income during the periods presented.




Changes
      in the estimates and assumptions could have a material effect on these financial
      statements. Accounting policies and estimates related to specific components
      of
      our consolidated financial statements are disclosed in the notes to our
      consolidated financial statements. In accordance with SEC guidance, those
      material accounting policies and estimates that we believe are most critical
      to
      an investor’s understanding of our financial results and condition and which
      require complex management judgment are discussed below.


**Significance
        of Estimates and Critical Accounting Policies — Continuing
        Operations**




*Revenue
      Recognition* .
      Interest income on our residential mortgage loans and mortgage-backed securities
      is a combination of the interest earned based on the outstanding principal
      balance of the underlying loan/security, the contractual terms of the assets
      and
      the amortization of yield adjustments, principally premiums and discounts,
      using
      generally accepted interest methods. The net GAAP cost over the par balance
      of
      self-originated loans held for investment and premium and discount associated
      with the purchase of mortgage-backed securities and loans are amortized into
      interest income over the lives of the underlying assets using the effective
      yield method as adjusted for the effects of estimated prepayments. Estimating
      prepayments and the remaining term of our interest yield investments require
      management judgment, which involves, among other things, consideration of
      possible future interest rate environments and an estimate of how borrowers
      will
      react to those environments, historical trends and performance. The actual
      prepayment speed and actual lives could be more or less than the amount
      estimated by management at the time of origination or purchase of the assets
      or
      at each financial reporting period.




*Fair
      Value* .
      Generally, the financial instruments we utilize are widely traded and there
      is a
      ready and liquid market in which these financial instruments are traded. The
      fair values for such financial instruments are generally based on market prices
      provided by five to seven dealers who make markets in these financial
      instruments. If the fair value of a financial instrument is not reasonably
      available from a dealer, management estimates the fair value based on
      characteristics of the security that the Company receives from the issuer and
      on
      available market information.


*Impairment
        of and Basis Adjustments on Securitized Financial Assets* .
        As
        previously described herein, we regularly securitize our mortgage loans and
        retain the beneficial interests created. Such assets are evaluated for
        impairment on a quarterly basis or, if events or changes in circumstances
        indicate that these assets or the underlying collateral may be impaired,
        on a
        more frequent basis. We evaluate whether these assets are considered impaired,
        whether the impairment is other-than-temporary and, if the impairment is
        other-than-temporary, recognize an impairment loss equal to the difference
        between the asset’s amortized cost basis and its fair value. These evaluations
        require management to make estimates and judgments based on changes in market
        interest rates, credit ratings, credit and delinquency data and other
        information to determine whether unrealized losses are reflective of credit
        deterioration and our ability and intent to hold the investment to maturity
        or
        recovery. This other-than-temporary impairment analysis requires significant
        management judgment and we deem this to be a critical accounting estimate.
        We
        recorded an impairment loss of $7.4 million during 2005, because we concluded
        that we no longer had the intent to hold certain lower-yielding mortgage-backed
        securities until their values recovered. At March 31, 2007, we have a net
        unrealized loss of $3.6 million on the remaining securities in our portfolio,
        which we do not consider to represent an other than temporary
        impairment.
 35
 *Securitizations* .
          We
          create securitization entities as a means of either:
  ·
                creating
                    securities backed by mortgage loans which we will continue to
                    hold and
                    finance that will be more liquid than holding whole loan assets;
                    or
  ·
                securing
                    long-term collateralized financing for our residential mortgage
                    loan
                    portfolio and matching the income earned on residential mortgage
                    loans
                    with the cost of related liabilities, otherwise referred to a
                    match
                    funding our balance sheet.
  Residential
          mortgage loans are transferred to a separate bankruptcy-remote legal entity
          from
          which private-label multi-class mortgage-backed notes are issued. On a
          consolidated basis, securitizations are accounted for as secured financings
          as
          defined by SFAS No. 140, “Accounting for Transfers and Servicing of Financial
          Assets and Extinguishments of Liabilities” (“SFAS No. 140”), and, therefore, no
          gain or loss is recorded in connection with the securitizations. Each
          securitization entity is evaluated in accordance with Financial Accounting
          Standards Board Interpretation (“FIN”) 46(R), “Consolidation of Variable
          Interest Entities”, and we have determined that we are the primary beneficiary
          of the securitization entities. As such, the securitization entities are
          consolidated into our consolidated balance sheet subsequent to securitization.
          Residential mortgage loans transferred to securitization entities collateralize
          the mortgage-backed notes issued, and, as a result, those investments are
          not
          available to us, our creditors or stockholders. All discussions relating
          to
          securitizations are on a consolidated basis and do not necessarily reflect
          the
          separate legal ownership of the loans by the related bankruptcy-remote
          legal
          entity.
 *Derivative
          Financial Instruments* - The
          Company has developed risk management programs and processes, which include
          investments in derivative financial instruments designed to manage market
          risk
          associated with its mortgage-backed securities investment
          activities.
  All
          derivative financial instruments are reported as either assets or liabilities
          in
          the consolidated balance sheet at fair value. The gains and losses associated
          with changes in the fair value of derivatives not designated as hedges
          are
          reported in current earnings. If the derivative is designated as a fair
          value
          hedge and is highly effective in achieving offsetting changes in the fair
          value
          of the asset or liability hedged, the recorded value of the hedged item
          is
          adjusted by its change in fair value attributable to the hedged risk. If
          the
          derivative is designated as a cash flow hedge, the effective portion of
          change
          in the fair value of the derivative is recorded in OCI and is recognized
          in the
          income statement when the hedged item affects earnings. The Company calculates
          the effectiveness of these hedges on an ongoing basis, and, to date, has
          calculated effectiveness of approximately 100%. Ineffective portions, if
          any, of
          changes in the fair value or cash flow hedges are recognized in
          earnings.
  In
          September 2006, the FASB issued SFAS No. 157, “Fair
          Value Measurements” (“SFAS No.157”). SFAS No.157 defines fair value, establishes
          a framework for measuring fair value in generally accepted accounting principles
          and expands disclosures about fair value measurements. SFAS No.157 will
          be
          applied under other accounting principles that require or permit fair value
          measurements, as this is a relevant measurement attribute. This statement
          does
          not require any new fair value measurements. We will adopt the provisions
          of
          SFAS No.157 beginning January 1, 2008. We are currently evaluating the
          impact of
          this statement on our consolidated financial statements.
  *New
          Accounting Pronouncements* - In
          February 2007, the FASB issued SFAS No. 159, “ The
          Fair
          Value Option for Financial Assets and Financial Liabilities ”
(“SFAS
          No. 159”), which provides companies with an option to report selected financial
          assets and liabilities at fair value. The objective of SFAS No. 159 is
          to reduce
          both complexity in accounting for financial instruments and the volatility
          in
          earnings caused by measuring related assets and liabilities differently.
          SFAS
          No. 159 establishes presentation and disclosure requirements and requires
          companies to provide additional information that will help investors and
          other
          users of financial statements to more easily understand the effect of the
          company’s choice to use fair value on its earnings. SFAS No. 159 also requires
          entities to display the fair value of those assets and liabilities for
          which the
          company has chosen to use fair value on the face of the balance sheet.
          SFAS No.
          159 is effective for financial statements issued for fiscal years beginning
          after November 15, 2007. The Company is in the process of analyzing the
          impact
          of SFAS No. 159 on its consolidated financial statements.
  36


**Significance
          of Estimates and Critical Accounting Policies — Discontinued
          Operations**


In
      the
      normal course of our discontinued mortgage lending business, we entered into
      contractual interest rate lock commitments (“IRLCs”) to extend credit to finance
      residential mortgages. Mark-to-market adjustments on IRLCs were recorded from
      the inception of the interest rate lock through the date the underlying loan
      is
      funded. The fair value of the IRLCs was determined by an estimate of the
      ultimate gain on sale of the loans net of estimated net costs to originate
      the
      loan. To mitigate the effect of the interest rate risk inherent in issuing
      an
      IRLC from the lock-in date to the funding date of a loan, we generally entered
      into forward sale loan contracts (“FSLCs”). Since the FSLCs were committed prior
      to mortgage loan funding and thus there is no owned asset to hedge, the FSLCs
      in
      place prior to the funding of a loan were undesignated derivatives under SFAS
      No. 133 and are marked to market with changes in fair value recorded to current
      earnings.




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




Estimation
      involves the consideration of various credit-related factors including but
      not
      limited to, the current housing market conditions, loan-to-value ratios,
      delinquency status, historical credit loss severity rates, purchased mortgage
      insurance, the borrower’s credit and other factors deemed to warrant
      consideration. Additionally, we look at the balance of any delinquent loan
      and
      compare that to the value of the property. As many of the loans involved in
      current reserve process were funded in the past six to twelve months, we
      typically rely on the original appraised value of the property, unless there
      is
      evidence that the original appraisal should not be relied upon. If there is
      a
      doubt to the objectivity of the original property value assessment, we either
      utilize various internet based property data services to look at comparable
      properties in the same area, or consult with a realtor in the property’s
      area.




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




Reserves
      for second liens are larger than that for first liens as second liens are in
      a
      junior position and only receive proceeds after the claims of the first lien
      holder are satisfied. As with first liens, we may occasionally alter the base
      reserve calculation but that is in a minority of the cases and only if we are
      aware of specific circumstances that pertain to that specific loan.




At
      March
      31, 2007, we had a loan loss reserve of $1.2 million on mortgage loans held
      for
      sale, $2.1 million in reserves for indemnifications and repurchase
      requests and had incurred $3.2 million of loan losses during the three
      months ended March 31, 2007.




37




**Overview
      of Performance**




For
      the
      three months ended March 31, 2007, we reported a net loss of $4.7 million,
      as
      compared to a net loss of $1.8 million for the three months ended March 31,
      2006. The increase in net loss is attributed to a decrease in gain on sale
      revenues and an increase in loan losses, each related to our discontinued
      operations, and a decrease net interest income from our investment
      portfolio. Included in the net loss is a gain of $5.2 million from the sale
      of
      the retail mortgage lending platform to Indymac. With respect to our
      discontinued operations, for the three months ended March 31, 2007, total
      residential originations, including brokered loans, were $435.7 million as
      compared to $613.8 million for the same period of 2006. The decrease in our
      loan
      origination levels for the three months ended March 31, 2007 as compared to
      the
      same period of 2006 is the result of the loss of experienced loan officers
      to
      competitors, the sale of the wholesale mortgage lending platform as well as
      an
      overall market decline. Total employees decreased to 35 at March 31, 2007 as
      a
      result of the sale of the retail mortgage lending platform.




**Summary
      of Operations and Key Performance Measurements — Continuing
      Operations**




For
      the
      three months ended March 31, 2007, our income was dependent upon our mortgage
      portfolio management operations and the net interest (interest income on
      portfolio assets net of the interest expense and hedging costs associated with
      the financing of such assets) generated from our portfolio, mortgage loans
      held
      in the securitization trusts and residential mortgage-backed securities. The
      following table presents the components of our net interest income from our
      investment portfolio of mortgage securities and loans for the three months
      ended
      March 31, 2007:




**Amount**
                
                **Average**
                  **Outstanding**
                  **Balance**
                
                **Effective**
                  **Rate**(dollars
                    in thousands)
                
                (dollars
                    in millions)**Net
                    Interest Income Components:****Interest
                    Income**Investment
                    securities and loans held in the securitization trusts
                
                $
                14,214
                
                $
                1,017.9
                
                
                5.59
                %Amortization
                    of premium
                
                
                (501
                )
                
                4.8
                
                
                (0.23
                )%**Total
                    interest income**
                
                $
                13,713
                
                $
                1,022.7
                
                
                5.36
                %**Interest
                    Expense**Repurchase
                    agreements and CDOs
                
                $
                13,543
                
                $
                980.3
                
                
                5.53
                %Interest
                    rate swaps and caps
                
                
                (459
                )
                
                —
                
                
                (0.19
                )%**Total
                    interest expense (1)**
                
                $
                13,084
                
                $
                980.3
                
                
                5.34
                %**Net
                    Interest income investment securities and loans held in securitization
                    trusts**
                
                $
                629
                
                $
                42.4
                
                
                0.02
                %
 (1)
        Excludes $0.9 million of subordinated interest expense.


The
      key
      performance measures for our portfolio management activities are:




·
            net
                interest spread on the portfolio;




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




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


**Summary
        of Operations and Key Performance Measurements — Discontinued
        Operations**


For
      the
      three months ended March 31, 2007, our net interest income was also dependent
      upon our mortgage lending operations and originations from our mortgage lending
      segment, which include the mortgage loan sales and mortgage brokering activities
      on residential mortgages sold or brokered to third parties. Our mortgage lending
      activities generated revenues in the form of gains on sales of mortgage loans
      to
      third parties and ancillary fee income and interest income from borrowers.
      Our
      mortgage brokering operations generated brokering fee revenues from third party
      buyers. In addition, the Company incurred a $3.2 million loan loss related
      to
      repurchase of EPD loans. As of March 31, 2007, the Company sold its retail
      mortgage lending platform to Indymac for a net gain of $5.2 million and exited
      the mortgage lending business.




38




A
      breakdown of our loan originations for the three months ended March 31, 2007
      follows:




**Description**
              
              **Number**
                **of
                  Loans**
              
              **Aggregate**
                **Principal**
                **Balance**
                **($000’s)**
              
              **Percentage**
                **of
                  Total**
                **Principal**
              
              **Weighted**
                **Average**
                **Interest**
                **Rate**
              
              **Average**
                **Loan
                  Size**Purchase
                  mortgages
              
              
              971
              
              
              $251.2
              
              
              57.7
              %
              
              6.88
              %
              
              $258,694Refinancings
              
              
              605
              
              
              184.5
              
              
              42.3
              %
              
              7.01
              %
              
              304,904Total
              
              
              1,576
              
              
              435.7
              
              
              100.0
              %
              
              6.94
              %
              
              276,433Adjustable
                  rate or hybrid
              
              
              419
              
              
              166.2
              
              
              38.1
              %
              
              6.93
              %
              
              396,660Fixed
                  rate
              
              
              1,157
              
              
              269.5
              
              
              61.9
              %
              
              6.94
              %
              
              232,894Total
              
              
              1,576
              
              
              435.7
              
              
              100.0
              %
              
              6.94
              %
              
              276,433Banked
              
              
              1,210
              
              
              300.9
              
              
              69.1
              %
              
              6.81
              %
              
              248,647Brokered
              
              
              366
              
              
              134.8
              
              
              30.9
              %
              
              7.22
              %
              
              368,293Total
              
              
              1,576
              
              
              $435.7
              
              
              100.0
              %
              
              6.94
              %
              
              $276,433




**Financial
      Condition**




**Balance
      She** **et
      Analysis - Asset Quality — Continuing Operations**




*Investment
        Securities - Available for Sale* .
        Our
        securities portfolio consists of agency securities or AAA-rated residential
        mortgage-backed securities. At March 31, 2007 and December 31, 2006, we had
        no
        investment securities in a single issuer or entity (other than a government
        sponsored agency of the U.S. Government) that had an aggregate book value
        in
        excess of 10% of our total assets. The following tables set forth the credit
        characteristics of our securities portfolio as of March 31, 2007 and December
        31, 2006:
  **Characteristics
        of Our Investment Securities (dollar amounts in
        thousands):**
 **March
                    31, 2007**
                
                **Sponsor
                    or Rating**
                
                **Par**
                  **Value**
                
                **Carrying**
                  **Value**
                
                **%
                    of**
                  **Portfolio**
                
                **Coupon**
                
                **Yield****Credit**Agency
                    REMIC CMO Floating
                  Rate
                
                
                FNMA/FHLMC/GNMA
                
                $
                149,669
                
                $
                150,045
                
                
                34
                %
                
                6.70
                %
                
                6.58
                %Private
                    Label Floating Rate
                
                
                AAA
                
                
                13,985
                
                
                13,971
                
                
                3
                %
                
                6.11
                %
                
                6.18
                %Private
                    Label ARMs
                
                
                AAA
                
                
                264,893
                
                
                263,134
                
                
                59
                %
                
                4.80
                %
                
                5.74
                %NYMT
                    Retained Securities
                
                
                AAA-BBB
                
                
                18,038
                
                
                17,942
                
                
                3
                %
                
                5.75
                %
                
                6.18
                %NYMT
                    Retained Securities
                
                
                Below
                    Investment Grade
                
                
                2,764
                
                
                1,971
                
                
                1
                %
                
                5.68
                %
                
                15.96
                %Total/Weighted
                    Average
                $
                449,349
                
                $
                447,063
                
                
                100
                %
                
                5.51
                %
                
                6.11
                %


**Characteristics
        of Our Investment Securities (dollar amounts in
        thousands):**
  **December
                      31, 2006**
                  
                  **Rating**
                  
                  **Par
                      Value**
                  
                  **Carrying
                      Value**
                  
                  **%
                      of Portfolio**
                  
                  **Coupon**
                  
                  **Yield****Credit**Agency
                      REMIC CMO Floating Rate
                  
                  
                  FNMA/FHLMC/GNMA
                  
                  $
                  163,121
                  
                  $
                  163,898
                  
                  
                  34
                  %
                  
                  6.72
                  %
                  
                  6.40
                  %Private
                      Label Floating Rate
                  
                  
                  AAA
                  
                  
                  22,392
                  
                  
                  22,284
                  
                  
                  5
                  %
                  
                  6.12
                  %
                  
                  6.46
                  %Private
                      Label Arms
                  
                  
                  AAA
                  
                  
                  287,018
                  
                  
                  284,874
                  
                  
                  58
                  %
                  
                  4.82
                  %
                  
                  5.71
                  %NYMT
                      Retained Securities
                  
                  
                  AAA-BBB
                  
                  
                  15,996
                  
                  
                  15,894
                  
                  
                  3
                  %
                  
                  5.67
                  %
                  
                  6.02
                  %NYMT
                      Retained Securities
                  
                  
                  Below
                      Inv Grade
                  
                  
                  2,767
                  
                  
                  2,012
                  
                  
                  0
                  %
                  
                  5.67
                  %
                  
                  18.35
                  %**Total/Weighted
                      Average**
                  
                  
                  
                  
                  $
                  491,294
                  
                  $
                  488,962
                  
                  
                  100
                  %
                  
                  5.54
                  %
                  
                  6.06
                  %
 39
  The
        following table sets forth the stated reset periods and weighted average
        yields
        of our investment securities at March 31, 2007 and December 31, 2006 (dollar
        amounts in thousands):
 **Less
                    than**
                  **6
                    Months**
                
                **More
                    than 6 Months**
                  **To
                    24 Months**
                
                **More
                    than 24 Months**
                  **To
                    60 Months**
                
                **Total****March
                    31, 2007**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**Agency
                    REMIC CMO Floating Rate
                
                $
                150,045
                
                
                6.58
                %
                $
                —
                
                
                —
                
                $
                —
                
                
                —
                
                $
                150,045
                
                
                6.58
                %Private
                    Label Floating Rate
                
                
                13,971
                
                
                6.18
                %
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                13,971
                
                
                6.18
                %Private
                    Label ARMs
                
                
                33,726
                
                
                6.15
                %
                
                56,255
                
                
                5.71
                %
                
                173,153
                
                
                5.65
                %
                
                263,134
                
                
                5.73
                %NYMT
                    Retained Securities
                
                
                —
                
                
                —
                
                
                2,596
                
                
                6.98
                %
                
                17,317
                
                
                7.55
                %
                
                19,913
                
                
                7.48
                %Total
                
                $
                197,742
                
                
                6.48
                %
                $
                58,851
                
                
                5.77
                %
                $
                190,470
                
                
                5.83
                %
                $
                447,063
                
                
                6.11
                %
 **Less
                    than**
                  **6
                    Months**
                
                **More
                    than 6 Months**
                  **To
                    24 Months**
                
                **More
                    than 24 Months**
                  **To
                    60 Months**
                
                **Total****December
                    31, 2006**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**
                
                **Carrying**
                  **Value**
                
                **Weighted**
                  **Average**
                  **Yield**Agency
                    REMIC CMO Floating Rate
                
                $
                163,898
                
                
                6.40
                %
                $
                —
                
                
                —
                
                $
                —
                
                
                —
                
                $
                163,898
                
                
                6.40
                %Private
                    Label Floating Rate
                
                
                22,284
                
                
                6.46
                %
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                22,284
                
                
                6.46
                %Private
                    Label ARMs
                
                
                16,673
                
                
                5.60
                %
                
                78,565
                
                
                5.80
                %
                
                183,612
                
                
                5.64
                %
                
                278,850
                
                
                5.68
                %NYMT
                    Retained Securities
                
                
                6,024
                
                
                7.12
                %
                
                —
                
                
                —
                
                
                17,906
                
                
                7.83
                %
                
                23,930
                
                
                7.66
                %Total
                
                $
                208,879
                
                
                6.37
                %
                $
                78,565
                
                
                5.80
                %
                $
                201,518
                
                
                5.84
                %
                $
                488,962
                
                
                6.06
                %


*Investment
      Portfolio Related Assets*




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




The
      NYMT
      2006-1 securitization qualifies as a sale under SFAS No. 140, which resulted
      in
      the recording of residual assets and mortgage servicing rights. The residual
      assets total $2.0 million and are included in investment securities available
      for sale (see note 2 in our consolidated financial statements).




At
      March
      31, 2007, mortgage loans held in securitization trusts totaled $544.0 million,
      or 47% of total assets. Of this mortgage loan investment portfolio 100% are
      traditional or hybrid ARMs and 76.0% are ARM loans that are interest only.
      On
      our hybrid ARMs, interest rate reset periods are predominately seven years
      or
      less and the interest-only/amortization period is typically 10 years, which
      mitigates the “payment shock” at the time of interest rate reset. No loans in
      our investment portfolio of mortgage loans are option-ARMs or ARMs with negative
      amortization.




40




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




The
      following table sets forth the composition of our mortgage loans held in
      securitization trusts and retained interest in securitization as of March
      31, 2007 (dollar amounts in thousands):


**#
                  of Loans**
              
              **Par
                  Value**
              
              **Carrying
                  Value****Loan
                  Characteristics:**Mortgage
                  loans held in securitization trusts
              
              
              1,178
              
              $
              540,549
              
              $
              544,046Retained
                  interest in securitization (included in Investment
                securities
                  available for sale)
              
              
              431
              
              
              231,437
              
              
              19,913Total
                  Loans Held
              
              
              1,609
              
              $
              771,986
              
              $
              563,959




****
              
              **Average**
              
              **High**
              
              **Low****General
                  Loan Characteristics:**Original
                  Loan Balance
              
              $
              498
              
              $
              3,500
              
              $
              40Coupon
                  Rate
              
              
              5.68
              %
              
              8.13
              %
              
              3.88
              %Gross
                  Margin
              
              
              2.36
              %
              
              6.50
              %
              
              1.13
              %Lifetime
                  Cap
              
              
              11.15
              %
              
              13.75
              %
              
              9.00
              %Original
                  Term (Months)
              
              
              360
              
              
              360
              
              
              360Remaining
                  Term (Months)
              
              
              338
              
              
              348
              
              
              304




The
      following table sets forth the composition of our mortgage loans held in
      securitization trusts and retained interest in securitization as of December
      31,
      2006:


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




****
                
                **Average**
                
                **High**
                
                **Low****General
                    Loan Characteristics:**Original
                    Loan Balance
                
                $
                501
                
                $
                3,500
                
                $
                25Coupon
                    Rate
                
                
                5.67
                %
                
                8.13
                %
                
                3.88
                %Gross
                    Margin
                
                
                2.36
                %
                
                6.50
                %
                
                1.13
                %Lifetime
                    Cap
                
                
                11.14
                %
                
                13.75
                %
                
                9.00
                %Original
                    Term (Months)
                
                
                360
                
                
                360
                
                
                360Remaining
                    Term (Months)
                
                
                341
                
                
                351
                
                
                307
  The
        following tables provide additional characteristics of the mortgage loans
        held
        in securitization trusts and retained interest in securitization as of March
        31,
        2007 and December 31, 2006:


**March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Arm
                  Loan Type**Traditional
                  ARMs
              
              
              2.3
              %
              
              2.9
              %2/1
                  Hybrid ARMs
              
              
              3.4
              %
              
              3.8
              %3/1
                  Hybrid ARMs
              
              
              15.7
              %
              
              16.8
              %5/1
                  Hybrid ARMs
              
              
              76.5
              %
              
              74.5
              %7/1
                  Hybrid ARMs
              
              
              2.1
              %
              
              2.0
              %Total
              
              
              100.0
              %
              
              100.0
              %Percent
                  of ARM loans that are Interest Only
              
              
              76.0
              %
              
              75.9
              %Weighted
                  average length of interest only period
              
              
              8.1
                  years
              
              
              8.0
                  years
  **March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Traditional
                  ARMs - Periodic Caps**None
              
              
              72.6
              %
              
              61.9
              %1%
              
              
              6.6
              %
              
              8.8
              %Over
                  1%
              
              
              20.8
              %
              
              29.3
              %Total
              
              
              100.0
              %
              
              100.0
              %




41


**March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Hybrid
                  ARMs - Initial Cap**3.00%
                  or less
              
              
              13.4
              %
              
              14.8
              %3.01%-4.00%
              
              
              7.3
              %
              
              7.5
              %4.01%-5.00%
              
              
              78.2
              %
              
              76.6
              %5.01%-6.00%
              
              
              1.1
              %
              
              1.1
              %Total
              
              
              100.0
              %
              
              100.0
              %
  ****
              
              **March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****FICO
                  Scores**650
                  or less
              
              
              3.8
              %
              
              3.8
              %651
                  to 700
              
              
              17.2
              %
              
              16.9
              %701
                  to 750
              
              
              34.0
              %
              
              34.0
              %751
                  to 800
              
              
              41.1
              %
              
              41.5
              %801
                  and over
              
              
              3.9
              %
              
              3.8
              %Total
              
              
              100.0
              %
              
              100.0
              %Average
                  FICO Score
              
              
              737
              
              
              737
  **March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Loan
                  to Value (LTV)**50%
                  or less
              
              
              9.6
              %
              
              9.8
              %50.01%
                  - 60.00%
              
              
              8.6
              %
              
              8.8
              %60.01%
                  - 70.00%
              
              
              28.0
              %
              
              28.1
              %70.01%
                  - 80.00%
              
              
              51.5
              %
              
              51.1
              %80.01%
                  and over
              
              
              2.3
              %
              
              2.2
              %Total
              
              
              100.0
              %
              
              100.0
              %Average
                  LTV
              
              
              69.6
              %
              
              69.4
              %
  **March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Property
                  Type**Single
                  Family
              
              
              52.0
              %
              
              52.3
              %Condominium
              
              
              22.7
              %
              
              22.9
              %Cooperative
              
              
              9.2
              %
              
              8.8
              %Planned
                  Unit Development
              
              
              13.1
              %
              
              13.0
              %Two
                  to Four Family
              
              
              3.0
              %
              
              3.0
              %Total
              
              
              100.0
              %
              
              100.0
              %
  ****
              
              **March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Occupancy
                  Status**Primary
              
              
              84.8
              %
              
              85.3
              %Secondary
              
              
              11.2
              %
              
              10.7
              %Investor
              
              
              4.0
              %
              
              4.0
              %Total
              
              
              100.0
              %
              
              100.0
              %
  **March
                  31,**
                **2007**
                **Percentage**
              
              **December
                  31,**
                **2006**
                **Percentage****Documentation
                  Type**Full
                  Documentation
              
              
              70.9
              %
              
              70.1
              %Stated
                  Income
              
              
              20.9
              %
              
              21.3
              %Stated
                  Income/ Stated Assets
              
              
              6.8
              %
              
              7.2
              %No
                  Documentation
              
              
              0.9
              %
              
              0.9
              %No
                  Ratio
              
              
              0.5
              %
              
              0.5
              %Total
              
              
              100.0
              %
              
              100.0
              %
  42
 
 **March
                      31,**
                    **2007**
                    **Percentage**
                  
                  **December
                      31,**
                    **2006**
                    **Percentage****Loan
                      Purpose**Purchase
                  
                  
                  56.9
                  %
                  
                  57.3
                  %Cash
                      out refinance
                  
                  
                  16.9
                  %
                  
                  26.1
                  %Rate
                      and term refinance
                  
                  
                  26.2
                  %
                  
                  16.6
                  %Total
                  
                  
                  100.0
                  %
                  
                  100.0
                  %
  **March
                      31,**
                    **2007**
                    **Percentage**
                  
                  **December 31,**
                    **2006**
                    **Percentage****Geographic
                      Distribution: 5% or more in any one state**NY
                  
                  
                  26.6
                  %
                  
                  26.2
                  %MA
                  
                  
                  14.7
                  %
                  
                  14.4
                  %CA
                  
                  
                  5.9
                  %
                  
                  6.8
                  %Other
                      (less than 5% individually)
                  
                  
                  52.8
                  %
                  
                  52.6
                  %Total
                  
                  
                  100.0
                  %
                  
                  100.0
                  %
  *Delinquency
            Status.* As
            of
            March 31, 2007, we had ten delinquent loans totaling $9.3 million categorized
            as
            mortgage loans held in securitization trusts. The table below shows
            delinquencies in our loan portfolio as of March 31, 2007 (dollar amounts
            in
            thousands):
  **Days
                      Late**
                  
                  **Number
                      of**
                    **Delinquent**
                    **Loans**
                  
                  **Total**
                    **Dollar**
                    **Amount**
                  
                  **%
                      of**
                    **Loan**
                    **Portfolio**30-60
                  
                  
                  2
                  
                  $
                  955
                  
                  
                  0.18
                  %61-90
                  
                  
                  1
                  
                  
                  1,346
                  
                  
                  0.25
                  %90+
                  
                  
                  6
                  
                  
                  6,377
                  
                  
                  1.18
                  %Real
                      estate owned
                  
                  
                  1
                  
                  $
                  625
                  
                  
                  0.12
                  %
  As
            of
            December 31, 2006, we had seven delinquent loans totaling $6.8 million
            categorized as mortgage loans held in securitization trusts. The table
            below
            shows delinquencies in our loan portfolio as of December 31, 2006 (dollar
            amounts in thousands):
  **Days
                      Late**
                  ****
                  **Number
                      of**
                    **Delinquent**
                    **Loans**
                  ****
                  **Total**
                    **Dollar**
                    **Amount**
                  ****
                  **%
                      of**
                    **Loan**
                    **Portfolio**30-60
                  
                  
                  1
                  
                  $
                  166
                  
                  
                  0.03
                  %61-90
                  
                  
                  1
                  
                  
                  193
                  
                  
                  0.03
                  %90+
                  
                  
                  4
                  
                  
                  5,819
                  
                  
                  0.99
                  %Real
                      estate owned
                  
                  
                  1
                  
                  $
                  625
                  
                  
                  0.11
                  %
  Interest
          is recognized as revenue when earned according to the terms of the mortgage
          loans and when, in the opinion of management, it is collectible. The accrual
          of
          interest on loans is discontinued when, in management’s opinion, the interest is
          not collectible in the normal course of business, but in no case beyond
          when
          payment on a loan becomes 90 days delinquent. Interest collected on loans
          for
          which accrual has been discontinued is recognized as income upon
          receipt.
  *Non-Loan
          or Investment Assets*
  *Cash
          and cash equivalents.*We had unrestricted cash and cash
          equivalents of $1.7 million at March 31, 2007 versus $1.0 million at December
          31, 2006.
  *Restricted
          cash.*Restricted cash is held by counter parties as
          colleral for hedging instruments and two letters of credit related to the
          Company's lease of office space, including its corporate
          headquarters.
  *Accounts
          and accrued interest receivable*. Accounts and accrued
          interest receivable includes $13.5 million related to the sale of the retail
          mortgage lending segment to Indymac. On April 2, 2007, Indymac paid the
          Company
          $11.2 million in cash and established a $2.3 million escrow account to
          support
          warranties and indemnifications related to the sale.  In addition, accrued
          interest receivable for investment securities and mortgage loans held in
          securitization trusts are also included.
  *Prepaid
          and other assets*. Prepaid and other assets totaled $20.5
          million as of March 31, 2007. Prepaid and other assets consist primarily
          of a
          deferred tax benefit of $18.4 million and loans held by us which are pending
          remedial action (such as updating loan documentation) or which do not currently
          meet third-party investor criteria.




43


**Balance
        She** **et
        Analysis - Asset Quality — Discontinued Operations**


*Mortgage
      Lending Related Assets*




The
      balances of the following mortgage lending related
      assets have declined as of March 31, 2007 as compared to December 31, 2006
      primarily due to the exit of the morgage lending business:




*Mortgage
      Loans Held for Sale* .
      Mortgage loans that we have originated but do not intend to hold for investment
      and are held pending sale to investors are classified as “mortgage loans held
      for sale.” We had mortgage loans held for sale of $59.7 million at March 31,
      2007 as compared to $106.9 million at December 31, 2006. Primarily, we use
      warehouse facilities to finance our mortgage loans held for sale. Alternatively,
      we may use cash on a short-term basis to finance our mortgage loans held for
      sale.




*Due
      from Purchasers* .
      We had
      amounts due from loan purchasers totaling $61.4 million at March 31, 2007 as
      compared to $88.4 million at December 31, 2006. Amounts due from loan purchasers
      are a receivable for the principal and premium due to us for loans that have
      been shipped to permanent investors but for which payment has not yet been
      received at period end.




*Escrow
      Deposits - Pending Loan Closings* .
      We had
      escrow deposits pending loan closing of $0.5 million at March 31, 2007 as
      compared to $3.8 million at December 31, 2006. Escrow deposits pending loan
      closing are advance cash fundings by us to escrow agents to be used to close
      loans within the next one to three business days.




Non-Loan
      Assets




*Property
      and Equipment, Net.* Property
      and equipment totaled $0.5 million as of March 31, 2007 and $6.5 million as
      of
      December 31, 2006 and have estimated lives ranging from three to ten years,
      and
      are stated at cost less accumulated depreciation and amortization. Depreciation
      is determined in amounts sufficient to charge the cost of depreciable assets
      to
      operations over their estimated service lives using the straight-line method.
      Leasehold improvements are amortized over the lesser of the life of the lease
      or
      service lives of the improvements using the straight-line method.




44




**Balance
      Sheet Analysis -** **Financing Arrangements — Continuing
      Operations**




*Financing
      Arrangements, Portfolio Investments* .
      We have
      arrangements to enter into repurchase agreements with 22 different financial
      institutions having a total line capacity of $4.6 billion. As of March 31,
      2007
      and December 31, 2006, there were $0.4 billion and $0.8 billion, respectively,
      of repurchase borrowings outstanding. Our repurchase agreements have terms
      of 30
      days. The weighted average borrowing rate on these financing facilities was
      5.34% and 5.37% as of March 31, 2007 and December 31, 2006,
      respectively.




*Collateralized
      Debt Obligations* .
      There
      were no new securitization transactions accounted for as a financing during
      the
      three months ended March 31, 2007 or during the year ended December 31, 2006.
      We
      had $501.9 million and $197.4 million of CDO outstanding as of March 31, 2007
      and December 31, 2006, respectively. The weighted average borrowing rate on
      these CDOs was 5.65% and 5.72% as of March 31, 2007 and December 31, 2006,
      respectively. The increase in the amount of CDOs outstanding between December
      31, 2006 and March 31, 2007 is due to the sale of $164.9 million of NYMT 2005-2
      securities on February 26, 2007 and $148.0 million of NYMT 2005-1 securities
      on
      March 26, 2007. The sales were treated as financings in accordance with SFAS
      No.
      140.




*Subordinated
      Debentures* .
      As of
      March 31, 2007, we have trust preferred securities outstanding of $45.0 million.
      The securities are fully guaranteed by the Company with respect to distributions
      and amounts payable upon liquidation, redemption or repayment. These securities
      are classified as subordinated debentures in the liability section of the
      Company’s consolidated balance sheet.




$25.0
      million of our subordinated debentures have a floating interest rate equal
      to
      three-month LIBOR plus 3.75%, resetting quarterly (9.10% at March 31, 2007
      and
      9.12% at December 31, 2006). These securities mature on March 15, 2035 and
      may
      be called at par by the Company any time after March 15, 2010. NYMC entered
      into
      an interest rate cap agreement to limit the maximum interest rate cost of the
      trust preferred securities to 7.5%. The term of the interest rate cap agreement
      is five years and resets quarterly in conjunction with the reset periods of
      the
      trust preferred securities.




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




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




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




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




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


**Balance
          Sheet Analysis -** **Financing Arrangements — Discontinued
          Operations**


*Financing
      Arrangements, Mortgage Loans Held for Sale* .
      We had
      debt outstanding on our financing facilities which finance our mortgage loans
      held for sale of $98.6 million at March 31, 2007 as compared to $173.0 million
      at December 31, 2006. The weighted average borrowing rate on these financing
      facilities was 6.36% and 6.22% as of March 31, 2007 and December 31, 2006,
      respectively. The decrease in outstanding balances in mortgage loans held for
      sale and short-term borrowings is due to the Company's exit from the retail
      mortgage lending business. The Company will utilize the CSFB warehouse facility
      to dispose of all the remaining mortgage loans held for sale, which is expected
      to occur in the second quarter of 2007.




In
      the
      normal course of our mortgage loan origination business we entered into
      contractual IRLCs to extend credit to finance residential mortgages. These
      commitments, which contained fixed expiration dates, became effective when
      eligible borrowers locked-in a specified interest rate within time frames
      established by our origination, credit and underwriting practices. Interest
      rate
      risk arises if interest rates change between the time of the lock-in of the
      rate
      by the borrower and the sale of the loan.




45




To
      mitigate the effect of the interest rate risk inherent in issuing an IRLC from
      the lock-in date to the funding date of a loan, we generally entered into FSLCs.
      Once a loan has been funded, our risk management objective for our mortgage
      loans held for sale was to protect earnings from an unexpected charge due to
      a
      decline in value of such mortgage loans. Our strategy was to engage in a risk
      management program involving the designation of FSLCs (the same FSLCs entered
      into at the time of the IRLC) to hedge most of our mortgage loans held for
      sale.




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


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006****Derivative
                  Assets:**Continuing
                  Operations:Interest
                  rate caps
              
              $
              1,300
              
              $
              2,011Interest
                  rate swaps
              
              
              —
              
              
              621**Total
                  derivative assets, continuing operations**
              
              
              1,300
              
              
              2,632Discontinued
                  Operation:Forward
                  loan sale contracts - loan commitments
              
              
              1
              
              
              48Forward
                  loan sale contracts - mortgage loans held for sale
              
              
              —
              
              
              39Forward
                  loan sale contracts - TBA securities
              
              
              —
              
              
              84Interest
                  rate lock commitments - loan commitments
              
              
              37
              
              
              —**Total
                  derivative assets, discontinued operation**
              
              
              38
              
              
              171**Total
                  derivative assets**
              
              $
              1,338
              
              $
              2,803**Derivative
                  liabilities:**Continuing
                  Operations:Interest
                  rate swaps
              
              $
              (183
              )
              $
              —Discontinued
                  Operation:Forward
                  loan sale contracts - mortgage loans held for sale
              
              
              (11
              )
              
              —Forward
                  loan sale contracts - TBA securities
              
              
              —
              
              
              —Interest
                  rate lock commitments - loan commitments
              
              
              (7
              )
              
              (118
              )Interest
                  rate lock commitments - mortgage loans held for sale
              
              
              —
              
              
              (98
              )**Total
                  derivative liabilities, discontinued operation**
              
              
              (18
              )
              
              (216
              )**Total
                  derivative liabilities**
              
              $
              (201
              )
              $
              (216
              )




**Balance
      Sheet Analysis** **-
      Stockholders’ Equity**




Stockholders’
      equity at March 31, 2007 was $65.1 million and included $5.5 million of net
      unrealized losses on available for sale securities and cash flow hedges
      presented as accumulated other comprehensive income.




**Securitizations
      — Continuing Operations**




During
      the three month period ended March 31, 2007, we did not complete a
      securitization transaction.




*NYMT
      2006-1* .
      March
      29, 2006 - securitization of approximately $277.4 million of high-credit
      quality, first-lien, adjustable rate mortgage and hybrid adjustable rate
      mortgages. We accounted for this securitization as a non-recourse sale in
      accordance with SFAS No. 140.




46




The
      amount of each class of notes, together with the interest rate and credit
      ratings for each class are set forth below (dollar amounts in
      thousands):


**Class**
              
              **Approximate**
                **Principal Amount**
              
              **Interest Rate (%)**
              
              **Moody’s/Fitch**
                **Rating******1-A-1
              
              $
              6,726
              
              
              5.648
              
              
              Aaa/AAA2-A-1
              
              
              148,906
              
              
              5.673
              
              
              Aaa/AAA2-A-2
              
              
              20,143
              
              
              5.673
              
              
              Aaa/AAA2-A-3
              
              
              65,756
              
              
              5.673
              
              
              Aaa/AAA2-A-4
              
              
              9,275
              
              
              5.673
              
              
              Aa1/AAA3-A-1
              
              
              16,055
              
              
              5.855
              
              
              Aaa/AAAB-1
              
              
              3,746
              
              
              5.683
              
              
              Aa2/AAB-2
              
              
              2,497
              
              
              5.683
              
              
              A2/AB-3
              
              
              1,525
              
              
              5.683
              
              
              Baa2/BBBB-4
              
              
              1,387
              
              
              5.683
              
              
              NR/BBB-5
              
              
              694
              
              
              5.683
              
              
              NR/BB-6
              
              $
              693
              
              
              5.683
              
              
              NR




NR-such
      rating agency has not been asked to rate these certificates.




Prior
      to
      2006, we completed three securitizations and accrued for them as secured
      borrowings under SFAS No. 140.




*NYMT
      2005-1* .
      February 25, 2005 - securitization of approximately $419.0 million of
      high-credit quality, first-lien, adjustable rate mortgage and hybrid adjustable
      rate mortgages. The amount of each class of notes, together with the interest
      rate and credit ratings for each class as rated by S&P, are set forth below
      (dollar amounts in thousands):




**Class**
            
            **Approximate**
              **Principal
                Amount**
            
            **Interest
                Rate**
            
            **S&P
                Rating******A
            
            $
            391,761
            
            
            LIBOR
                + 27bps
            
            
            AAAM-1
            
            $
            18,854
            
            
            LIBOR
                + 50bps
            
            
            AAM-2
            
            $
            6,075
            
            
            LIBOR
                + 85bps
            
            
            A




At
      the
      time of securitization, the weighted average loan-to-value of the mortgage
      loans
      in the trust was approximately 68.8% and the weighted average FICO score was
      approximately 729. The weighted average current loan rate of the pool of
      mortgage loans is approximately 5.36% and the weighted average maximum loan
      rate
      (after periodic rate resets) is 10.62%, and weighted average months to roll
      of
      17 months with 64% rolling in 6 months.




*NYMT 2005-2.* July 29,
      2005 - securitization of approximately $242.9 million of high-credit quality,
      first-lien, adjustable rate mortgage and hybrid adjustable rate mortgages.
      The
      amount of each class of notes, together with the interest rate and credit
      ratings for each class as rated by S&P, are set forth below (dollar amounts
      in thousands):




**Class**
            
            **Approximate**
              **Principal
                Amount**
            
            **Interest
                Rate**
            
            **S&P
                Rating******A
            
            $
            217,126
            
            
            LIBOR
                + 33bps
            
            
            AAAM-1
            
            $
            16,029
            
            
            LIBOR
                + 60bps
            
            
            AAM-2
            
            $
            6,314
            
            
            LIBOR
                + 100bps
            
            
            A




At
      the
      time of securitization, the weighted average loan-to-value of the mortgage
      loans
      in the trust was approximately 69.8% and the weighted average FICO score was
      approximately 736. The weighted average current loan rate of the pool of
      mortgage loans is approximately 5.46% and the weighted average maximum loan
      rate
      (after periodic rate resets) is 11.22%.




*NYMT 2005-3.* December
      20, 2005 - securitization of approximately $235.0 million of high-credit
      quality, first-lien, adjustable rate mortgage and hybrid adjustable rate
      mortgages. The amount of each class of notes, together with the interest rate
      and credit ratings for each class as rated by S&P and Moody’s, are set forth
      below (dollar amounts in thousands):




47




**Class**
            
            **Approximate**
              **Principal
                Amount**
            
            **Interest
                Rate**
            
            **S&P/Moody’s**
              **Rating******A-1
            
            $
            70,000
            
            
            LIBOR
                + 24bps
            
            
            AAA
                / AaaA-2
            
            $
            98,267
            
            
            LIBOR
                + 23bps
            
            
            AAA
                / AaaA-3
            
            $
            10,920
            
            
            LIBOR
                + 32bps
            
            
            AAA
                / AaaM-1
            
            $
            25,380
            
            
            LIBOR
                + 45bps
            
            
            AA+
                / Aa2M-2
            
            $
            24,088
            
            
            LIBOR
                + 68bps
            
            
            AA
                / A2




At
      the
      time of securitization, the weighted average loan-to-value of the mortgage
      loans
      in the Trust was approximately 69.5% and the weighted average FICO score was
      approximately 732. The weighted average current loan rate of the pool of
      mortgage loans is approximately 5.79% and the weighted average maximum loan
      rate
      (after periodic rate resets) is 11.58%.




**Prepayment
      Experience — Continuing Operations**




The
      cumulative prepayment rate (“CPR”) on our mortgage loan portfolio averaged
      approximately 19% during the three month period ended March 31, 2007 as compared
      to 18% for the three month period ended March 31, 2006. CPRs on our purchased
      portfolio of investment securities averaged approximately 12% while the CPRs
      on
      loans held for investment or held in our securitization trusts averaged
      approximately 25% during the three month period ended March 31, 2007. When
      prepayment expectations over the remaining life of assets increase, we have
      to
      amortize premiums over a shorter time period resulting in a reduced yield to
      maturity on our investment assets. Conversely, if prepayment expectations
      decrease, the premium would be amortized over a longer period resulting in
      a
      higher yield to maturity. We monitor our prepayment experience on a monthly
      basis and adjust the amortization of our net premiums accordingly.




**Results
      of Operations — Continuing Operations**




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


**Results
        of Operations — Discontinued Operations**


Our
      results of operations for our now discontinued mortgage lending segment during
      a
      given period typically reflect the total volume of loans originated and closed
      by us during that period. The volume of closed loan originations generated
      by us
      in any period is impacted by a variety of factors. These factors
      include:




·
            *The
                demand for new mortgage loans*.
                Reduced demand for mortgage loans causes closed loan origination
                volume to
                decline. Demand for new mortgage loans is directly impacted by current
                interest rate trends and other economic conditions. Rising interest
                rates
                tend to reduce demand for new mortgage loans, particularly loan
                refinancings, and falling interest rates tend to increase demand
                for new
                mortgage loans, particularly loan
                refinancings.




·
            *Loan
                refinancing and home purchase trends*.
                As discussed above, the volume of loan refinancings tends to increase
                following declines in interest rates and to decrease when interest
                rates
                rise. The volume of home purchases is also affected by interest rates,
                although to a lesser extent than refinancing volume. Home purchase
                trends
                are also affected by other economic changes such as inflation,
                improvements in the stock market, unemployment rates and other similar
                factors.




·
            *Seasonality*.
                Historically, according to the MBA, loan originations during late
                November, December, January and February of each year are typically
                lower
                than during other months in the year due, in part, to inclement weather,
                fewer business days (due to holidays and the short month of February),
                and
                the fact that home buyers tend to purchase homes during the warmer
                months
                of the year. As a result, loan volumes tend to be lower in the first
                and
                fourth quarters of a year than in the second and third
                quarters.




·
            *Occasional
                spikes in volume resulting from isolated events*.
                Mortgage lenders may experience spikes in loan origination volume
                from
                time to time due to non-recurring events or transactions, such as
                a large
                mass closing of a condominium project for which a bulk end-loan commitment
                was negotiated.




48




The
      cost
      of our production is also critical to our financial results as it is a
      significant factor in the gains we recognize. In addition, the type of loan
      production is an important factor in recognizing gain on sale premiums.
      Beginning near the end of the first quarter of 2004, our volume of FHA loans
      increased. Generally, FHA loans have lower average balances and FICO scores
      which are reflected in the statistics above. All FHA loans are currently and
      will be in the future sold or brokered to third parties. The following table
      summarizes our loan production for the quarter ended March 31, 2007 and each
      quarter of 2006.




****
                **Number**
                **of**
              
              **Aggregate**
                **Principal**
                **Balance**
              
              **Percentage**
                **of
                  Total**
              
              **Weighted**
                **Average**
                **Interest**
              
              **Average**
                **Principal**
              
              **Weighted**
                **Average****Loans**
              
              **($ in millions)**
              
              **Principal**
              
              **Rate**
              
              **Balance**
              
              **LTV**
              
              **FICO****2007:***First
                  Quarter*ARM
              
              
              419
              
              $
              166.2
              
              
              38.1
              %
              
              6.93
              %
              $
              396,660
              
              
              71.0
              
              
              711Fixed-rate
              
              
              1,089
              
              
              259.6
              
              
              59.6
              %
              
              6.96
              %
              
              238,319
              
              
              75.4
              
              
              717**Subtotal-non-FHA**
              
              
              1,508
              
              
              425.8
              
              
              97.7
              %
              
              6.95
              %
              
              282,314
              
              
              73.7
              
              
              715FHA
                  - ARM
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —FHA
                  - fixed-rate
              
              
              68
              
              
              9.9
              
              
              2.3
              %
              
              6.21
              %
              
              146,015
              
              
              96.1
              
              
              691**Subtotal
                  - FHA**
              
              
              68
              
              
              9.9
              
              
              2.3
              %
              
              6.21
              %
              
              146,015
              
              
              96.1
              
              
              691Total
                  ARM
              
              
              419
              
              
              166.2
              
              
              38.1
              %
              
              6.93
              %
              
              396,660
              
              
              71.0
              
              
              711Total
                  fixed-rate
              
              
              1,157
              
              
              269.5
              
              
              61.9
              %
              
              6.94
              %
              
              232,894
              
              
              76.2
              
              
              716**Total
                  Originations**
              
              
              1,576
              
              $
              435.7
              
              
              100.0
              %
              
              6.94
              %
              $
              276,433
              
              
              74.2
              
              
              714Purchase
                  mortgages
              
              
              904
              
              $
              241.4
              
              
              55.4
              %
              
              6.91
              %
              $
              267,027
              
              
              78.7
              
              
              726Refinancings
              
              
              604
              
              
              184.4
              
              
              42.3
              %
              
              7.01
              %
              
              305,193
              
              
              67.1
              
              
              700**Subtotal-non-FHA**
              
              
              1,508
              
              
              425.8
              
              
              97.7
              %
              
              6.95
              %
              
              282,314
              
              
              73.7
              
              
              715FHA
                  - purchase
              
              
              67
              
              
              9.8
              
              
              2.3
              %
              
              6.21
              %
              
              146,256
              
              
              96.1
              
              
              691FHA
                  - refinancings
              
              
              1
              
              
              0.1
              
              
              0.0
              %
              
              6.50
              %
              
              129,920
              
              
              94.8
              
              
              652**Subtotal
                  - FHA**
              
              
              68
              
              
              9.9
              
              
              2.3
              %
              
              6.21
              %
              
              146,015
              
              
              96.1
              
              
              691Total
                  purchase
              
              
              971
              
              
              251.2
              
              
              57.7
              %
              
              6.88
              %
              
              258,694
              
              
              79.4
              
              
              725Total
                  refinancings
              
              
              605
              
              
              184.5
              
              
              42.3
              %
              
              7.01
              %
              
              304,904
              
              
              67.1
              
              
              700**Total
                  Originations**
              
              
              1,576
              
              $
              435.7
              
              
              100.0
              %
              
              6.94
              %
              $
              276,433
              
              
              74.2
              
              
              714
  **2006:***Fourth
                  Quarter*ARM
              
              
              647
              
              $
              218.2
              
              
              37.3
              %
              
              7.10
              %
              $
              337,270
              
              
              73.5
              
              
              699Fixed-rate
              
              
              1,609
              
              
              353.7
              
              
              60.4
              %
              
              7.14
              %
              
              219,835
              
              
              75.8
              
              
              712**Subtotal-non-FHA**
              
              
              **2,256**
              
              
              **571.9**
              
              
              **97.7**
              **%**
              
              **7.13**
              **%**
              
              **253,514**
              
              
              **74.9**
              
              
              **707**FHA
                  - ARM
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —FHA
                  - fixed-rate
              
              
              83
              
              
              13.7
              
              
              2.3
              %
              
              6.42
              %
              
              164,723
              
              
              94.6
              
              
              650**Subtotal
                  - FHA**
              
              
              **83**
              
              
              **13.7**
              
              
              **2.3**
              **%**
              
              **6.42**
              **%**
              
              **164,723**
              
              
              **94.6**
              
              
              **650**Total
                  ARM
              
              
              647
              
              
              218.2
              
              
              37.3
              %
              
              7.10
              %
              
              337,270
              
              
              73.5
              
              
              699Total
                  fixed-rate
              
              
              1,692
              
              
              367.4
              
              
              62.7
              %
              
              7.11
              %
              
              217,132
              
              
              76.5
              
              
              709**Total
                  Originations**
              
              
              **2,339**
              
              **$**
              **585.6**
              
              
              100.0
              %
              
              **7.11**
              **%**
              **$**
              **250,364**
              
              
              **75.4**
              
              
              **706**




49




**Number**
                **of**
              
              **Aggregate**
                **Principal**
                **Balance**
              
              **Percentage**
                **of
                  Total**
              
              **Weighted**
                **Average**
                **Interest**
              
              **Average**
                **Principal**
              
              **Weighted**
                **Average****Loans**
              
              **($ in millions)**
              
              **Principal**
              
              **Rate**
              
              **Balance**
              
              **LTV**
              
              **FICO**Purchase
                  mortgages
              
              
              1,350
              
              $
              306.0
              
              
              52.3
              %
              
              7.22
              %
              $
              226,633
              
              
              80.2
              
              
              720Refinancings
              
              
              906
              
              
              265.9
              
              
              45.4
              %
              
              7.02
              %
              
              293,570
              
              
              68.8
              
              
              693**Subtotal-non-FHA**
              
              
              **2,256**
              
              
              **571.9**
              
              
              **97.7**
              **%**
              ****
              **7.13**
              **%**
              
              **253,514**
              
              
              **74.9**
              
              
              **707**FHA
                  - purchase
              
              
              71
              
              
              11.3
              
              
              1.9
              %
              
              6.35
              %
              
              159,550
              
              
              96.9
              
              
              661FHA
                  - refinancings
              
              
              12
              
              
              2.4
              
              
              0.4
              %
              
              6.74
              %
              
              195,333
              
              
              83.4
              
              
              597**Subtotal
                  - FHA**
              
              
              **83**
              
              
              **13.7**
              
              
              **2.3**
              **%**
              ****
              **6.42**
              **%**
              
              **164,723**
              
              
              **94.6**
              
              
              **650**Total
                  purchase
              
              
              1,421
              
              
              317.3
              
              
              54.2
              %
              
              7.19
              %
              
              223,281
              
              
              80.8
              
              
              717Total
                  refinancings
              
              
              918
              
              
              268.3
              
              
              45.8
              %
              
              7.02
              %
              
              292,286
              
              
              69.0
              
              
              692**Total
                  Originations**
              
              
              **2,339**
              
              **$**
              **585.6**
              ****
              ****
              **100.0**
              **%**
              ****
              **7.11**
              **%**
              **$**
              **250,364**
              
              
              **75.4**
              
              
              **706***Third
                  Quarter*ARM
              
              
              794
              
              $
              237.6
              
              
              39.4
              %
              
              7.27
              %
              $
              299,209
              
              
              72.8
              
              
              704Fixed-rate
              
              
              1,709
              
              
              351.1
              
              
              58.2
              %
              
              7.48
              %
              
              205,433
              
              
              75.6
              
              
              711**Subtotal-non-FHA**
              
              
              **2,503**
              
              
              **588.7**
              
              
              **97.6**
              **%**
              ****
              **7.39**
              **%**
              
              **235,180**
              
              
              **74.5**
              
              
              **708**FHA
                  - ARM
              
              
              3
              
              
              1.2
              
              
              0.2
              %
              
              6.06
              %
              
              423,701
              
              
              96.1
              
              
              681FHA
                  - fixed-rate
              
              
              82
              
              
              12.9
              
              
              2.2
              %
              
              6.61
              %
              
              157,096
              
              
              96.1
              
              
              652**Subtotal
                  - FHA**
              
              
              **85**
              
              
              **14.1**
              
              
              **2.4**
              **%**
              ****
              **6.56**
              **%**
              
              **166,506**
              
              
              **95.7**
              
              
              **654**Total
                  ARM
              
              
              797
              
              
              238.8
              
              
              39.6
              %
              
              7.27
              %
              
              299,678
              
              
              72.9
              
              
              704Total
                  fixed-rate
              
              
              1,791
              
              
              364.0
              
              
              60.4
              %
              
              7.45
              %
              
              203,220
              
              
              76.4
              
              
              709**Total
                  Originations**
              
              
              **2,588**
              
              **$**
              **602.8**
              
              
              **100.0**
              **%**
              
              **7.38**
              **%**
              **$**
              **232,925**
              
              
              **75.0**
              
              
              **707**Purchase
                  mortgages
              
              
              1,594
              
              $
              352.6
              
              
              58.5
              
              
              7.47
              %
              $
              221,215
              
              
              79.0
              
              
              718Refinancings
              
              
              909
              
              
              236.1
              
              
              39.1
              
              
              7.28
              %
              
              259,670
              
              
              67.8
              
              
              693**Subtotal-non-FHA**
              
              
              **2,503**
              
              
              **588.7**
              
              
              **97.6**
              **%**
              ****
              **7.39**
              **%**
              
              **235,180**
              
              
              **74.5**
              
              
              **708**FHA
                  - purchase
              
              
              70
              
              
              11.9
              
              
              2.0
              
              
              6.50
              %
              
              170,453
              
              
              96.5
              
              
              664FHA
                  - refinancings
              
              
              15
              
              
              2.2
              
              
              0.4
              
              
              6.84
              %
              
              148,087
              
              
              91.4
              
              
              604**Subtotal
                  - FHA**
              
              
              **85**
              
              
              **14.1**
              
              
              **2.4**
              
              
              **6.56**
              **%**
              
              **166,506**
              
              
              **95.7**
              
              
              **654**Total
                  purchase
              
              
              1,664
              
              
              364.5
              
              
              60.5
              
              
              7.44
              %
              
              219,079
              
              
              79.5
              
              
              716Total
                  refinancings
              
              
              924
              
              
              238.3
              
              
              39.5
              
              
              7.27
              %
              
              257,858
              
              
              68.0
              
              
              692**Total
                  Originations**
              
              
              **2,588**
              
              **$**
              **602.8**
              ****
              ****
              **100.0**
              **%**
              ****
              **7.38**
              **%**
              **$**
              **232,925**
              
              
              **75.0**
              
              
              **707***Second
                  Quarter*ARM
              
              
              1,021
              
              $
              352.4
              
              
              47.5
              %
              
              6.83
              %
              $
              345,116
              
              
              72.2
              
              
              711Fixed-rate
              
              
              1,687
              
              
              358.8
              
              
              48.4
              %
              
              7.21
              %
              
              212,710
              
              
              75.1
              
              
              713**Subtotal-non-FHA**
              
              
              **2,708**
              
              
              **711.2**
              
              
              **95.9**
              **%**
              ****
              **7.02**
              **%**
              
              **262,631**
              
              
              **73.7**
              
              
              **712**FHA
                  - ARM
              
              
              7
              
              
              1.7
              
              
              0.2
              %
              
              5.60
              %
              
              242,250
              
              
              95.8
              
              
              608FHA
                  - fixed-rate
              
              
              170
              
              
              28.9
              
              
              3.9
              %
              
              6.32
              %
              
              169,950
              
              
              93.3
              
              
              662**Subtotal
                  - FHA**
              
              
              **177**
              
              
              **30.6**
              
              
              **4.1**
              **%**
              ****
              **6.28**
              **%**
              
              **172,809**
              
              
              **93.4**
              
              
              **659**Total
                  ARM
              
              
              1,028
              
              
              354.1
              
              
              47.7
              %
              
              6.82
              %
              
              344,415
              
              
              72.3
              
              
              711Total
                  fixed-rate
              
              
              1,857
              
              
              387.7
              
              
              52.3
              %
              
              7.14
              %
              
              208,795
              
              
              76.5
              
              
              709**Total
                  Originations**
              
              
              **2,885**
              
              **$**
              **741.8**
              ****
              ****
              **100.0**
              **%**
              ****
              **6.99**
              **%**
              **$**
              **257,120**
              
              
              **74.5**
              
              
              **710**




50


**Number**
                **of**
              
              **Aggregate**
                **Principal**
                **Balance**
              
              **Percentage**
                **of
                  Total**
              
              **Weighted**
                **Average**
                **Interest**
              
              **Average**
                **Principal**
              
              **Weighted**
                **Average****Loans**
              
              **($ in millions)**
              
              **Principal**
              
              **Rate**
              
              **Balance**
              
              **LTV**
              
              **FICO**Purchase
                  mortgages
              
              
              1,792
              
              $
              434.7
              
              
              58.6
              %
              
              7.10
              %
              $
              242,591
              
              
              78.7
              
              
              720Refinancings
              
              
              916
              
              
              276.5
              
              
              37.3
              %
              
              6.89
              %
              
              301,836
              
              
              65.8
              
              
              698**Subtotal-non-FHA**
              
              
              **2,708**
              
              
              **711.2**
              
              
              **95.9**
              **%**
              ****
              **7.02**
              **%**
              
              **262,631**
              
              
              **73.7**
              
              
              **712**FHA
                  - purchase
              
              
              108
              
              
              19.2
              
              
              2.6
              %
              
              6.23
              %
              
              178,164
              
              
              96.6
              
              
              669FHA
                  - refinancings
              
              
              69
              
              
              11.4
              
              
              1.5
              %
              
              6.38
              %
              
              164,429
              
              
              88.0
              
              
              642**Subtotal
                  - FHA**
              
              
              **177**
              
              
              **30.6**
              
              
              **4.1**
              **%**
              ****
              **6.28**
              **%**
              
              **172,809**
              
              
              **93.4**
              
              
              **659**Total
                  purchase
              
              
              1,900
              
              
              453.9
              
              
              61.2
              %
              
              7.07
              %
              
              238,929
              
              
              79.4
              
              
              718Total
                  refinancings
              
              
              985
              
              
              287.9
              
              
              38.8
              %
              
              6.87
              %
              
              292,210
              
              
              66.7
              
              
              696**Total
                  Originations**
              
              
              **2,885**
              
              **$**
              **741.8**
              ****
              ****
              **100.0**
              **%**
              ****
              **6.99**
              **%**
              **$**
              **257,120**
              
              
              **74.5**
              
              
              **710***First
                  Quarter*ARM
              
              
              924
              
              $
              290.6
              
              
              47.3
              %
              
              6.71
              %
              $
              314,555
              
              
              71.6
              
              
              705Fixed-rate
              
              
              1,442
              
              
              299.2
              
              
              48.8
              %
              
              7.06
              %
              
              207,519
              
              
              73.3
              
              
              712**Subtotal-non-FHA**
              
              
              **2,366**
              
              
              **589.8**
              
              
              **96.1**
              **%**
              ****
              **6.89**
              **%**
              
              **249,320**
              
              
              **72.5**
              
              
              **709**FHA
                  - ARM
              
              
              2
              
              
              0.5
              
              
              0.1
              %
              
              5.57
              %
              
              228,253
              
              
              93.0
              
              
              646FHA
                  - fixed-rate
              
              
              142
              
              
              23.5
              
              
              3.8
              %
              
              6.13
              %
              
              165,161
              
              
              92.7
              
              
              650**Subtotal
                  - FHA**
              
              
              **144**
              
              
              **24.0**
              
              
              **3.9**
              **%**
              ****
              **6.12**
              **%**
              
              **166,037**
              
              
              **92.7**
              
              
              **650**Total
                  ARM
              
              
              926
              
              
              291.1
              
              
              47.4
              %
              
              6.71
              %
              
              314,369
              
              
              71.7
              
              
              705Total
                  fixed-rate
              
              
              1,584
              
              
              322.7
              
              
              52.6
              %
              
              6.99
              %
              
              203,722
              
              
              74.7
              
              
              708**Total
                  Originations**
              
              
              **2,510**
              
              **$**
              **613.8**
              ****
              ****
              **100.0**
              **%**
              ****
              **6.86**
              **%**
              **$**
              **244,542**
              
              
              **73.2**
              
              
              **706**Purchase
                  mortgages
              
              
              1,430
              
              $
              335.5
              
              
              54.7
              %
              
              6.94
              %
              $
              234,600
              
              
              77.2
              
              
              722Refinancings
              
              
              936
              
              
              254.3
              
              
              41.4
              %
              
              6.81
              %
              
              271,809
              
              
              66.2
              
              
              692**Subtotal-non-FHA**
              
              
              **2,366**
              
              
              **589.8**
              
              
              **96.1**
              **%**
              ****
              **6.89**
              **%**
              
              **249,320**
              
              
              **72.5**
              
              
              **709**FHA
                  - purchase
              
              
              70
              
              
              12.7
              
              
              2.1
              %
              
              6.07
              %
              
              181,325
              
              
              96.4
              
              
              655FHA
                  - refinancings
              
              
              74
              
              
              11.3
              
              
              1.8
              %
              
              6.17
              %
              
              151,576
              
              
              88.6
              
              
              645**Subtotal
                  - FHA**
              
              
              **144**
              
              
              **24.0**
              
              
              **3.9**
              **%**
              ****
              **6.12**
              **%**
              
              **166,037**
              
              
              **92.7**
              
              
              **650**Total
                  purchase
              
              
              1,500
              
              
              348.2
              
              
              56.7
              %
              
              6.91
              %
              
              232,144
              
              
              77.9
              
              
              719Total
                  refinancings
              
              
              1,010
              
              
              265.6
              
              
              43.3
              %
              
              6.78
              %
              
              263,000
              
              
              67.1
              
              
              690**Total
                  Originations**
              
              
              **2,510**
              
              **$**
              **613.8**
              ****
              ****
              **100.0**
              **%**
              ****
              **6.86**
              **%**
              **$**
              **244,542**
              
              
              **73.2**
              
              
              **706**


Any
      change in loan origination volume and other operational and financial
      performance results was primarily dependent on the number of offices and our
      level of staffing these offices. Our personnel costs are largely variable in
      that loan origination personnel are paid commissions on loan production volume
      and the related operations personnel are somewhat variable in terms of have
      flexibility to scale operations based on volume levels. Our staffing levels
      also
      have a high correlation to levels of expense for marketing and promotion, office
      supplies, data processing, and travel and entertainment expenses. Likewise,
      the
      number of offices and branches which we operate has a high correlation to
      occupancy and equipment expense.




51




**Other
      Operational Information**




**March
                31,****2007**
            
            **2006**
            
            **%
              change****Continuing(1)**
            
            **Discontinued(2)**
            
            **Total**
            
            **Total**Loan
                officers
            
            
            —
            
            
            280
            
            
            280
            
            
            372
            
            
            (24.7
            )%Other
                employees
            
            
            35
            
            
            147
            
            
            182
            
            
            380
            
            
            (52.1
            )%Total
                employees
            
            
            35
            
            
            427
            
            
            462
            
            
            752
            
            
            (38.6
            )%Number
                of sales locations
            
            
            —
            
            
            41
            
            
            41
            
            
            53
            
            
            (22.6
            )%





(1)
      Once
      the Company completes its transition from an active REIT (one that originates
      mortgages) to a passive REIT (one that invests solely in closed loans), which
      the Company expects will be in the third quarter of 2007, the longterm employee
      head count will be approximately 8-10 people.





(2)
      In
      connection with the sale of our wholesale mortgage lending platform assets
      on
      February 22, 2007 and the sale of our retail mortgage lending platform assets
      to
      Indymac on March 31, 2007, the Company exited the mortgage lending business
      and
      significantly reduced its staffing needs. As of March 31, 2007, the Company
      does
      not employ any loan officers and does not maintain any sales
      locations. ****





**Results
      of Operations - Comparison of Three Months Ended March 31, 2007 and March 31,
      2006**




***Net
      Income -*** ***Consolidated
      Overview***




**Comparative
      Net Income**




**As
                of March 31,****2007**
            
            **2006**
            
            **%
                Change**(dollar
                amounts, except per share amounts, in thousands)Net
                loss
            
            $
            (4,741
            )
            $
            (1,796
            )
            
            (164.0
            )%EPS
                (Basic)
            
            $
            (0.26
            )
            $
            (0.10
            )
            
            (160.0
            )%EPS
                (Diluted)
            
            $
            (0.26
            )
            $
            (0.10
            )
            
            (160.0
            )%




For
      the
      three months ended March 31, 2007, we reported net loss of $4.7
      million, as compared to net loss of $1.8 million for the three months ended
      March 31, 2006. The increase in net loss is attributable to a reduction in
      gain
      on sale income from the mortgage lending segment as well as a reduction in
      net
      interest income from the investment portfolio. Included in the net loss is
      a
      gain of $5.2 million from the sale of the mortgage lending platform to
      Indymac.




**Comparative
      Net Interest Income**




**As
                    of March 31,****2007**
                
                **2006**
                
                **%
                    Change**(dollar
                    amounts in thousands)Interest
                    income
                
                $
                13,713
                
                $
                17,584
                
                
                (22.0
                )%Interest
                    expense
                
                
                13,966
                
                
                14,964
                
                
                (6.7
                )%Net
                    interest (expense) income
                
                $
                (253
                )
                $
                2,620
                
                
                (109.7
                )%


For
      the
      three months ended March 31, 2007, we reported net interest expense of $0.3
      million as compared to net interest income of $2.6 million for the same period
      in 2006. Net interest income decreased by $2.9 million for the three months
      ended March 31, 2007 from the same period in 2006. The change was primarily
      due
      to an increase interest expense without the corresponding increase in interest
      income on the portfolio assets. In addition, the average amount invested in
      the
      investment securities portfolio and mortgage loans held in securitization trust
      decreased by approximately $455.9 million as compared to March 31,
      2006.




52


*Net
        Interest Income* .
        The
        following table summarizes the changes in net interest income for the three
        months ended March 31, 2007 and 2006:


**Yields
        Earned on Mortgage Loans and Securities and Rates on Financial
        Arrangements**
 **2007**
                
                **2006****Average**
                  **Balance**
                
                **Amount**
                
                **Yield/**
                  **Rate**
                
                **Average**
                  **Balance**
                
                **Amount**
                
                **Yield/**
                  **Rate**($
                    Millions)
                
                
                
                ($
                    Millions)**Interest
                    income:**Investment
                    securities and loans held in the securitization trusts
                
                $
                1,017.9
                
                $
                14,214
                
                
                5.59
                %
                $
                1,472.8
                
                $
                17,941
                
                
                4.85
                %Loans
                    held for sale
                
                $
                143.0
                
                $
                2,683
                
                
                7.50
                %
                $
                258.3
                
                $
                5,042
                
                
                6.86
                %Amortization
                    of net premium
                
                $
                4.8
                
                $
                (501
                )
                
                (0.23
                )%
                $
                5.8
                
                $
                (357
                )
                
                (0.10
                )%Interest
                    income
                
                $
                1,165.7
                
                $
                16,396
                
                
                5.63
                %
                $
                1,736.9
                
                $
                22,626
                
                
                5.23
                %**Interest
                    expense:**Investment
                    securities and loans held in the securitization trusts
                
                $
                980.3
                
                $
                13,084
                
                
                5.34
                %
                $
                1,393.8
                
                $
                14,079
                
                
                4.04
                %Loans
                    held for sale
                
                $
                135.0
                
                $
                2,087
                
                
                6.40
                %
                $
                252.0
                
                $
                3,315
                
                
                5.42
                %Subordinated
                    debentures
                
                $
                45.0
                
                $
                882
                
                
                7.84
                %
                $
                45.0
                
                $
                885
                
                
                7.87
                %Interest
                    expense
                
                $
                1,160.3
                
                $
                16,053
                
                
                5.53
                %
                $
                1,690.8
                
                $
                18,279
                
                
                4.32
                %Net
                    interest income
                
                $
                5.4
                
                $
                343
                
                
                0.10
                %
                $
                46.1
                
                $
                4,347
                
                
                0.91
                %




53




*Continuing
      Operations*


For
      our
      portfolio investments of investment securities, mortgage loans held for
      investments and loans held in securitization trusts, our net interest spread
      for
      each quarter since we began our portfolio investment activities
      follows:


**As
                  of the Quarter Ended**
              
              **Average**
                **Interest**
                **Earning**
                **Assets**
                **($
                  millions)**
              
              **Weighted**
                **Average**
                **Coupon**
              
              **Weighted**
                **Average**
                **Yield
                  on**
                **Interest**
                **Earning**
                **Assets**
              
              **Cost
                  of**
                **Funds**
              
              **Net
                  Interest**
                **Spread**March
                  31, 2007
              
              $
              1,022.7
              
              
              5.59
              %
              
              5.36
              %
              
              5.34
              %
              
              0.02
              %December
                  31, 2006
              
              $
              1,111.0
              
              
              5.53
              %
              
              5.35
              %
              
              5.26
              %
              
              0.09
              %September
                  30, 2006
              
              $
              1,287.6
              
              
              5.50
              %
              
              5.28
              %
              
              5.12
              %
              
              0.16
              %June
                  30, 2006
              
              $
              1,217.9
              
              
              5.29
              %
              
              5.08
              %
              
              4.30
              %
              
              0.78
              %March
                  31, 2006
              
              $
              1,478.6
              
              
              4.85
              %
              
              4.75
              %
              
              4.04
              %
              
              0.71
              %December
                  31, 2005
              
              $
              1,499.0
              
              
              4.84
              %
              
              4.43
              %
              
              3.81
              %
              
              0.62
              %September
                  30, 2005
              
              $
              1,494.0
              
              
              4.69
              %
              
              4.08
              %
              
              3.38
              %
              
              0.70
              %June
                  30, 2005
              
              $
              1,590.0
              
              
              4.50
              %
              
              4.06
              %
              
              3.06
              %
              
              1.00
              %March
                  31, 2005
              
              $
              1,447.9
              
              
              4.39
              %
              
              4.01
              %
              
              2.86
              %
              
              1.15
              %December
                  31, 2004
              
              $
              1,325.7
              
              
              4.29
              %
              
              3.84
              %
              
              2.58
              %
              
              1.26
              %September
                  30, 2004
              
              $
              776.5
              
              
              4.04
              %
              
              3.86
              %
              
              2.45
              %
              
              1.41
              %







**Comparative
      Expenses**




**For
                  the Three Months Ended March 31,****2007**
              
              **2006**
              
              **%
                  Change**Salaries,
                  commissions and benefits
              
              $
              345
              
              $
              250
              
              
              38.0
              %Professional
                  fees
              
              
              100
              
              
              94
              
              
              6.4
              %Depreciation
                  and amortization
              
              
              68
              
              
              67
              
              
              1.5
              %Other
              
              $
              74
              
              $
              87
              
              
              (14.9
              )%




The
      38%
      increase in salaries for the three months ended March 31, 2007 from the same
      period in 2006 was due to an accelerated vesting of restricted stock due to
      the
      departure of senior executives related to the Indymac asset sale.




It
      should
      be noted that certain expenses are shared by the Company and are included as
      a
      discontinued operation for this presentation.




In
      connection with the sale of the Company’s wholesale mortgage origination
      platform assets on February 22, 2007 and the sale of its retail mortgage lending
      platform assets on March 31, 2007, we are required to classify our mortgage
      lending segment as a discontinued operation in accordance with SFAS No. 144
      (see
      note 11 in the notes to our consolidated financial statements).




54




***Discontinued
      Operation***


**Net
        loss**


**For
                the Three Months Ended March 31,****2007**
            
            **2006**
            
            **%
                Change**(dollar
                amounts in thousands)Loss
                from discontinued operation-net of tax
            
            $
            (3,841
            )
            $
            (5,801
            )
            
            33.8
            %Income
                tax benefit
            
            
            —
            
            
            2,916
            
            
            (100.0
            )%Net
                loss
            
            $
            (3,841
            )
            $
            (2,885
            )
            
            (33.1
            )%




The
      33.8%
      decrease in loss before income tax benefit, equivalent to $2.0 million, is
      primarily due to the $5.2 million gain recognized from the sale of the retail
      mortgage lending platform to Indymac offset by the $ 3.2 million in loan losses.
      The increase in net loss is due to the Company’s decision to no longer increase
      the value of the deferred tax asset.




The
      following is selected financial data detail that is included in income (loss)
      from the discontinued operation for the three months ended March 31, 2007 and
      2006:




**For
                the Three Months Ended March 31,****2007**
            
            **2006**
            
            **%
                Change**(dollar
                amounts in thousands)Net
                interest income
            
            $
            596
            
            $
            1,727
            
            
            (65.5
            )%Gain
                on sale of mortgage loans
            
            
            2,337
            
            
            4,070
            
            
            (42.6
            )%Loan
                losses
            
            
            (3,161
            )
            
            —
            
            
            —Gain
                on sale of retail lending segment
            
            
            5,160
            
            
            —
            
            
            —Net
                brokered fees
            
            $
            412
            
            $
            609
            
            
            (32.3
            )%




*Net
      interest income.* For the
      three months ended March 31, 2007, net interest income decreased by 65.5% as
      compared to the same period in the previous year. This is mainly due to a
      decline in the average balance of the mortgage loans held for sale during
      the three months ended March 31, 2007 and lower net interest spread.




*Gain
      on sale of mortgage loans* .
      The
      42.6% decrease in the gain on sales of mortgage loans was due to unfavorable
      market conditions suffered by the entire industry as well as an overall decrease
      in banked loan volume. The following table details the period over period banked
      loan volume:


**Banked
        Loan Volume**
 **For
                    the Three Months Ended March 31,****2007**
                
                **2006**
                
                **%
                    Change**(dollar
                    amounts in thousands)Total
                    banked loan volume
                
                $
                300,863
                
                $
                422,247
                
                
                (28.7
                )%Total
                    banked loan volume - units
                
                
                1,210
                
                
                1,895
                
                
                (36.1
                )%Banked
                    originations retained in portfolio
                
                $
                —
                
                $
                69,739
                
                
                (100.0
                )%Banked
                    originations retained in portfolio - units
                
                
                —
                
                
                134
                
                
                (100.0
                )%Net
                    banked loan volume
                
                $
                300,863
                
                $
                352,508
                
                
                (14.7
                )%Net
                    banked loan volume - units
                
                
                1,210
                
                
                1,761
                
                
                (31.3
                )%Gain
                    on sales of mortgage loans
                
                $
                2,337
                
                $
                4,070
                
                
                (42.6
                )%


*Loan
      losses.* The
      Company incurred an additional $3.2 million in loan losses during the three
      months ended March 31, 2007 primarily due to an increase in Alt-A loans with
      early payment defaults and the resulting lower prices obtained in selling those
      loans.




*Gain
      on sale of retail lending segment.* The
      Company received an $8 million premium over book for the sale of the retail
      lending segment to Indymac. This premium ** was
      reduced for loan officer retention, employee severance and other cost associated
      with the disposal of the segment resulting ** in
      a net
      gain of $5.2 million.




55




*Net
      brokered fees.* The 32.3% decrease in net brokered fees is due primarily to
      decrease in brokered loan volume and in part to the sale of wholesale mortgage
      lending platform on February 22, 2007. The following table summarizes brokered
      loan volume, fees and related expenses for the three months ended March 31,
      2007, and 2006:




**Brokered
      Loan Fees and Brokered Loan Expense**




**For
                  the Three Months Ended March 31,****2007**
              
              **2006**
              
              **%
                  Change**(dollar
                  amounts in thousands)Total
                  brokered loan volume
              
              $
              134,795
              
              $
              183,368
              
              
              (26.5
              )%Total
                  brokered loan volume - units
              
              
              366
              
              
              612
              
              
              (40.2
              )%Brokered
                  loan fees
              
              $
              2,135
              
              $
              2,777
              
              
              (23.1
              )%Brokered
                  loan expenses
              
              $
              1,723
              
              $
              2,168
              
              
              (20.5
              )%Net
                  brokered fees
              
              $
              412
              
              $
              609
              
              
              (32.3
              )%






***Expenses***




Most
      of
      our expenses are directly correlated to our staffing levels and our number
      of
      offices:




**For
                  the Three Months Ended March 31,****2007**
              
              
              **2006**
              
              
              **%
                  Change**Loan
                  officers
              
              
              280
              
              
              372
              
              
              (24.7
              )%Other
                  employees
              
              
              185
              
              
              380
              
              
              (51.3
              )%Total
                  employees
              
              
              465
              
              
              752
              
              
              (38.2
              )%Number
                  of sales locations
              
              
              41
              
              
              53
              
              
              (22.6
              )%Salaries
                  and benefits
              
              $
              5,006
              
              $
              6,091
              
              
              (17.8
              )%Occupancy
                  and equipment
              
              
              1,312
              
              
              1,325
              
              
              (1.0
              )%Marketing
                  and promotion
              
              
              221
              
              
              779
              
              
              (71.6
              )%Data
                  processing and communications
              
              
              504
              
              
              605
              
              
              (16.7
              )%Office
                  supplies and expenses
              
              
              430
              
              
              591
              
              
              (27.2
              )%Professional
                  fees
              
              
              892
              
              
              1,187
              
              
              (24.9
              )%Depreciation
                  and amortization
              
              $
              421
              
              $
              498
              
              
              (15.5
              )%


Included
        in the expenses in the table above are amounts that were allocated for
        shared services that will remain part of continuing operations.
  56


**Off-Balance
      Sheet Arrangements —
      General**




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




**Liquidity
      and Capital Resources — Continuing
      Operations**




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




We
      believe our existing cash balances and funds available under our warehouse
      facility and cash flows from operations will be sufficient for our liquidity
      requirements for at least the next 12 months. Unused borrowing capacity will
      vary as the market values of our securities vary. Our investments and assets
      will also generate liquidity on an ongoing basis through mortgage principal
      and
      interest payments, pre-payments and net earnings held prior to payment of
      dividends. Should our liquidity needs ever exceed the on-going or immediate
      sources of liquidity discussed above, we believe that our securities could
      be
      sold to raise additional cash. At March 31, 2007, we had no commitments for
      any
      additional financings, however we cannot ensure that we will be able to obtain
      any future additional financing if and when required and on terms and conditions
      acceptable to us.




To
      finance our investment portfolio, we generally seek to borrow between eight
      and
      12 times the amount of our equity. At March 31, 2007, our leverage ratio,
      defined as total financing facilities outstanding divided by total stockholders’
equity was 16 to 1. We, and the providers of our finance facilities, generally
      view our $45.0 million of subordinated trust preferred debentures outstanding
      at
      March 31, 2007 as a form of equity which would result in an adjusted leverage
      ratio of 9 to1.




We
      have
      arrangements to enter into repurchase agreements, a form of collateralized
      short-term borrowing, with 22 different financial institutions with total
      borrowing capacity of $4.6 billion; as of March 31, 2007 we had $0.4 billion
      outstanding from six of these firms. These agreements are secured by our
      mortgage-backed securities and bear interest rates that have historically moved
      in close relationship to LIBOR. Under these repurchase agreements the financial
      institutions lend money versus the market value of our mortgage-backed
      securities portfolio, and, accordingly, an increase in interest rates can have
      a
      negative impact on the valuation of these securities, resulting in a potential
      margin call from the financial institution. We monitor the market valuation
      fluctuation as well as other liquidity needs to ensure there is adequate
      collateral available to meet any additional margin calls or liquidity
      requirements.




Our
        borrowings are secured by portfolio investments, the value of which may move
        inversely with changes in interest rates. A decline in the market value of
        our
        portfolio investments or mortgage loans investments in the future may limit
        our
        ability to borrow under these facilities or result in lenders requiring
        additional collateral or initiating margin calls under our borrowing facilities.
        As a result, we could be required to sell some of our investments under adverse
        market conditions in order to maintain liquidity. If such sales are made
        at
        prices lower than the amortized costs of such investments, we will incur
        losses.





57




We
      enter
      into interest rate swap agreements to extend the maturity of our repurchase
      agreements as a mechanism to reduce the interest rate risk of the securities
      portfolio. At March 31, 2007 we had $285.0 million in interest rate swaps
      outstanding with two different financial institutions. The weighted average
      maturity of the swaps was 602 days at March 31, 2007. The impact of the interest
      swaps extends the maturity of the repurchase agreements to eight
      months.




We
        intend
        to make distributions to our stockholders to comply with the various
        requirements to maintain our REIT status and to minimize or avoid corporate
        income tax and the nondeductible excise tax. However, differences in timing
        between the recognition of REIT taxable income and the actual receipt of
        cash
        could require us to sell assets or to borrow funds on a short-term basis
        to meet
        the REIT distribution requirements and to avoid corporate income tax and
        the
        nondeductible excise tax.
  Certain
        of our assets may generate substantial mismatches between REIT taxable income
        and available cash. These assets could include mortgage-backed securities
        we
        hold that have been issued at a discount and require the accrual of taxable
        income in advance of the receipt of cash. As a result, our REIT taxable income
        may exceed our cash available for distribution and the requirement to distribute
        a substantial portion of our net taxable income could cause us to:
  ·
              sell
                  assets in adverse market
                  conditions;
  ·
              borrow
                  on unfavorable terms; or
  ·
              distribute
                  amounts that would otherwise be invested in assets or repayment
                  of debt,
                  in order to comply with the REIT distribution
                  requirements.




**Liquidity
      and Capital Resources - Discontinued Operations**




As
      of
      March 31, 2007 we maintained a warehouse facility with Credit Suisse First
      Boston Mortgage Capital, LLC, or CSFB, in the amount of $120.0 million. This
      facility is secured by the mortgage loans owned by the Company. Advances under
      this facility bear interest at a floating rate initially equal to LIBOR plus
      a
      spread (starting at .75%) that varies depending on the types of mortgage loans
      securing the facility. Additionally advance rates and terms may vary depending
      on the ratio of our liabilities to our tangible net worth. As of March 31,
      2007,
      the aggregate outstanding balance under this facility was $98.6 million and
      the
      aggregate maximum amount available for additional borrowings was $21.4 million.
      An amendment pertaining to this facility was entered into between us and the
      counterparty on March 23, 2007 that limited the facility to $120 million, and
      specified a termination date of June 29, 2007, at which time we expect to have
      all loans currently financed with this facility to be sold, or reduced to an
      amount that would enable us to pay the loans off of the facility.




The
        documents governing this facility contain a number of compensating balance
        requirements and restrictive financial and other covenants that, among other
        things, require us to maintain a maximum ratio of total liabilities to tangible
        net worth of 20 to 1, as well as to comply with applicable regulatory and
        investor requirements. These facilities also contain various covenants
        pertaining to, among other things, the maintenance of certain periodic income
        thresholds and working capital, and maintenance of certain amounts of net
        worth.
        As of March 31, 2007, the Company was in compliance with all covenants with
        the
        exception of the net income and stockholder’s equity covenants. Waivers have
        been obtained from this institution for these matters.




We
      expect
      that the CSFB facility will be sufficient to meet our capital and financing
      needs as we no longer operate a mortgage lending business as of March 31, 2007.
      The Company will continue to utilize the facility until all of the loans are
      sold, which we expect will occur during the second quarter of 2007.


58




Current
        market conditions relative to early payment defaults (“EPD”) on mortgage loans
        have made EPDs an important factor affecting our liquidity. As more fully
        described in section Loan Loss Reserves on Mortgage Loans, we are generally
        required to repurchase loans where the borrowers have not timely made some
        or
        all of their first three mortgage payments. As the incidence of EPDs has
        recently increased dramatically, the frequency of loans we are requested
        to
        repurchase has increased. These repurchases are predominately made with cash
        and
        the loans are held on the balance sheet until they can be sold. EPD loans
        are
        sold at a discount to the current balance of the loan, thus reducing our
        cash
        position.
 Our
          ability to sell the mortgage loans we own at cost or for a premium in the
          secondary market so that we may generate cash proceeds to repay borrowings
          under
          our repurchase facilities, depends on a number of factors,
          including:
  ·
                  the
                      program parameters under which the loan was originated under
                      and the
                      continuation of that program by the
                      investor;
  ·
                  the
                      loan’s conformity with the ultimate investors’ underwriting
                      standards;
  ·
                  the
                      credit quality of the loans; and
  ·
                  our
                      compliance with laws and regulations as it relates to lending
                      practices;
  As
            it
            relates to loans sold previously under certain loan sale agreements,
            and in the
            event of a breach of a representation, warranty or covenant under such
            agreement, or in the event of an EPD, we may be required to repurchase
            some of
            those loan or indemnify the loan purchaser for damages caused by that
            breach.


**Inflation**




For
      the
      periods presented herein, inflation has been relatively low and we believe
      that
      inflation has not had a material effect on our results of operations. The impact
      of inflation is primarily reflected in the increased costs of our operations.
      Virtually all our assets and liabilities are financial in nature. Our
      consolidated financial statements and corresponding notes thereto have been
      prepared in accordance with GAAP, which require the measurement of financial
      position and operating results in terms of historical dollars without
      considering the changes in the relative purchasing power of money over time
      due
      to inflation. As a result, interest rates and other factors influence our
      performance far more than inflation. Inflation affects our operations primarily
      through its effect on interest rates, since interest rates typically increase
      during periods of high inflation and decrease during periods of low inflation.
      During periods of increasing interest rates, demand for mortgages and a
      borrower’s ability to qualify for mortgage financing in a purchase transaction
      may be adversely affected. During periods of decreasing interest rates,
      borrowers may prepay their mortgages, which in turn may adversely affect our
      yield and subsequently the value of our portfolio of mortgage
      assets.




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




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




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




·
            Interest
                rate and market (fair value) risk




·
            Credit
                spread risk




·
            Liquidity
                and funding risk




·
            Prepayment
                risk




·
            Credit
                risk




59




**Interest
      Rate Risk**




Our
      primary interest rate exposure relates to the portfolio of adjustable-rate
      mortgage loans and mortgage-backed securities we acquire, as well as our
      variable-rate borrowings and related interest rate swaps and caps. Interest
      rate
      risk is defined as the sensitivity of our current and future earnings to
      interest rate volatility, variability of spread relationships, the difference
      in
      re-pricing intervals between our assets and liabilities and the effect that
      interest rates may have on our cash flows, especially the speed at which
      prepayments occur on our residential mortgage related assets.




Changes
      in the general level of interest rates can affect our net interest income,
      which
      is the difference between the interest income earned on interest earning assets
      and our interest expense incurred in connection with our interest bearing debt
      and liabilities. Changes in interest rates can also affect, among other things,
      our ability to acquire loans and securities, the value of our loans, mortgage
      pools and mortgage-backed securities, and our ability to realize gains from
      the
      resale and settlement of such originated loans.




In
      our
      investment portfolio, our primary market risk is interest rate risk. Interest
      rate risk can be defined as the sensitivity of our portfolio, including future
      earnings potential, prepayments, valuations and overall liquidity to changes
      in
      interest rates. We attempt to manage interest rate risk by adjusting portfolio
      compositions, liability maturities and utilizing interest rate derivatives
      including interest rate swaps and caps. Management’s goal is to maximize the
      earnings potential of the portfolio while maintaining long term stable portfolio
      valuations.




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




Based
      on
      the results of this model, as of March 31, 2007, an instantaneous shift of
      100
      basis points in interest rates would result in an approximate decrease in the
      net interest spread by 30-35 basis points as compared to our base line
      projections over the next year.




The
      following tables set forth information about financial instruments (dollar
      amounts in thousands):


**March
                  31, 2007****Notional**
                **Amount**
              
              **Carrying**
                **Amount**
              
              **Estimated**
                **Fair
                  Value****Continuing
                  Operations:**Investment
                  securities available for sale
              
              $
              449,349
              
              $
              447,063
              
              $
              447,063Mortgage
                  loans held in the securitization trusts
              
              
              540,549
              
              
              544,046
              
              
              542,290Commitments
                  and contingencies:Interest
                  rate swaps
              
              
              285,000
              
              
              (183
              )
              
              (183
              )Interest
                  rate caps
              
              $
              1,469,636
              
              $
              1,300
              
              $
              1,300**Discontinued
                  Operations:**Mortgage
                  loans held for sale
              
              $
              60,872
              
              $
              60,883
              
              $
              61,422Commitments
                  and contingencies:Interest
                  rate lock commitments - loan commitments
              
              
              4,843
              
              
              (7
              )
              
              (7
              )Interest
                  rate lock commitments - mortgage loans held for sale
              
              
              54,571
              
              
              37
              
              
              37Forward
                  loan sales contracts -mortage loans held for sale
              
              
              531
              
              
              (11
              )
              
              (11
              )Forward
                  loan sales contracts - loan commitments
              
              $
              4,843
              
              $
              1
              
              $
              1


60




**December
                  31, 2006****Notional**
                **Amount**
              
              **Carrying**
                **Amount**
              
              **Estimated**
                **Fair
                  Value****Continuing
                  Operations:**Investment
                  securities available for sale
              
              $
              491,293
              
              $
              488,962
              
              $
              488,962Mortgage
                  loans held in the securitization trusts
              
              
              584,358
              
              
              588,160
              
              
              582,504Commitments
                  and contingencies:Interest
                  rate swaps
              
              
              285,000
              
              
              621
              
              
              621Interest
                  rate caps
              
              $
              1,540,518
              
              $
              2,011
              
              $
              2,011**Discontinued
                  Operations:**Mortgage
                  loans held for sale
              
              $
              110,804
              
              $
              106,900
              
              $
              107,810Commitments
                  and contingencies:Interest
                  rate lock commitments - loan commitments
              
              
              104,334
              
              
              (118
              )
              
              (118
              )Interest
                  rate lock commitments - mortgage loans held for sale
              
              
              106,312
              
              
              (98
              )
              
              (98
              )Forward
                  loan sales contracts
              
              $
              142,110
              
              $
              171
              
              $
              171




The
      impact of changing interest rates may be mitigated by portfolio prepayment
      activity that we closely monitor and the portfolio funding strategies we employ.
      First, our floating rate borrowings may react to changes in interest rates
      before our adjustable rate assets because the weighted average next repricing
      dates on the related borrowings may have shorter time periods than that of
      the
      adjustable rate assets. Second, interest rates on adjustable rate assets may
      be
      limited to a “periodic cap” or an increase of typically 1% or 2% per adjustment
      period, while our borrowings do not have comparable limitations. Third, our
      adjustable rate assets typically lag changes in the applicable interest rate
      indices by 45 days, due to the notice period provided to adjustable rate
      borrowers when the interest rates on their loans are scheduled to
      change.




In
      a
      period of declining interest rates or nominal differences between long-term
      and
      short-term interest rates, the rate of prepayment on our mortgage assets may
      increase. Increased prepayments would cause us to amortize any premiums paid
      for
      our mortgage assets faster, thus resulting in a reduced net yield on our
      mortgage assets. Additionally, to the extent proceeds of prepayments cannot
      be
      reinvested at a rate of interest at least equal to the rate previously earned
      on
      such mortgage assets, our earnings may be adversely affected.




Conversely,
      if interest rates rise or if the differences between long-term and short-term
      interest rates increase the rate of prepayment on our mortgage assets may
      decrease. Decreased prepayments would cause us to amortize the premiums paid
      for
      our ARM assets over a longer time period, thus resulting in an increased net
      yield on our mortgage assets. Therefore, in rising interest rate environments
      where prepayments are declining, not only would the interest rate on the ARM
      Assets portfolio increase to re-establish a spread over the higher interest
      rates, but the yield also would rise due to slower prepayments. The combined
      effect could mitigate other negative effects that rising short-term interest
      rates might have on earnings.




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




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




61




In
      order
      to minimize the negative impacts of changes in interest rates on earnings and
      capital, we closely monitor our asset and liability mix and utilize interest
      rate swaps and caps, subject to the limitations imposed by the REIT
      qualification tests.




Movements
      in interest rates can pose a major risk to us in either a rising or declining
      interest rate environment. We depend on substantial borrowings to conduct our
      business. These borrowings are all made at variable interest rate terms that
      will increase as short term interest rates rise. Additionally, when interest
      rates rise, mortgage loans held for sale and any applications in process with
      interest rate lock commitments, or IRLCs, decrease in value. To preserve the
      value of such loans or applications in process with IRLCs, we may enter into
      forward sale loan contracts, or FSLCs, to be settled at future dates with fixed
      prices.




Our
      hedging transactions using derivative instruments also involve certain
      additional risks such as counterparty credit risk, the enforceability of hedging
      contracts and the risk that unanticipated and significant changes in interest
      rates will cause a significant loss of basis in the contract. The counterparties
      to our derivative arrangements are major financial institutions and securities
      dealers that are well capitalized with high credit ratings and with which we
      may
      also have other financial relationships. While we do not anticipate
      nonperformance by any counterparty, we are exposed to potential credit losses
      in
      the event the counterparty fails to perform. Our exposure to credit risk in
      the
      event of default by a counterparty is the difference between the value of the
      contract and the current market price. There can be no assurance that we will
      be
      able to adequately protect against the forgoing risks and will ultimately
      realize an economic benefit that exceeds the related expenses incurred in
      connection with engaging in such hedging strategies.




***Credit
      Spread Exposure***




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




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




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




For
      certain of the financial instruments that we own, fair values will not be
      readily available since there are no active trading markets for these
      instruments as characterized by current exchanges between willing parties.
      Accordingly, fair values can only be derived or estimated for these investments
      using various valuation techniques, such as computing the present value of
      estimated future cash flows using discount rates commensurate with the risks
      involved. However, the determination of estimated future cash flows is
      inherently subjective and imprecise. Minor changes in assumptions or estimation
      methodologies can have a material effect on these derived or estimated fair
      values. These estimates and assumptions are indicative of the interest rate
      environments as of March 31, 2007 and do not take into consideration the effects
      of subsequent interest rate fluctuations.




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




The
      following describes the methods and assumptions we use in estimating fair values
      of our financial instruments:




Fair
      value estimates are made as of a specific point in time based on estimates
      using
      present value or other valuation techniques. These techniques involve
      uncertainties and are significantly affected by the assumptions used and the
      judgments made regarding risk characteristics of various financial instruments,
      discount rates, estimates of future cash flows, future expected loss experience
      and other factors.




Changes
      in assumptions could significantly affect these estimates and the resulting
      fair
      values. Derived fair value estimates cannot be substantiated by comparison
      to
      independent markets and, in many cases, could not be realized in an immediate
      sale of the instrument. Also, because of differences in methodologies and
      assumptions used to estimate fair values, the fair values used by us should
      not
      be compared to those of other companies.




62




The
      fair
      values of the Company’s residential mortgage-backed securities are generally
      based on market prices provided by five to seven dealers who make markets in
      these financial instruments. If the fair value of a security is not reasonably
      available from a dealer, management estimates the fair value based on
      characteristics of the security that the Company receives from the issuer and
      on
      available market information.




The
      fair
      value of loans held for investment are determined by the loan pricing sheet
      which is based on internal management pricing and third party competitors in
      similar products and markets.




The
      fair
      value of loan commitments to fund with agreed upon rates are estimated using
      the
      fees and rates currently charged to enter into similar agreements, taking into
      account the remaining terms of the agreements and the present creditworthiness
      of the counterparties. For fixed rate loan commitments, fair value also
      considers the difference between current market interest rates and the existing
      committed rates.




The
      fair
      value of commitments to deliver mortgages is estimated using current market
      prices for dealer or investor commitments relative to our existing
      positions.




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




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




The
      table
      below presents the sensitivity of the market value of our portfolio using a
      discounted cash flow simulation model. Application of this method results in
      an
      estimation of the percentage change in the market value of our assets,
      liabilities and hedging instruments per 100 basis point (“bp”) shift in interest
      rates expressed in years - a measure commonly referred to as duration. Positive
      portfolio duration indicates that the market value of the total portfolio will
      decline if interest rates rise and increase if interest rates decline. The
      closer duration is to zero, the less interest rate changes are expected to
      affect earnings. Included in the table is a “Base Case” duration calculation for
      an interest rate scenario that assumes future rates are those implied by the
      yield curve as of March 31, 2007. The other two scenarios assume interest rates
      are instantaneously 100 and 200 bps higher that those implied by market rates
      as
      of March 31, 2007.




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




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




63




**Net
      Portfolio Duration**


**March
      31, 2007**




**Basis
                point increase****Base**
            
            
            **+100**
            
            
            **+200**Mortgage
                Portfolio
            
            
            0.86
                years
            
            
            1.25
                years
            
            
            1.38
                yearsBorrowings
                (including hedges)
            
            
            0.42
                years
            
            
            0.42
                years
            
            
            0.42
                yearsNet
            
            
            0.44
                years
            
            
            0.83
                years
            
            
            0.96
                years




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




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




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




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




***Liquidity
      and Funding Risk***




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




Our
      ability to hold mortgage loans held for sale require cash. Generally, we are
      required to have a balance of between zero and 4% of the loan’s balance funded
      by the Company with cash, the balance being drawn from the warehouse facility.
      Our operating cash inflows are predominately from cash flows from mortgage
      securities, principal and interest on mortgage loans, and sales of originated
      loans.




Loans
      financed on our warehouse facility are subject to changing market valuations
      and
      margin calls. The market value of our loans is dependent on a variety of
      economic conditions, including interest rates (and borrower demand) and end
      investor desire and capacity. These values can also be affected by general
      tightening of credit standards across the industry recently. There is no
      certainty that market values will remain constant going forward. To the extent
      the value of the loans declines significantly, we would be required to repay
      portions of the amounts we have borrowed.




As
      it
      relates to our investment portfolio, derivative financial instruments we use
      also subject us to “margin call” risk based on their market values. Under our
      interest rate swaps, we pay a fixed rate to the counterparties while they pay
      us
      a floating rate. When floating rates are low, on a net basis we pay the
      counterparty and visa-versa. In a declining interest rate environment, we would
      be subject to additional exposure for cash margin calls due to accelerating
      prepayments of mortgage assets. However, the asset side of the balance sheet
      should increase in value in a further declining interest rate scenario. Most
      of
      our interest rate swap agreements provide for a bi-lateral posting of margin,
      the effect being that either swap party must post margin, depending on the
      change in value of the swap over time. Unlike typical unilateral posting of
      margin only in the direction of the swap counterparty, this provides us with
      additional flexibility in meeting our liquidity requirements as we can call
      margin on our counterparty as swap values increase.




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




64




We
      manage
      liquidity to ensure that we have the continuing ability to maintain cash flows
      that are adequate to meet commitments on a timely and cost-effective basis.
      Our
      principal sources of liquidity are the repurchase agreement market, the issuance
      of CDOs, loan warehouse facilities as well as principal and interest payments
      from portfolio Assets. We believe our existing cash balances and cash flows
      from
      operations will be sufficient for our liquidity requirements for at least the
      next 12 months.




***Prepayment
      Risk***




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




We
      mitigate prepayment risk by constantly evaluating our ARM portfolio at a range
      of reasonable market prepayment speeds observed at the time for assets with
      a
      similar structure, quality and characteristics. Furthermore, we stress-test
      the
      portfolio as to prepayment speeds and interest rate risk in order to develop
      an
      effective hedging strategy.




For
      the
      three months ended March 31, 2007, our mortgage assets paid down at an
      approximate average annualized Constant Paydown Rate (“CPR”) of 19%, compared to
      17% for the three months ended December 31, 2006, 21% for the three months
      ended
      September 30, 2006, 20% for the three months ended June 30, 2006 and 18% for
      the
      three months ended March 31, 2006. When prepayment experience increases, we
      have
      to amortize our premiums over a shorter time period, resulting in a reduced
      yield to maturity on our ARM Assets. Conversely, if actual prepayment experience
      decreases, we would amortize the premium over a longer time period, resulting
      in
      a higher yield to maturity. We monitor our prepayment experience on a monthly
      basis and adjust the amortization of the net premium, as
      appropriate.




***Credit
      Risk***




Credit
      risk is the risk that we will not fully collect the principal we have invested
      in mortgage loans or securities. As previously noted, we are predominately
      a
      high-quality loan originator and our underwriting guidelines are intended to
      evaluate the credit history of the potential borrower, the capacity and
      willingness of the borrower to repay the loan, and the adequacy of the
      collateral securing the loan. Along with this however, is a growing percentage
      of loans underwritten with stated income and/or stated assets. These loan types
      make credit risk assessment more difficult.




We
      mitigate credit risk by establishing and applying criteria that identifies
      high-credit quality borrowers. With regard to the purchased mortgage security
      portfolio, we rely on the guaranties of FNMA, FHLMC, GNMA or the AAA/Aaa rating
      established by the Rating Agencies.




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




Our
      loans
      held in securitization are concentrated in geographic markets that are generally
      supply constrained. We believe that these markets have less exposure to sudden
      declines in housing values than those markets which have an oversupply of
      housing. In addition, in the supply constrained housing markets we focus on,
      housing values tend to be high and, generally, underwriting standards for higher
      value homes require lower LTVs and thus more owner equity further mitigating
      credit risk. For our mortgage securities that are purchased, we rely on the
      Fannie Mae, Freddie Mac, Ginnie Mae and AAA-rating of the securities
      supplemented with additional due diligence.




**Item
      4. Controls and Procedures**




*Evaluation
      of Disclosure Controls and Procedures* . We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in the reports that we file or submit
      under
      the Securities Exchange Act of 1934, as amended, is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms
      of the SEC, and that such information is accumulated and communicated to our
      management timely. An evaluation was performed under the supervision and with
      the participation of our management, including our Co-Chief Executive Officers
      and our Chief Financial Officer, of the effectiveness of our disclosure controls
      and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934) as of March 31, 2007. Based upon that evaluation, our
      management, including our Co-Chief Executive Officers and our Chief Financial
      Officer, concluded that our disclosure controls and procedures were effective
      as
      of March 31, 2007.




65


*Changes
        in Internal Control over Financial Reporting* .
Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting for our company, as such term is defined
        in
        Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
        as
        amended. Our internal control system wasdesigned
        to provide reasonable assurance to our management and board of directors
        regarding the reliability, preparation and fair presentation of published
        financial statements in accordance with generally accepted accounting
        principles. 
 As
          previously disclosed in the Company's Annual Report on Form 10-K for the
          fiscal
          year ended December 31, 2006 filed with the SEC on April 2, 2007, we identified
          a material weakness in our internal control over financial reporting as
          of
          December 31, 2006. A material weakness is a control deficiency or combination
          of
          control deficiencies that results in more than a remote likelihood that
          a
          material misstatement of the annual or interim financial statements will
          not be prevented
          or detected. The material weakness identified was an inadequacy in the
          operation
          of our
          control activities involving the completion and review of the accounting
          period
          closing process.
          The sale of substantially all of the operating assets of our mortgage lending
          platform to IndyMac Bank, F.S.B., which
          closed as of March 31, 2007, significantly increased the workload demands
          of the existing accounting staff, thereby disrupting the timely completion
          and
          review of the
          accounting period closing process. In addition, in connection with the
          uncertainty of the consummation
          and effect of the Indymac transaction, the accounting department was affected
          by the
          departure of certain key accounting personnel during this time. The increased
          workload and decreased
          staff levels resulted in a significant number of post-closing journal entries
          and contributed
          to a request for additional time to file our Annual Report on Form
          10-K.
 
 In
          making
          our assessment of the internal control over financial reporting, our management
          used the criteria issued by the Committee of Sponsoring Organizations of
          the
          Treadway Commission (COSO)
          in *Internal
          Control-Integrated Framework.* Because
          of the material weaknesses described
          above, management concluded that our internal control over financial reporting
          was not
          effective as of December 31, 2006. At March 31, 2007, due to post-closing
          transition requirements
          related to the IndyMac transaction, we determined that the material weakness
          had not
          yet
          been remediated.
 
 As
          previously disclosed in our Annual Report on Form 10-K for the year ended
          December 31, 2006, during the first quarter of 2007, our management actively
          assessed our accounting needs to determine
          appropriate staffing levels. Subsequent to March 31, 2007, management has
          identified a candidate to fill a position as controller of our company
          and
          expects to name such person controller
          during the second quarter of 2007. In addition, we expect that all post-closing requirements
          related to the IndyMac transaction will be completed, or substantially
          completed, by the end of the 2007 second quarter, which will reduce the
          workload
          demands on our accounting
          staff and limit disruptions during the accounting period closing process.
          Management believes that our internal controls will improve as a result
          of these
          actions and events and will continue to assess our accounting needs and
          take
          such necessary steps to hire and retain additional accounting staff with
          the
          requisite accounting experience and skill to effectively remediate
          this material weakness.


66


**PART
      II: OTHER INFORMATION**







**Item
      6. Exhibits**




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




67





**SIGNATURES**




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




NEW
                YORK MORTGAGE TRUST, INC.Date:
                May 15, 2007
            By:
            /s/
                David A. AkreDavid
                A. Akre
              Co-Chief
                Executive OfficerDate:
                May 15, 2007
            By:
            /s/
                Steven R. MummaSteven
                R. Mumma
              Chief
                Financial Officer





68




**EXHIBIT
      INDEX**


**No.**
            
            **Description**3.1
            
            Articles
                of Amendment and Restatement of the Registrant (incorporated by reference
                to Exhibit 3.01 to our Registration Statement on Form S-11/A filed
                on
                June 18, 2004 (Registration No. 333-111668)).3.2(a)
            
            Bylaws
                of the Registrant (incorporated by reference to Exhibit 3.02 to our
                Registration Statement on Form S-11/ A filed on June 18, 2004
                (Registration No. 333-111668)).3.2(b)
            
            Amendment
                No. 1 to Bylaws of Registrant (incorporated by reference to Exhibit
                3.2(b)
                to Registrant’s Annual Report on Form 10-K filed on March 16,
                2006)4.1
            
            Form
                of Common Stock Certificate (incorporated by reference to Exhibit
                4.01 to
                our Registration Statement on Form S-11/ A filed on June 18, 2004
                (Registration No. 333-111668)).4.2(a)
            
            Junior
                Subordinated Indenture between The New York Mortgage Company, LLC
                and
                JPMorgan Chase Bank, National Association, as trustee, dated
                September 1, 2005 (incorporated by reference to Exhibit 4.1 to our
                Current Report on Form 8-K filed on September 6,
                2005).4.2(b)
            
            Amended
                and Restated Trust Agreement among The New York Mortgage Company,
                LLC,
                JPMorgan Chase Bank, National Association, Chase Bank USA, National
                Association and the Administrative Trustees named therein, dated
                September 1, 2005 (incorporated by reference to Exhibit 4.2 to our
                Current Report on Form 8-K filed on September 6,
                2005).10.66
            
            Employment
                Offer Agreement by and between New York Mortgage Trust, Inc. and
                A.
                Bradley Howe, dated as of September 12, 2005*10.67
            
            First
                Amendment to Employment Offer Agreement by and between New York Mortgage
                Trust, Inc. and A. Bradley Howe, dated as of June 23,
                2006*10.68
            
            Amendment
                No. 2 to Employment Agreement between New York Mortgage Trust, Inc.
                and
                Steven R. Mumma dated as of March 31, 2007*10.69
            
            Termination
                Agreement, dated as of March 22, 2007, among NYMC Loan Corporation,
                New
                York Mortgage Trust, Inc., DB Structured Products, Inc., Aspen Funding
                Corp. and Newport Funding Corp.10.70
            
            Amendment
                No. 13 to Amended and Restated Master Repurchase Agreement among
                Credit
                Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
                LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
                Inc.
                dated as of December 12, 2006*10.71
            
            Amendment
                No. 14 to Amended and Restated Master Repurchase Agreement among
                Credit
                Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
                LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
                Inc.
                dated as of January 24, 2007*10.72
            
            Amendment
                No. 15 to Amended and Restated Master Repurchase Agreement among
                Credit
                Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
                LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
                Inc.
                dated as of March 23, 2007*10.73
            
            Amendment
                No. 16 to Amended and Restated Master Repurchase Agreement among
                Credit
                Suisse First Boston Mortgage Capital LLC, The New York Mortgage Company,
                LLC, New York Mortgage Funding, LLC and New York Mortgage Trust,
                Inc.
                dated as of May 11, 2007*10.74
            
            Third
              Amendment to Assignment and Assumption of Sublease, dated as of March
              31,
              2007, by and between The New York Mortgage Company, LLC and Lehman
              Brothers Holdings, Inc.*31.1
            
            Certification
                of Co-Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
                of the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of
                the
                Securities Exchange Act of 1934, as adopted pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




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