**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 June 30, 2007




OR




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


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      transition period from  to




Commission
      file number **001-32216**







**NEW
      YORK MORTGAGE TRUST, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)




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




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


(Address
      of Principal Executive Office) (Zip Code)




**(212)
      792-0107**


(Registrant's
      Telephone Number, Including Area Code)







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


Yes x No o




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




Large
                Accelerated Filero
            Accelerated
                Filerx
            Non-Accelerated
                Filero




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


Yes o No x




The
      number of shares of the registrant's common stock, par value $.01 per share,
      outstanding on August 1, 2007 was 18,179,271.




1




**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
            
            
            35Forward
                Looking Statement Effects
            
            
            35General
            
            
            36Presentation
                Format
            
            
            37Strategic
                Overview
            
            
            38Financial Overview
            
            
            40Description
                of Business
            
            
            40Known
                Material Trends and Commentary
            
            
            41Significance
                of Estimates and Critical Accounting Policies
            
            
            42Overview
                of Performance
            
            
            45Summary
                of Operations and Key Performance Measurements
            
            
            45Financial
                Condition
            
            
            46Balance
                Sheet Analysis - Asset Quality
            
            
            46Balance
                Sheet Analysis - Financing Arrangements
            
            
            52Balance
                Sheet Analysis - Stockholders' Equity
            
            
            54Securitizations
            
            
            54Prepayment
                Experience
            
            
            56Results
                of Operations
            
            
            56Results
                of Operations - Comparison of Six and Three Months Ended June 30,
                2007 and June 30, 2006
            
            
            57Off-
                Balance Sheet Arrangements
            
            
            60Liquidity
                and Capital Resources
            
            
            60Inflation
            
            
            61Item
                3. Quantitative and Qualitative Disclosures about Market
                Risk
            
            
            62Interest
                Rate Risk
            
            
            62Market
                (Fair Value) Risk
            
            
            65Credit
                Spread Risk
            
            
            68Liquidity
                and Funding Risk
            
            
            68Prepayment
                Risk
            
            
            68Credit
                Risk
            
            
            69Item
                4. Controls and Procedures
            
            
            69**Part
                II. Other Information**
            
            
            71Item
                1. Legal Proceedings
            
            
            71Item
                1A. Risk Factors
            
            
            71Item
                4. Submission of Matters to a Vote of Security Holders
            
            
            73Item
                5. Other Information
            
            
            73Item
                6. Exhibits
            
            
            73Signatures
            
            
            74





2





**PART
      I: FINANCIAL INFORMATION**


Item
      1.
      Financial Statements


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


**CONSOLIDATED
      BALANCE SHEETS**


(dollar
      amounts in thousands)




**June
                30,**
              **2007**
            
            **December
                31,**
              **2006****(unaudited)**
            
            ******ASSETS**Cash
                and cash equivalents
            
            $
            1,883
            
            $
            969Restricted
                cash
            
            
            4,198
            
            
            3,151Investment
                securities - available for sale
            
            
            454,935
            
            
            488,962Accounts
                and accrued interest receivable
            
            
            4,528
            
            
            5,189Mortgage
                loans held in securitization trusts
            
            
            504,522
            
            
            588,160Prepaid
                and other assets
            
            
            20,343
            
            
            20,951Derivative
                assets
            
            
            2,486
            
            
            2,632Property
                and equipment (net)
            
            
            89
            
            
            89Assets
                related to discontinued operation
            
            
            11,700
            
            
            212,805**Total
                Assets**
            
            $
            1,004,684
            
            $
            1,322,908**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Liabilities:**Financing
                arrangements, portfolio investments
            
            $
            423,741
            
            $
            815,313Collateralized
                debt obligations
            
            
            465,761
            
            
            197,447Accounts
                payable and accrued expenses
            
            
            5,139
            
            
            5,871Subordinated
                debentures
            
            
            45,000
            
            
            45,000Liabilities
                related to discontinued operation
            
            
            9,317
            
            
            187,705Total
                liabilities
            
            $
            948,958
            
            $
            1,251,336**Commitments
                and Contingencies**(note
                10)**Stockholders'
                Equity:**Common
                stock, $0.01 par value, 400,000,000 shares authorized, 18,179,271
                shares
              issued
                and outstanding at June 30, 2007 and 18,325,187 shares
              issued
                and 18,077,880 outstanding at December 31, 2006
            
            
            182
            
            
            183Additional
                paid-in capital
            
            
            99,068
            
            
            99,509Accumulated
                other comprehensive loss
            
            
            (848
            )
            
            (4,381
            )Accumulated
                deficit
            
            
            (42,676
            )
            
            (23,739
            )Total
                stockholders' equity
            
            
            55,726
            
            
            71,572**Total
                Liabilities and Stockholders' Equity**
            
            $
            1,004,684
            
            $
            1,322,908




*See
      notes to consolidated financial statements.*




3





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




**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(amounts
        in thousands, except per share data)
  **For
                  the Six Months Ended**
                **June
                  30,**
              
              
              **For
                  the Three Months Ended**
                **June
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**REVENUE:Interest
                  income investment securities and loans held in securitization
                  trusts
              
              $
              26,611
              
              $
              33,052
              
              $
              12,898
              
              $
              15,468Interest
                  expense investment securities and loans held in securitization
                  trusts
              
              
              24,976
              
              
              26,438
              
              
              11,892
              
              
              12,359Net
                  interest income from investment securities and loans held in
                  securitization trusts
              
              
              1,635
              
              
              6,614
              
              
              1,006
              
              
              3,109Interest
                  expense - subordinated debentures
              
              
              1,776
              
              
              1,779
              
              
              894
              
              
              894Net
                  interest (expense) income
              
              
              (141
              )
              
              4,835
              
              
              112
              
              
              2,215OTHER
                  EXPENSE:Realized
                  loss on sale of investment securities
              
              
              —
              
              
              (969
              )
              
              —
              
              
              —Impairment
                  loss on investment securities
              
              
              (3,821
              )
              
              —
              
              
              (3,821
              )
              
              —Loan
                  loss reserve on loans held in securitization trusts
              
              
              (940
              )
              
              —
              
              
              (940
              )
              
              —Total
                  other expenses
              
              
              (4,761
              )
              
              (969
              )
              
              (4,761
              )
              
              —EXPENSES:Salaries
                  and benefits
              
              
              496
              
              
              452
              
              
              151
              
              
              202Marketing
                  and promotion
              
              
              62
              
              
              34
              
              
              39
              
              
              26Data
                  processing and communications
              
              
              93
              
              
              119
              
              
              56
              
              
              63Professional
                  fees
              
              
              205
              
              
              365
              
              
              105
              
              
              271Depreciation
                  and amortization
              
              
              149
              
              
              127
              
              
              81
              
              
              60Other
              
              
              171
              
              
              223
              
              
              97
              
              
              136Total
                  expenses
              
              
              1,176
              
              
              1,320
              
              
              529
              
              
              758(LOSS)
                  INCOME FROM CONTINUING OPERATIONS
              
              
              (6,078
              )
              
              2,546
              
              
              (5,178
              )
              
              1,457Loss
                  from discontinued operation - net of tax
              
              
              (12,859
              )
              
              (4,164
              )
              
              (9,018
              )
              
              (1,279
              )NET
                  (LOSS) INCOME
              
              $
              (18,937
              )
              $
              (1,618
              )
              $
              (14,196
              )
              $
              178Basic
                  (loss) income per share
              
              $
              (1.05
              )
              $
              (0.09
              )
              $
              (0.79
              )
              $
              0.01Diluted
                  (loss) income per share
              
              $
              (1.05
              )
              $
              (0.09
              )
              $
              (0.79
              )
              $
              0.01Weighted
                  average shares outstanding-basic
              
              
              18,096
              
              
              17,950
              
              
              18,113
              
              
              17,933Weighted
                  average shares outstanding- diluted
              
              
              18,096
              
              
              17,950
              
              
              18,113
              
              
              18,296




*See
      notes to consolidated financial statements.*




4




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




**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY**




**For
                the Six Months Ended June 30, 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
            
            
            —
            
            
            —
            
            
            (18,937
            )
            
            —
            
            $
            (18,937
            )
            
            (18,937
            )Dividends
                declared
            
            
            —
            
            
            (909
            )
            
            —
            
            
            —
            
            
            —
            
            
            (909
            )Vested
                restricted stock
            
            
            (1
            )
            
            468
            
            
            —
            
            
            —
            
            
            —
            
            
            467Decrease
                in net unrealized loss on
              available
                for sale securities
            
            
            —
            
            
            —
            
            
            —
            
            
            3,287
            
            
            3,287
            
            
            3,287Decrease
                in net unrealized gain on derivative instruments
            
            
            —
            
            
            —
            
            
            —
            
            
            246
            
            
            246
            
            
            246Comprehensive
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            (15,404
            )
            
            —**Balance,
                June 30, 2007 -**
              Stockholders'
                Equity
            
            $
            182
            
            $
            99,068
            
            $
            (42,676
            )
            $
            (848
            )
            
            
            
            $
            55,726




*See
      notes to consolidated financial statements.*




5




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




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**For
                  the Six Months Ended**
                **June
                  30,****2007**
              
              **2006**(dollar
                  amounts in thousands)
                (unaudited)**Cash
                  Flows from Operating Activities:**Net
                  loss
              
              $
              (18,937
              )
              $
              (1,618
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              601
              
              
              1,086Amortization
                  of premium on investment securities and mortgage loans
              
              
              1,103
              
              
              1,187Gain
                  on sale of retail lending platform
              
              
              (4,946
              )
              
              —Loss
                  on sale of current period securitized loans
              
              
              —
              
              
              747Loss
                  on sale of securities and related hedges
              
              
              3,821
              
              
              969Restricted
                  stock compensation expense
              
              
              467
              
              
              433Stock
                  option grants - compensation expense
              
              
              —
              
              
              (3
              )Deferred
                  tax benefit
              
              
              —
              
              
              (4,579
              )Change
                  in value of derivatives
              
              
              347
              
              
              (313
              )Loss
                  on disposal of fixed assets
              
              
              367
              
              
              —Loan
                  losses
              
              
              6,372
              
              
              —(Increase)
                  decrease in operating assets:Purchase
                  of mortgage loans held for sale
              
              
              —
              
              
              (213,367
              )Origination
                  of mortgage loans held for sale
              
              
              (300,863
              )
              
              (940,456
              )Proceeds
                  from sales of mortgage loans
              
              
              398,418
              
              
              1,176,475Due
                  from loan purchasers
              
              
              87,982
              
              
              45,674Escrow
                  deposits - pending loan closings
              
              
              3,814
              
              
              49Accounts
                  and accrued interest receivable
              
              
              2,009
              
              
              4,352Prepaid
                  and other assets
              
              
              1,946
              
              
              (3,886
              )Decrease
                  in operating liabilities:Due
                  to loan purchasers
              
              
              (7,162
              )
              
              (783
              )Accounts
                  payable and accrued expenses
              
              
              (3,452
              )
              
              (1,889
              )Other
                  liabilities
              
              
              (96
              )
              
              (211
              )Net
                  cash provided by operating activities
              
              
              171,791
              
              
              63,867**Cash
                  Flows from Investing Activities:**Restricted
                  cash
              
              
              (1,047
              )
              
              4,213Purchase
                  of investment securities
              
              
              (49,557
              )
              
              (388,398
              )Principal
                  repayments received on mortgage loans held in securitization
                  trusts
              
              
              82,136
              
              
              90,074Proceeds
                  from sale of investment securities
              
              
              —
              
              
              356,896Proceeds
                  from sale of retail lending platform
              
              
              12,936
              
              
              —Principal
                  paydown on investment securities
              
              
              82,622
              
              
              88,529Purchases
                  of property and equipment
              
              
              (396
              )
              
              (1,049
              )Disposal
                  of fixed assets
              
              
              485
              
              
              —Net
                  cash provided by investing activities
              
              
              127,179
              
              
              150,265




*See
      notes to consolidated financial statements.*




6




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




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


****
              
              **For
                  the Six Months Ended**
                **June
                  30,****2007**
              
              **2006**(dollar
                  amounts in thousands)(unaudited)**Cash
                  Flows from Financing Activities:**Repurchase
                  of common stock
              
              
              —
              
              
              (300
              )Change
                  in financing arrangements, net
              
              
              (296,230
              )
              
              (209,605
              )Dividends
                  paid
              
              
              (1,826
              )
              
              (6,372
              )Net
                  cash used in financing activities
              
              
              (298,056
              )
              
              (216,277
              )**Net
                  Increase (Decrease) in Cash and Cash
                  Equivalents**
              
              
              914
              
              
              (2,145
              )**Cash
                  and Cash Equivalents - Beginning of Period**
              
              
              969
              
              
              9,056**Cash
                  and Cash Equivalents - End of Period**
              
              $
              1,883
              
              $
              6,911**Supplemental
                  Disclosure**Cash
                  paid for interest
              
              $
              29,613
              
              $
              22,102**Non
                  Cash Financing Activities**Dividends
                  declared to be paid in subsequent period
              
              $
              —
              
              $
              2,566




*See
      notes to consolidated financial statements.*




7


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


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





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





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. On February 22,
      2007, we completed the sale of substantially all of the operating assets related
      to NYMC's wholesale mortgage lending platform to Tribeca Lending Corp.
      (“Tribeca Lending”), a wholly-owned subsidiary of Franklin Credit Management
      Corporation.





In
      connection with the sale of the assets of our wholesale mortgage origination
      platform assets on February 22, 2007 and the sale of the assets of our retail
      mortgage lending platform on March 31, 2007, during the fourth quarter of 2006,
      we classified our mortgage lending segment as a discontinued operation in
      accordance with the provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived
      Assets”. As a result, we have reported revenues and expenses related to the
      segment as a discontinued operation and the related assets and liabilities
      as
      assets and liabilities related to the discontinued operation for all periods
      presented in the accompanying consolidated financial statements. Certain assets,
      such as the deferred tax asset, and certain liabilities, such as subordinated
      debt and liabilities related to leased facilities not assigned to Indymac 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 9)





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 inter-company accounts and transactions are eliminated in
      consolidation. Certain prior period amounts have been reclassified to conform
      to
      current period classifications. In addition, certain previously reported
      discontinued operation balances have been reclassified to continuing operations,
      including $1.1 million in restricted cash, $1.0 million derivative asset balance
      related to interest rate caps, $0.1 million in property and equipment
      net and $0.3 million in accounts payable and accrued expenses.




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




8





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




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 to 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.





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





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





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





*Investment
      Securities - Available for Sale* —
The
      Company's investment securities are residential mortgage-backed securities
      comprised of Fannie Mae (“FNMA”), Freddie Mac (“FHLMC”) 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.




9


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


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. For the three months ended June 30, 2007, the Company incurred
      an
      impairment charge of $3.8 million related to non-agency ARM securities for
      which
      it determined it no longer had the intent to hold until recovery. (see note
      2)




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





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





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




Estimation
      involves the consideration of various credit-related factors including but
      not
      limited to, macro-economic conditions, the current housing market conditions,
      loan-to-value ratios, delinquency status, historical credit loss severity rates,
      purchased mortgage insurance, the borrower's credit and other factors deemed
      to
      warrant consideration. Additionally, we look at the balance of any delinquent
      loan and compare that to the value of the property. If there is a doubt as
      to
      the objectivity of the original property value assessment, or if the loan is
      seasoned or in an area deemed to be declining in value, we utilize various
      internet based property data services to look at comparable properties in the
      same area or consult with a realtor in the property's area.




Comparing
      the current loan balance to the property value determines the current
      loan-to-value (“LTV”) ratio of the loan. Generally, we estimate that a first
      lien loan on a property that goes into a foreclosure process and becomes real
      estate owned (“REO”), results in the property being disposed of at approximately
      68% of the property's original value. This estimate is based on management's
      long term experience in similar market conditions. It is possible however that
      given today’s deteriorating market conditions, we may realize less than that
      return in certain cases. 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.




At
      June 30, 2007, we had a loan loss reserve of $0.9
      million on mortgage loans held in securitization trusts. (see note
      3)




10





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




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




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





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





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





*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. (see note 8)




11


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


*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. (see
      note 5)





*Discontinued
      Operation*(see note 9)





*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.





*Loan
      Loss Reserves on Mortgage Loans*  —We established
      a reserve for loan losses based on management's judgment and estimate of credit
      losses for residential mortgage loans held for sale u sing
      the
      same methodology used in establishing loan loss reserves for loans held in
      securitization trusts described above.




12





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




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. Given the softness in the housing market due to the
      increased properties listed for sale, we currently are assuming that second
      mortgages will return approximately 5% or less of their original balance for
      loans that go through foreclosure. For second liens that we hold on our balance
      sheet currently, if the loan is more than 60 days delinquent, or unless we
      have
      direct knowledge of the borrower’s intention or situation, we assume that all
      will go through the foreclosure process and that we will realize only 5% or
      less of the original balance returned.





*Loan
      Loss Reserves on Repurchase Requests and Mortgage Under Indemnification
      Agreements—* We
      establish reserves for loans we have been requested to repurchase from investors
      and for loans subject to indemnification agreements. Generally loans wherein
      the
      borrowers do not make all the first three payments to the new investor once
      the
      loan has been sold, require us, under the terms of purchase and sale agreement
      entered into with the investor, to repurchase the loan. During the
 three month period ended June 30, 2007, due to market conditions the
      amount of repurchase requests increased from approximately $14.3 million at
      the quarter end March 31, 2007 to approximately $25.2 million as of June 30,
      2007.





An
      alternative to repurchasing loans is to sign indemnification agreements with
      loan investors. Generally these agreements specify that if a loan goes
      delinquent and the investor realizes a loss as a result of foreclosure, the
      Company will reimburse the investor for their loss. During the quarter ended
      June 30, 2007 the amount of loans subject to indemnification agreements was
      the
      same as of the quarter ended March 31, 2007.




At
      June
      30, 2007, we had a loan loss reserve of $1.6 million on mortgage loans held
      for
      sale, $5.3 million in reserves for indemnifications and repurchase requests.
      All
      of these items are included in discontinued operations and had incurred $8.2
      million of loan losses during the six months ended June 30, 2007.





*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.





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.




13





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




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





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





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.




14


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


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





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





*Employee
      Benefits Plans* —
The
      Company sponsors a defined contribution plan (the “Plan”) for all eligible
      domestic employees. The Plan qualifies as a deferred salary arrangement under
      Section 401(k) of the Internal Revenue Code. Under the Plan, participating
      employees may defer up to 15% of their pre-tax earnings, subject to the annual
      Internal Revenue Code contribution limit. The 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 $0.2 million for the six month
      periods ended June 30, 2007 and 2006 respectively.




*Stock
      Based Compensation* —
The
      Company accounts for its stock options and restricted stock grants in accordance
      with SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”) which requires
      all companies to measure compensation costs for all share-based payments,
      including employee stock options, at fair value. (see note 15)





*Income
      Taxes* —
The
      Company operates so as to qualify as a REIT under the requirements of the
      Internal Revenue Code. Requirements for qualification as a REIT include various
      restrictions on ownership of the Company's stock, requirements concerning
      distribution of taxable income and certain restrictions on the nature of assets
      and sources of income. A REIT must distribute at least 90% of its taxable income
      to its stockholders of which 85% plus any undistributed amounts from the prior
      year must be distributed within the taxable year in order to avoid the
      imposition of an excise tax. The remaining balance may extend until timely
      filing of the Company's tax return in the subsequent taxable year. Qualifying
      distributions of taxable income are deductible by a REIT in computing taxable
      income.  (see note 13)





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. (see
      note 16)




15





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




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




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




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




In
        June 2007, the AICPA issued
        SOP No. 07-1, ** *Clarification
        of the Scope of the Audit and Accounting Guide*  Investment
        Companies  *and
        Accounting by Parent Companies and Equity Method Investors for Investments
        in
        Investment Companies*  (“SOP
        07-1”). SOP 07-1 addresses whether the accounting principles of the AICPA Audit
        and Accounting Guide ** *Investment
        Companies*  may
        be
        applied to  an
        entity
        by clarifying the definition of an investment company and whether those
        accounting principles may be retained by a parent  company
        in consolidation or by an investor in the application of the equity method
        of
        accounting. SOP 07-1 is effective for fiscal  years
        beginning on or after December 15, 2007 with earlier adoption encouraged.
        The
        adoption of SOP 07-1 is not expected to have a  material
        impact on the Company.


**2.
      Investment Securities Available for Sale**




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




****
            
            **June
                30,**
              **2007**
            
            **December
                31,**
              **2006******
            
            ****Amortized
                cost
            
            $
            455,463
            
            $
            492,777Gross
                unrealized gains
            
            
            374
            
            
            623Gross
                unrealized losses
            
            
            (902
            )
            
            (4,438
            )Fair
                value
            
            $
            454,935
            
            $
            488,962




The
      amortized cost balance includes approximately $231.8 million of certain
      lower-yielding private label ARM securities that the Company had concluded
      it no
      longer had the intent to hold until their values recovered.  Upon such
      determination, the Company recorded an other-than-temporary impairment loss
      of
      $3.8 million. Subsequent to June 30, 2007, these securities were sold with
      no
      additional loss recognized.





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




16


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




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


**June
                  30, 2007****Less
                  than 6 Months**
              
              **More
                  than 6 Months**
                **to
                  24 Months**
              
              **More
                  than 24 Months**
                **to
                  60 Months**
              
              **Total****Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**
              
              **Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**
              
              **Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**
              
              **Carrying**
                  **Value**
              
              **Weighted**
                  **Average**
                  **Yield**Agency
                  REMIC CMO Floating Rate
              
              $
              187,472
              
              
              6.51
              %
              $
              —
              
              
              —
              
              $
              —
              
              
              —
              
              $
              187,472
              
              
              6.51
              %Private
                  Label Floaters
              
              
              5,583
              
              
              6.22
              %
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              5,583
              
              
              6.22
              %Private
                  Label ARMs
              
              
              14,563
              
              
              6.45
              %
              
              123,816
              
              
              5.92
              %
              
              104,243
              
              
              6.02
              %
              
              242,622
              
              
              6.00
              %NYMT
                  Retained Securities
              
              
              2,593
              
              
              6.86
              %
              
              —
              
              
              —
              
              
              16,665
              
              
              7.52
              %
              
              19,258
              
              
              7.44
              %Total/Weighted
                  Average
              
              $
              210,211
              
              
              6.50
              %
              $
              123,816
              
              
              5.92
              %
              $
              120,908
              
              
              6.24
              %
              $
              454,935
              
              
              6.27
              %




The
      NYMT
      retained securities includes $1.8 million of residual interests related to
      the
      NYMT 2006-1 transaction. The residual interest carrying-values are determined
      by
      obtaining dealer quotes.


The
        residual interest carrying values are determined by dealer quotes. These
        quotes
        take into consideration certain pricing assumptions including, constant
        prepayment rate, discount rate, loss frequency and severity
        rates.




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 June 30, 2007 and December 31, 2006 (dollar amounts in
      thousands):




**June
                30, 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
            
            $
            103,954
            
            $
            409
            
            
            $
            —
            
            $
            —
            
            $
            103,954
            
            $
            409Private
                label floaters
            
            
            3,719
            
            
            2
            
            
            
            —
            
            
            —
            
            
            3,719
            
            
            2Private
                label ARMs
            
            
            —
            
            
            —
            
            
            
            10,779
            
            
            183
            
            
            10,779
            
            
            183NYMT
                retained securities
            
            
            9,164
            
            
            186
            
            
            
            2,751
            
            
            122
            
            
            11,915
            
            
            308Total
            
            $
            116,837
            
            $
            597
            
            
            $
            13,530
            
            $
            305
            
            $
            130,367
            
            $
            902




17


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


**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 in Securitization Trusts**




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




**June
                30,**
              **2007**
            
            **December
                31,**
              **2006**Mortgage
                loans principal amount
            
            $
            502,222
            
            $
            584,358Deferred
                origination costs - net
            
            
            3,240
            
            
            3,802Reserve
                for loan
                losses
            
            
            (940
            )
            
            —Total
                mortgage loans held in securitization
                trusts
            
            $
            $504,522
            
            $
            588,160




Substantially
      all of the Company's mortgage loans held in securitization trusts are pledged
      as
      collateral for borrowings under financing arrangements (see note 6 )
      or for
      the collateralized debt obligation (see note 7 ).




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





**June
                30, 2007****Days
                Late**
            
            **Number
                of**
              **Delinquent**
              **Loans**
            
            **Total**
              **Dollar
                Amount**
            
            **%
                of Loan**
              **Portfolio**30-60
            
            
            3
            
            $
            1,117
            
            
            0.22
            %61-90
            
            
            —
            
            
            —
            
            
            0.00
            %90+
            
            
            7
            
            
            6,935
            
            
            1.38
            %Real
                estate owned
            
            
            2
            
            $
            1,774
            
            
            0.35
            %




**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
                %




18


**NEW
        YORK MORTGAGE TRUST, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2007**
 **(unaudited)**
  Delinquencies
        on loans
        held in securitization trusts increased from December 31, 2006 to June 30,
        2007
        by approximately 0.55%, while real estate owned increased by approximately
        0.24% during the same period. This trend is primarily due to the increasing
        age
        of the loans held in securitization trusts, a deteriorating real estate market
        as evidenced by increased homes listed for sale, decreased appreciation rates
        for home prices, and in certain markets, deteriorating home prices.




**4.
      Property and Equipment — Net**




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


****
              
              **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Office
                  and computer equipment
              
              $
              152
              
              $
              156Furniture
                  and fixtures
              
              
              175
              
              
              147Total
                  equipment, furniture and fixtures
              
              
              327
              
              
              303Less:
                  accumulated depreciation
              
              
              (238
              )
              
              (214
              )Property
                  and equipment - net
              
              $
              89
              
              $
              89




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





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




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


**June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006****Derivative
                  Assets:**Interest
                  rate caps
              
              $
              1,688
              
              $
              2,011Interest
                  rate swaps
              
              
              798
              
              
              621**Total
                  derivative assets, continuing operations**
              
              $
              2,486
              
              $
              2,632





The
      notional amounts of the Company's interest rate swaps and interest rate caps
      as
      of June 30, 2007 were $275.0 million and $1.4 billion,
      respectively.




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




19




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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




The
      Company estimates that over the next twelve months, approximately $1.0 million
      of the net unrealized losses on the interest rate swaps will be
      reclassified from accumulated OCI into earnings.




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





The
      Company has entered into repurchase agreements with third party financial
      institutions to finance its residential mortgage-backed securities and certain
      mortgage loans held in the securitization trusts not financed by collateralized
      debt obligations. The repurchase agreements are short-term borrowings that
      bear
      interest rates based on a spread to LIBOR, and are secured by the residential
      mortgage-backed securities and mortgage loans held in the securitization trusts
      which they finance. At June 30, 2007, the Company had repurchase agreements
      with
      an outstanding balance of $423.7 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 June 30, 2007 and December 31, 2006 securities and mortgage loans
      pledged as collateral for repurchase agreements had estimated fair values of
      $443.6 million and $850.6 million, respectively. The
      Company had $36.5 million of unencumbered securities to meet additionalliquidity
      requirements or margin calls as of June 30, 2007. As of June 30,
      2007 all of the repurchase agreements will mature within 30 days, with weighted
      average days to maturity equal to 17 days. At June 30, 2007, the Company had
      repurchase agreements with 21 different counter-parties to finance its
      investment portfolio activities.




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




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




**Repurchase
      Agreements by Counterparty**


**Counterparty
                  Name**
              
              **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Barclays
              
              $
              17,927
              
              $
              —Countrywide
                  Securities Corporation
              
              
              154,421
              
              
              168,217Goldman,
                  Sachs & Co.
              
              
              17,482
              
              
              121,824HSBC
              
              
              72,946
              
              
              —J.P.
                  Morgan Securities Inc.
              
              
              30,397
              
              
              33,631Nomura
                  Securities International, Inc.
              
              
              86,594
              
              
              156,352SocGen/SG
                  Americas Securities
              
              
              43,974
              
              
              87,995West
                  LB
              
              
              —
              
              
              247,294**Total
                  Financing Arrangements, Portfolio Investments**
              
              $
              423,741
              
              $
              815,313




Subsequent
        to June 30, 2007,
        the market for short-term collateralized borrowing through repurchase agreements
        has tightened considerably, primarily as a result of the fall-out from
        increasing defaults in the sub-prime mortgage market and losses incurred
        at a
        number of larger companies in the mortgage industry. At June 30, 2007, we
        had
        outstanding balances under repurchase agreements with seven different
        counterparties and, as of the date of this report, we have been successful
        at
        resetting all outstanding balances under our various repurchase agreements
        to
        new counterparties as they have become due. In the event a counterparty elected
        to not reset the outstanding balance into a new repurchase agreement, we
        would
        be required to repay the outstanding balance with proceeds received from
        a new
        counterparty or to surrender the mortgage-backed securities that serve as
        collateral for the outstanding balance. If we are unable to secure financing
        from another counterparty and surrender the collateral, we would expect to
        incur
        a loss. Although we presently expect the short-term collateralized borrowing
        markets to continue providing us with necessary financing through repurchase
        agreements, we cannot assure you that this form of financing will be available
        to us in the future on comparable terms, if at all.





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




The
      Company had CDOs outstanding of $465.8 million with a weighted average interest
      rate of 5.65% as of June 30, 2007 and $197.4 million with a weighted average
      interest rate of 5.72% as of December 31, 2006. The CDOs include amortizing
      interest rate cap contracts with a notional amount of $585.6 million as of
      June
      30, 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 $502.2 million and $204.6 million at June 30, 2007
      and December 31, 2006, respectively.




20


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


**8** . **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 (9.11% at June
      30, 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.




**9.
      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.




***Balance
      Sheet***





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




21





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




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




**June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**Due
                  from loan purchasers
              
              $
              369
              
              $
              88,351Escrow
                  deposits-pending loan closings
              
              
              —
              
              
              3,814Accounts
                  and accrued interest receivable
              
              
              505
              
              
              2,488Mortgage
                  loans held for sale
              
              
              8,389
              
              
              106,900Prepaid
                  and other assets
              
              
              2,422
              
              
              4,654Derivative
                  assets
              
              
              —
              
              
              171Property
                  and equipment, net
              
              
              15
              
              
              6,427$
              11,700
              
              $
              212,805




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




**June
                30,**
              **2007**
            
            **December
                31,**
              **2006**Financing
                arrangements, mortgage loans held for sale
            
            $
            —
            
            $
            172,972Due
                to loan purchasers
            
            
            5,535
            
            
            8,334Accounts
                payable and accrued expenses
            
            
            3,747
            
            
            6,066Derivative
                liabilities
            
            
            —
            
            
            216Other
                liabilities
            
            
            35
            
            
            117$
            9,317
            
            $
            187,705





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


****
                
                **June
                    30,**
                  **2007**
                
                **December
                    31,**
                  **2006**Mortgage
                    loans principal amount
                
                $
                9,988
                
                $
                110,804Deferred
                    origination costs - net
                
                
                (45
                )
                
                138Reserve for
                    loan losses
                
                
                (1,554
                )
                
                (4,042
                )Mortgage
                    loans held for sale
                
                $
                8,389
                
                $
                106,900




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




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




22


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




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


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




As
      of June 30, 2007, the
      Company had no outstanding financing arrangements secured by mortgage loans
      held
      for sale. During the three months ended June 30, 2007, the Company utilized
      the
      CSFB warehouse facility to dispose of substantially all of the mortgage loans
      held for sale from the discontinued operation. The Company did not seek to
      renew
      the CSFB facility and accordingly it expired on June 29, 2007.




***Statements
      of Operations***




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




**For
                  the six months ended**
              
              **For
                  the three months ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006****Revenues:**Net
                  interest income
              
              $
              752
              
              $
              2,328
              
              $
              156
              
              
              601Gain
                  on sale of mortgage loans
              
              
              2,550
              
              
              10,051
              
              
              213
              
              
              5,981Loan
                  losses
              
              
              (8,242
              )
              
              —
              
              
              (5,081
              )
              
              —Brokered
                  loan fees
              
              
              2,316
              
              
              6,270
              
              
              181
              
              
              3,493Gain
                  on sale of retail lending segment
              
              
              4,525
              
              
              —
              
              
              (635
              )
              
              —Other
                  income (expense)
              
              
              15
              
              
              (480
              )
              
              (12
              )
              
              174Total
                  net revenues
              
              
              1,916
              
              
              18,169
              
              
              (5,178
              )
              
              10,249**Expenses:**Salaries,
                  commissions and benefits
              
              
              6,084
              
              
              11,890
              
              
              1,078
              
              
              5,799Brokered
                  loan expenses
              
              
              1,731
              
              
              4,935
              
              
              8
              
              
              2,767Occupancy
                  and equipment
              
              
              2,210
              
              
              2,615
              
              
              898
              
              
              1,290General
                  and administrative
              
              
              4,750
              
              
              7,472
              
              
              1,856
              
              
              3,335Total
                  expenses
              
              
              14,775
              
              
              26,912
              
              
              3,840
              
              
              13,191**Loss
                  before income tax benefit**
              
              
              (12,859
              )
              
              (8,743
              )
              
              (9,018
              )
              
              (2,942
              )Income
                  tax benefit
              
              
              —
              
              
              4,579
              
              
              —
              
              
              1,663**Loss
                  from discontinued operations - net of tax**
              
              $
              (12,859
              )
              $
              (4,164
              )
              $
              (9,018
              )
              $
              (1,279
              )





*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.




23


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


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





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





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




**10** . **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 six months ended June 30, 2007, we repurchased a
      total
      of $6.5 million of mortgage loans that were originated in either 2005 or 2006,
      the majority of which were due to early payment defaults. Of the repurchased
      loans originated in 2006, a majority were Alt-A. As of June 30, 2007 we had
      approximately $25.2 million of repurchase requests pending, against which the
      Company has taken a reserve of $4.9 million included in due to loan purchasers
      within liabilities related to discontinued operations. Subsequent to June 30,
      2007 the Company has settled 52 %
      of the
      claims resulting in a loss of $1.8 million
      which was previously reserved.




*Outstanding
      Litigation* —
The
      Company has at times been subject to various legal proceedings arising in the
      ordinary course of its discontinued mortgage lending business. Other than as
      described in the following paragraphs, the Company does not believe that any
      of
      its current legal proceedings, individually or in the aggregate, will have
      a
      material adverse effect on its operations or financial condition.




24





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007**


**(unaudited)**




O n
      December 13, 2006, Steven B. Yang and Christopher Daubiere (“Plaintiffs”), filed
      suit in the United States District Court for the Southern District of New York
      (the “Court”) against NYMC and our Company alleging that we failed to pay them,
      and similarly situated employees, overtime in violation of the Fair Labor
      Standards Act (“FLSA”) and New York State law. Plaintiffs, former employees
      in our discontinued Mortgageline division who purport to bring a FLSA
      "collective action" on behalf of similarly situated loan officers in our now
      discontinued mortgage lending operations, are
      seeking unspecified amounts for alleged unpaid overtime wages, liquidated
      damages, attorney's fees and costs. As of July
      31, 2007, Plaintiffs had yet to apply to the Court for permission to certify
      the
      class or send notice of the collective action to prospective collective action
      members.




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




*Leases* —
The
      Company leases its corporate offices and certain retail facilities and equipment
      under short-term lease agreements expiring at various dates through 2010. All
      such leases are accounted for as operating leases. Total rental expense for
      property and equipment amounted to $2.2 million and $2.6 million for the six
      months ended June 30, 2007 and 2006, respectively.




On
      November 13, 2006, the Company entered into an Assignment and Assumption of
      Sublease and an Escrow Agreement, each with Lehman Brothers Holdings Inc.
      (“Lehman”) (collectively, the “Agreements”). Under the Agreements, the Company
      assigned and Lehman has assumed the sublease for the Company's corporate
      headquarters at 1301 Avenue of the Americas. Pursuant to the Agreements, Lehman
      has funded an escrow account in the amount of $3.0 million for the benefit
      of
      NYMC.  The current agreement provides that the escrow amount shall be
      reduced by $0.2 million for each month the Company remains in the leased space
      beginning July 1, 2007. The entire remaining amount held in the escrow account
      will be released to the Company when it vacates the leased space. Pursuant
      to
      the provisions of the sale transaction with IndyMac, beginning August 1, 2007,
      so long as IndyMac continues to occupy and use the leased space at the
      Company’s
      corporate headquarters, IndyMac will pay rent equal to Company’s cost,
      including any penalties and foregone bonuses resulting from the delayed vacation
      of the leased premises. The Company intends to relocate its corporate
      headquarters to a smaller facility at a location that is yet to be determined.




25


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


*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 JP Morgan Chase bank.




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




**11.**  **Concentrations
      of Credit Risk**




At
      June
      30, 2007 and December 31, 2006, there were geographic concentrations of credit
      risk exceeding 5% of the total loan balances within mortgage loans held in
      the
      securitization trusts as follows:




****
              
              **June
                  30,**
                **2007**
              
              **December
                  31,**
                **2006**New
                  York
              
              
              30.0
              %
              
              29.1
              %Massachusetts
              
              
              17.5
              %
              
              17.5
              %California
              
              
              9.4
              %
              
              11.4
              %Florida
              
              
              7.8
              %
              
              7.5
              %New
                  Jersey
              
              
              5.5
              %
              
              5.1
              %




26


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


**12** . **Fair Value of Financial Instruments**




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




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




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




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





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




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




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




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




27


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


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):


**June
                  30, 2007****Notional**
                **Amount**
              
              **Carrying**
                **Amount**
              
              **Estimated**
                **Fair
                  Value**Investment
                  securities available for sale
              
              $
              458,101
              
              $
              454,935
              
              $
              454,935Mortgage
                  loans held in the securitization trusts
              
              
              502,222
              
              
              504,522
              
              
              498,349Commitments
                  and contingencies:Interest
                  rate swaps
              
              
              275,000
              
              
              798
              
              
              798Interest
                  rate caps
              
              
              1,446,891
              
              
              1,688
              
              
              1,688




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





**13** . **Income Taxes**




All
      income tax benefits relate to NYMC and are included in the results of operations
      of the discontinued operation (see note 9). A reconciliation of the statutory
      income tax provision (benefit) to the effective income tax provision for the
      six
      months ended June 30, 2007 and June 30, 2006, is as follows (dollar amounts
      in
      thousands).


****
              
              **June
                  30,**
                **2007**
              
              **June
                  30,**
                **2006**Benefit
                  at statutory rate (35%)
              
              $
              (6,628
              )
              $
              (2,169
              )Non-taxable
                  REIT income (loss)
              
              
              1,523
              
              
              (1,454
              )Transfer
                  pricing of loans sold to nontaxable parent
              
              
              —
              
              
              11State
                  and local tax benefit
              
              
              (1,343
              )
              
              (956
              )Valuation
                  allowance
              
              
              6,436
              
              
              —Miscellaneous
              
              
              12
              
              
              (11
              )Total
                  benefit
              
              $
              0
              
              $
              (4,579
              )





28


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




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


**Deferred**Federal
              
              $
              (3,623
              )State
              
              
              (956
              )Total
                  tax benefit
              
              $
              (4,579
              )




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




Deferred
                  tax assets:Net
                  operating loss carryover
              
              $
              24,601Restricted
                  stock, performance shares and stock option expense
              
              
              418Mark
                  to market adjustment
              
              
              28Sec.
                  267 disallowance
              
              
              268Charitable
                  contribution carryforward
              
              
              34GAAP
                  reserves
              
              
              3,303Rent
                  expense
              
              
              385Loss
                  on sublease
              
              
              85Gross
                  deferred tax asset
              
              
              29,122Valuation
                  allowance
              
              
              (10,705
              )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




29


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


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,
      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 carry-forward expires
      at
      various intervals between 2012 and 2027. The charitable contribution
      carry-forward will expire in 2011.





On
      January 1, 2007, the Company adopted FIN 48, “Accounting for Uncertainty in
      Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise's financial statements. FIN 48 prescribes a recognition threshold
      and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. FIN 48 also
      provides guidance on de-recognition, classification, interest and penalties,
      accounting in interim periods, disclosure, and transition. Interest and
      penalties are accrued and reported as interest expenses and other expenses
      on
      the consolidated statement of income are booked when incurred. In addition,
      the
      2003-2006 tax years remain open to examination by the major taxing
      jurisdictions. The adoption of FIN 48 has had no material impact on the
      Company's consolidated financial statements.




**14.**  **Segment
      Reporting**




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




**15** . **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 June 30, 2007, 182,432 shares awarded under the 2005 Plan had
      been forfeited or terminated.




30


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


***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 June 30, 2007, 591,500 options had been granted
      pursuant to the Company's stock incentive plans and 231,500 remain
      outstanding.




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 six months ended June 30, 2007 and 2006 was approximately
      $0 and $17,813, respectively. As of June 30, 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 six month periods ended June 30, 2007 and 2006.




A
      summary
      of the status of the Company's options as of June 30, 2007 and changes during
      the six months then ended is presented below:




****
              
              **Number
                  of**
                **Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**Outstanding
                  at January 1, 2007
              
              
              466,500
              
              $
              9.52Granted
              
              
              —
              
              
              —Cancelled
              
              
              (235,000
              )
              
              9.83Exercised
              
              
              —
              
              
              —Outstanding
                  at June 30, 2007
              
              
              231,500
              
              $
              9.20Options
                  exercisable at June 30, 2007
              
              
              231,500
              
              $
              9.20




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


****
              
              **Number
                  of**
                **Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**Outstanding
                  at January 1, 2006
              
              
              541,500
              
              $
              9.56Granted
              
              
              —
              
              
              —Cancelled
              
              
              (75,000
              )
              
              9.83Exercised
              
              
              —
              
              
              —Outstanding
                  at December 31, 2006
              
              
              466,500
              
              $
              9.52Options
                  exercisable at December 31, 2006
              
              
              466,500
              
              $
              9.52




31


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




The
      following table summarizes information about stock options at June 30,
      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
              
              
              7.0
              
              $
              9.00
              
              
              176,500
              
              $
              9.00
              
              $
              0.39$9.83
              
              
              12/2/04
              
              
              55,000
              
              
              7.4
              
              
              9.83
              
              
              55,000
              
              
              9.83
              
              
              0.29Total
              
              
              
              
              
              231,500
              
              
              7.1
              
              $
              9.20
              
              
              231,500
              
              $
              9.20
              
              $
              0.37




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
      June 30, 2007, the Company has awarded 684,333 shares of restricted stock under
      the 2005 Plan, of which 501,901 shares have fully vested and 182,432 shares
      were forfeited and are available for reissuance. There are no outstanding
      un-issued shares of restricted stock. During the six months ended June 30,
      2007,
      the Company recognized non-cash compensation expense of $0.5 million relating
      to
      the vested portion of restricted stock grants. Dividends are paid on all
      restricted stock issued, whether those shares are vested or not. In general,
      unvested restricted stock is forfeited upon the recipient's termination of
      employment.




32


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


A
      summary
      of the status of the Company's non-vested restricted stock as of June 30, 2007
      and changes during the six 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
              
              
              (155,892
              )
              
              5.58Vested
              
              
              (57,615
              )
              
              8.63Non-vested
                  shares as of June 30, 2007
              
              
              —
              
              $
              —Weighted-average
                  fair value of restricted stock granted during the period
              
              
              —
              
              $
              —





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


**Number
                  of**
                **Non-vested**
                **Restricted**
                **Shares**
              
              **Weighted**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value**Non-vested
                  shares at beginning of year, January 1, 2006
              
              
              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




**16.
      Capital Stock and Earnings per Share**




The
      Company had 400,000,000 shares of common stock, par value $0.01 per share,
      authorized with 18,179,271 shares issued and outstanding as of June 30, 2007.
      Of
      the common stock authorized, 1,031,111 shares (plus forfeited shares previously
      granted) were reserved for issuance as equity awards to employees, officers
      and
      directors pursuant to the 2005 Stock Incentive Plan. As of June 30, 2007,
      1,359,435 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 June 30, 2007 and 2006, the calculation of basic
      and diluted earnings per share is the same since the effect of common stock
      equivalents would be anti-dilutive.




33


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




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
                  six months**
                **ended**
                **June
                  30,**
                **2007**
              
              **For
                  six months**
                **ended**
                **June
                  30,**
                **2006**Numerator:Net
                  loss
              
              $
              (18,937
              )
              $
              (1,618
              )Denominator:Weighted
                  average number of common shares outstanding - basic
              
              
              18,096
              
              
              17,950Net
                  effect of unvested restricted stock
              
              
              —
              
              
              —Performance
                  shares
              
              
              —
              
              
              —Net
                  effect of stock options
              
              
              —
              
              
              —Weighted
                  average number of common shares outstanding - dilutive
              
              
              18,096
              
              
              17,950Net
                  loss per share - basic
              
              $
              (1.05
              )
              $
              (0.09
              )Net
                  loss per share - diluted
              
              $
              (1.05
              )
              $
              (0.09
              )




**17.
      Subsequent Events**




Subsequent
      to June 30, 2007, the market for short-term
      collateralized borrowing through repurchase agreements has tightened
      considerably, primarily as a result of the fall-out from increasing defaults
      in
      the sub-prime mortgage markets and losses incurred at a number of larger
      companies in the mortgage industry. At June 30, 2007, we had outstanding
      balances under repurchase agreements with seven different counterparties and,
      as
      of the date of this report, we have been successful at resetting all outstanding
      balances under our various repurchase agreements as they have become due. In
      the
      event a counterparty elected to not reset the outstanding balance into a
      new repurchase agreement, we would be required to repay the outstanding balance
      with proceeds received from a new counterparty or to surrender the
      mortgage-backed securities that serve as collateral for the outstanding balance.
      If we are unable to secure financing from another counterparty and surrender
      the
      collateral, we would expect to incur a significant loss. Although we presently
      expect the short-term collateralized borrowing markets to continue providing
      us
      with necessary financing through repurchase agreements, we cannot assure you
      that this form of financing will be available to us in the future on comparable
      terms, if at all.




34





**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 we may suffer losses as
                a
                result of such modifications or
                changes;





·
            risks
                associated with the availability of
                liquidity;




·
            risks
              associated with the terms and availability of repurchase agreements
              used
              to finance our investment portfolio activities;·
            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;




35




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




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




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


·
              risks
                  related to potential de-listing from the New York Stock Exchange;
                  and


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




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
      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”). 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. and exited the
      mortgage lending business.




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, pending claims under the Fair Labor Standards
      Act, potential repurchase and indemnification obligations (including early
      payment defaults) on previously sold mortgage loans and remaining lease payment
      obligations on real and personal property.





As
      of
      June 30, 2007, the Company has reserves of $1.6 million to cover the disposition
      of the mortgage loans held for sale. In addition, as of June 30, 2007, the
      Company has $5.3 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 beyond what reserves have been made against such loans.




36




Management’s
        reserve analysis has materially changed due to current market conditions,
        including deteriorating macro-economic conditions, increasing mortgage
        delinquency rates, declining home prices in many markets due to an increase
        in the number of homes listed for sale and failures of multiple loan
        originators. In addition the market for the sale of mortgage loans has changed
        significantly due to numerous decreases in existing MBS ratings, decreased
        appetites on the part of many mortgage investors due to increasing loan
        delinquencies and lender defaults, decreased access to liquidity by many
        loan
        purchasers, and uncertainty as to future ability or costs to securitize loans
        due to changes in the ratings process by the Rating Agencies. Taking into
        account the current deteriorating loan sale and real estate market conditions,
        for all loans either held for sale, or subject to either repurchase requests
        or
        indemnification agreements, management has increased loss severities such
        that,
        for loans that are greater than 60 days delinquent, the assumed amount of
        capital returned to the Company after a foreclosure process is assumed to
        be 65%
        of the current property’s value on a first lien, and between 0 and 5% of the
        note original balance on second liens.




All
        reserves taken by the Company reflect management's expectations based on
        current
        market conditions. If future market conditions deteriorate further, these
        reserves may be insufficient to cover current identified
        obligations.


The
        current environment for loans sales has become significantly more challenging
        as
        loan purchasers have become increasingly reluctant to purchase loans. This
        reluctance stems from concerns about increasing mortgage loan delinquencies,
        decreasing access to liquidity to fund such loans purchases and unfavorable
        changes in securitization structuring and support requirements by rating
        agencies. All of these factors have negatively impacted mortgage loan sale
        prices and decreased or eliminated certain loan purchasers’ demand for mortgage
        loans. If these market conditions do not improve, there could be a further
        depression in the prices at which we can sell our mortgage loans held for
        sale.  Such conditions could have a material adverse effect on our
        liquidity and overall financial condition.




**Presentation
      Format**




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




37




**Strategic
      Overview**




We
      earn
      net interest income from purchased residential mortgage-backed securities,
      collateralized mortgage obligations, 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.




The
      portion of our investment portfolio categorized as mortgage loans held in
      securitization trusts consists of securitized prime adjustable-rate mortgage
      loans that we either originated or acquired from third parties. We aggregate
      high credit quality, adjustable-rate mortgage loans until we have a pool of
      loans of sufficient size to securitize. Historically, we obtained the loans
      we
      securitize from either our TRS or from third parties. In the future we will
      obtain mortgage loans in bulk purchases from third party originators. Our
      first securitization occurred on February 25, 2005 and we completed our second
      and third loan securitizations on July 28, 2005 and December 20, 2005,
      respectively. These securitization transactions, through which we financed
      the
      adjustable-rate and hybrid mortgage loans that we retained, were structured
      as
      financings for both tax and financial accounting purposes. Therefore, we do
      not
      expect to generate a gain or loss on sales from these activities, and, following
      the securitizations, the loans are classified on our consolidated balance sheet
      as mortgage loans held in securitization trusts. From each of our
      securitizations, we issued investment grade securities to third parties and
      recorded the securitization debt as a liability. On March 30, 2006 we completed
      our fourth securitization, New York Mortgage Trust 2006-1. This securitization
      was structured as a sale for accounting purposes. 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 June 30,
      2007, we had repurchase agreements with 21 different counterparties. As of
      June 30, 2007, we have $423.7 million outstanding.





During
      the six months ended June 30, 2007, we sold approximately $312.9 million of
      previously retained securitizations resulting in the permanent financing of
      these securitized loans.  This CDO issuance replaced short-term repurchase
      agreements freeing up approximately $15.6 million in capital needed for
      repurchase agreement margin. As of June 30, 2007 we had $465.8 million
      outstanding of CDO’s.




We
      have
      further diversified our sources of financing with the issuance in 2005 of $45.0
      million of trust preferred securities classified as subordinated debentures.
      See
“Liquidity and Capital Resources” for further discussion on our financing
      activities.




*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. Retaining high credit quality mortgage loans
      generally leads to improved portfolio liquidity and generally provides for
      financing opportunities that are available on favorable terms. The Company
      established a $0.9 million credit reserve for certain mortgage loans held in
      securitization trusts.




38




*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 June 30,
      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 re-pricing characteristics of such assets. The
      Company utilizes a model based risk analysis system to assist in projecting
      portfolio performances over a scenario of different interest rates and market
      stresses. The model incorporates shifts in interest rates, changes in
      prepayments and other factors impacting the valuations of our financial
      securities, including mortgage-backed securities, repurchase agreements,
      interest rate swaps and interest rate caps. However, given the prepayment
      uncertainties on our mortgage assets, it is not possible to definitively lock-in
      a spread between the earnings yield on our investment portfolio and the related
      cost of borrowings. Nonetheless, through active management and the use of
      evaluative stress scenarios of the portfolio, we believe that we can mitigate
      a
      significant amount of both value and earnings volatility. See further discussion
      of interest rate risk at the “Quantitative And Qualitative Disclosures About
      Market Risk - Interest Rate Risk” section of this document.




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




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


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


·
                our
                    ability to dispose of the remaining mortgage loans held for sale
                    at levels
                    for which we have currently
                    reserved;
 ·
                    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, including the availability of repurchase
                            agreements
                            to finance our investment portfolio
                            activities;
 ·
                            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;
 ·
                                        declining
                                            real estate values;
 ·
                                            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;
  ·
                a potential
                      delisting from the New York Stock Exchange; and
  ·
                        compliance
                              with REIT requirements might cause us to forgo otherwise
                              attractive
                              opportunities.
 39
  **Financial
          Overview**




*Revenues* .
      Our
      primary source of income is 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.




*Expenses* .
      Non-interest expenses we incur in operating our business consist primarily
      of
      salary and employee benefits, and other general and administrative expenses.
      All
      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.




*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**




The
      Company invests in high-quality, adjustable rate mortgage related
      securities and residential mortgage loans. Our mortgage portfolio, consisting
      primarily of residential mortgage-backed securities and mortgage loans held
      in
      securitization trusts, generates a substantial portion of our earnings. In
      managing our investment in a mortgage portfolio, we:




·
            invest
                in 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, 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.




40




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 $3.8 million during the three months ended June
      30, 2007 because we concluded that we no longer had the intent to hold
      approximately $231.8 million in lower-yielding mortgage-backed securities until
      their values recovered. Subsequent to June 30, 2007, we sold these securities.
      As a result of this decision to sell, we recognized a loss of $3.8 million
      on such securities during the 2007 second quarter.





At
      June
      30, 2007, we have a net unrealized loss of $0.5 million on the remaining
      securities in our portfolio, which we do not consider to represent an other
      than
      temporary impairment.




The
      mortgage loans held in securitization trusts 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, which should limit future potential
      losses.





**Known
      Material Trends and Commentary**




*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 stabilize
      as we complete the transition to a passive REIT structure. 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 $4.5 million. The gain on sale was
      adjusted down by $0.6 million for a reserve established for certain post-closing
      adjustments currently under review.




*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. Recent
      market events have caused providers of liquidity to increase their credit
      review standards and decrease in the amount of fair value against they will
      lend, resulting in a decrease in overall market liquidity. While these
      events have not adversely affected our liquidity currently, management
      cannot predict the future availability of these sources of
      liquidity.




Although
        we are not a participant in the sub-prime mortgage sector and exited the
        mortgage lending business at the end of the 2007 first quarter, the current
        default trends in the sub-prime mortgage sector, and the resulting weakness
        in
        the broader mortgage market, could adversely affect
        one or more of the Company's lenders and could cause one or more of the
        Company's lenders
        to be unwilling or unable to provide it with additional financing. This could
        potentially increase
        the Company's financing costs and reduce liquidity. If one or more major
        market participants
        failed, it could negatively impact the marketability of all fixed income
        securities, including government mortgage securities, and this could negatively
        impact the value of the securities in the Company's portfolio, thus reducing
        its
        net book value. In the event the Company's lenders are unwilling or unable
        to
        provide it with additional financing, we could be forced
        to
        sell our investment securities at an inopportune time on unfavorable terms.
        However, because
        the Company's investment portfolio is comprised of 98% agency or “AAA”
        rated mortgage
        backed securities, the Company believes that it is better positioned to convert
        its investment securities to cash or to negotiate an extended financing term
        should it lenders reduce the
        amount of the liquidity available to it. See "Liquidity and Capital Resources"
        below for further discussion.





*EPDs
      and Loan Sale Environment* —
Current
      market conditions related to early payment defaults (“EPD”), which are 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 the
      reacquired loans are held on the balance sheet until they are re-sold. EPD
      loans
      are typically re-sold at a loss and result in a reduction of our
      working capital.




41




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 purchase of mortgage loans. 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 resulting in
      further difficulty in selling the loans underwritten to the prior
      guidelines.




For
      the
      six months ended June 30, 2007, we repurchased a total of $6.5 million of
      mortgage loans that were originated in either 2005 or 2006, the majority of
      which were due to EPDs. Of the repurchased loans originated in 2006, the
      majority were Alt-A. As of June 30, 2007 we had approximately $25.2 million
      of
      additional repurchase requests pending, against which the Company has taken
      a
      reserve of $4.9 million .




As
      of July 31, 2007, approximately 52% of all
      repurchase requests have been negotiated and settled resulting in a realized
      loss of $1.8 million. In
      addition, 42% of all repurchase requests are in the process of being negotiated.
      As the mortgage loans held for sale season, we expect our volume of repurchase
      requests related to early payment defaults to decrease.




**Significance
      of Estimates and Critical Accounting Policies**




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




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





*Revenue
      Recognition* .
      Interest income on our residential mortgage loans and mortgage-backed securities
      is a combination of the interest earned based on the outstanding principal
      balance of the underlying loan/security, the contractual terms of the assets
      and
      the amortization of yield adjustments, principally premiums and discounts,
      using
      generally accepted interest methods. The net GAAP cost over the par balance
      of
      self-originated mortgage loans held for investment and 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.




42




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




*Impairment
      of and Basis Adjustments on Investment Securities* —
As
      previously described herein, we regularly securitize our mortgage loans and
      retain the beneficial interests created. Such assets are evaluated for
      impairment on a quarterly basis or, if events or changes in circumstances
      indicate that these assets or the underlying collateral may be impaired, on
      a
      more frequent basis. We evaluate whether these assets are considered impaired,
      whether the impairment is other-than-temporary and, if the impairment is
      other-than-temporary, recognize an impairment loss equal to the difference
      between the asset’s amortized cost basis and its fair value. These evaluations
      require management to make estimates and judgments based on changes in market
      interest rates, credit ratings, credit and delinquency data and other
      information to determine whether unrealized losses are reflective of credit
      deterioration and our ability and intent to hold the investment to maturity
      or
      recovery. This other-than-temporary impairment analysis requires significant
      management judgment and we deem this to be a critical accounting estimate.





We
      recorded an impairment loss of $3.8 million during the three months ended June
      30, 2007, because we concluded that we no longer had the intent to hold
      approximately $231.8 million in lower-yielding mortgage-backed securities until
      their values recovered. Subsequent to June 30, 2007, we sold these securities
      and incurred the loss of $3.8 million on such securities.





At
      June
      30, 2007, we have gross unrealized losses of $0.9 million on the remaining
      securities in our portfolio, which we do not consider to represent an
      other-than-temporary impairment.




*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.




43




*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.




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




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




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




In
      June
      2007, the AICPA issued SOP No. 07-1, ** *Clarification
      of the Scope of the Audit and Accounting Guide*  Investment
      Companies  *and
      Accounting by Parent Companies and Equity Method Investors for Investments
      in
      Investment Companies*  (“SOP
      07-1”). SOP 07-1 addresses whether the accounting principles of the AICPA Audit
      and Accounting Guide ** *Investment
      Companies*  may
      be
      applied to  an
      entity
      by clarifying the definition of an investment company and whether those
      accounting principles may be retained by a parent  company
      in consolidation or by an investor in the application of the equity method
      of
      accounting. SOP 07-1 is effective for fiscal  years
      beginning on or after December 15, 2007 with earlier adoption encouraged. The
      adoption of SOP 07-1 is not expected to have a  material
      impact on the Company.




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




Estimation
      involves the consideration of various credit-related factors including but
      not
      limited to, the current housing market conditions, loan-to-value ratios,
      delinquency status, historical credit loss severity rates, purchased mortgage
      insurance, the borrower’s credit and other factors deemed to warrant
      consideration. Additionally, we look at the balance of any delinquent loan
      and
      compare that to the value of the property. 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.




44


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 in 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
        June
        30, 2007, we had a loan loss reserve of $1.6 million on mortgage loans held
        for
        sale, $5.3 million in reserves for indemnifications and repurchase
        requests and had incurred $8.2 million of loan losses during the six months
        ended June 30, 2007. In addition, the Company had a $0.9 million loan loss
        reserve for mortgage loans held in securitization trusts.
  **Overview
        of Performance**
  For
        the
        six months ended June 30, 2007, we reported a net loss of $18.9 million,
        as
        compared to a net loss of $1.6 million for the six months ended June 30,
        2006.  The
          main
          components of the increase in net loss of $17.3 million are detailed in the
          following table (dollars in thousands):
  **For
                    the Six Months Ended****Increase
                    in loss components:**
                
                **2007**
                
                **2006**
                
                **Difference**Net
                    interest income on investment portfolio
                
                $
                1,635
                
                $
                6,614
                
                $
                (4,979
                )Impairment
                    loss/Realized loss on investment securities
                
                
                (3,821
                )
                
                (969
                )
                
                (2,852
                )Loan
                    loss reserve on loans held in securitization trust
                
                
                (940
                )
                
                -
                
                
                (940
                )Loss
                    from discontinued operations
                
                
                (12,859
                )
                
                (4,164
                )
                
                (8,695
                )
 **Summary
        of Operations and Key Performance Measurements**
  For
        the
        six months ended June 30, 2007, our income was dependent upon our mortgage
        portfolio management operations and the net interest (interest income on
        portfolio assets net of the interest expense and hedging costs associated
        with
        the financing of such assets) generated from our portfolio, mortgage loans
        held
        in the securitization trusts and residential mortgage-backed securities.
 
 45
  The
        key
        performance measures for our portfolio management activities are:
  ·
              net
                  interest spread on the portfolio;
 ·
                characteristics
                      of the investments and the underlying pool of mortgage loans
                      including but
                      not limited to credit quality, coupon and prepayment rates;
                      and
  ·
                  return
                        on our mortgage asset investments and the related management
                        of interest
                        rate risk.
  **Financial
        Condition**
 As
          of
          June 30, 2007, we had approximately $1.0 billion of total assets, as compared
          to
          approximately $1.3 billion of total assets as of December 31, 2006. The
          decline
          in total assets results primarily from a decline in assets related to our
          discontinued operations of $201.1 million and a decline of $117.7 million
          related to investments portfolio assets.
  **Balance
        Sheet Analysis - Asset Quality**
  *Investment
        Securities - Available for Sale* —
Our
        securities portfolio consists of agency securities or AAA-rated residential
        mortgage-backed securities. At June 30, 2007 and December 31, 2006, we had
        no
        investment securities in a single issuer or entity (other than a government
        sponsored agency of the U.S. Government) that had an aggregate book value
        in
        excess of 10% of our total assets. The following tables set forth the credit
        characteristics of our securities portfolio as of June 30, 2007 and December
        31,
        2006 (dollar amounts in thousands):
  **Credit
        Characteristics of Our Investment Securities:**
 June
                    30, 2007**Sponsor
                    or Rating**
                
                **Par**
                  **Value**
                
                **Carrying**
                  **Value**
                
                **%
                    of**
                  **Portfolio**
                
                **Coupon**
                
                **Yield**Agency
                    REMIC CMO Floating
                  Rate
                
                
                FNMA/FHLMC/GNMA
                
                $
                187,147
                
                $
                187,472
                
                
                41
                %
                
                6.54
                %
                
                6.51
                %Private
                    Label Floating Rate
                
                
                AAA
                
                
                5,595
                
                
                5,583
                
                
                1
                %
                
                6.17
                %
                
                6.22
                %Private
                    Label ARMs
                
                
                AAA
                
                
                244,911
                
                
                242,622
                
                
                53
                %
                
                4.78
                %
                
                6.00
                %NYMT
                    Retained Securities
                
                
                AAA-BBB
                
                
                17,687
                
                
                17,428
                
                
                4
                %
                
                5.75
                %
                
                6.60
                %NYMT
                    Retained Securities
                
                
                Below
                    Investment Grade
                
                
                2,761
                
                
                1,830
                
                
                1
                %
                
                5.68
                %
                
                12.80
                %Total/Weighted
                    Average
                $
                458,101
                
                $
                454,935
                
                
                100
                %
                
                5.56
                %
                
                6.27
                %
  December
                    31, 2006**Rating**
                
                **Par
                    Value**
                
                **Carrying
                    Value**
                
                **%
                    of Portfolio**
                
                **Coupon**
                
                **Yield**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
                %
  46
  The
        following table sets forth the stated reset periods and weighted average
        yields
        of our investment securities at June 30, 2007 and December 31, 2006 (dollar
        amounts in thousands):
 
 **Reset/
        Yield of our Investment Securities**
  June
                      30, 2007**Less
                      than**
                    **6
                      Months**
                  
                  **More
                      than 6 Months**
                    **To
                      24 Months**
                  
                  **More
                      than 24 Months**
                    **To
                      60 Months**
                  
                  **Total****Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**
                  
                  **Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**
                  
                  **Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**
                  
                  **Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**Agency
                      REMIC CMO Floating Rate
                  
                  $
                  187,472
                  
                  
                  6.51
                  %
                  $
                  —
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  —
                  
                  $
                  187,472
                  
                  
                  6.51
                  %Private
                      Label Floating Rate
                  
                  
                  5,583
                  
                  
                  6.22
                  %
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5,583
                  
                  
                  6.22
                  %Private
                      Label ARMs
                  
                  
                  14,563
                  
                  
                  6.45
                  %
                  
                  123,816
                  
                  
                  5.92
                  %
                  
                  104,243
                  
                  
                  6.02
                  %
                  
                  242,622
                  
                  
                  6.00
                  %NYMT
                      Retained Securities
                  
                  
                  2,593
                  
                  
                  6.86
                  
                  
                  —
                  
                  
                  —
                  %
                  
                  16,665
                  
                  
                  7.52
                  %
                  
                  19,258
                  
                  
                  7.44
                  %Total/Weighted
                      Average
                  
                  $
                  210,211
                  
                  
                  6.50
                  %
                  $
                  123,816
                  
                  
                  5.92
                  %
                  $
                  120,908
                  
                  
                  6.24
                  %
                  $
                  454,935
                  
                  
                  6.27
                  %
  December
                      31, 2006**Less
                      than**
                    **6
                      Months**
                  
                  **More
                      than 6 Months**
                    **To
                      24 Months**
                  
                  **More
                      than 24 Months**
                    **To
                      60 Months**
                  
                  **Total****Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**
                  
                  **Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**
                  
                  **Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**
                  
                  **Carrying**
                      **Value**
                  
                  **Weighted**
                      **Average**
                      **Yield**Agency
                      REMIC CMO Floating Rate
                  
                  $
                  163,898
                  
                  
                  6.40
                  %
                  $
                  —
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  —
                  
                  $
                  163,898
                  
                  
                  6.40
                  %Private
                      Label Floating Rate
                  
                  
                  22,284
                  
                  
                  6.46
                  %
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  22,284
                  
                  
                  6.46
                  %Private
                      Label ARMs
                  
                  
                  16,673
                  
                  
                  5.60
                  %
                  
                  78,565
                  
                  
                  5.80
                  %
                  
                  183,612
                  
                  
                  5.64
                  %
                  
                  278,850
                  
                  
                  5.68
                  %NYMT
                      Retained Securities
                  
                  
                  6,024
                  
                  
                  7.12
                  %
                  
                  —
                  
                  
                  —
                  
                  
                  17,906
                  
                  
                  7.83
                  %
                  
                  23,930
                  
                  
                  7.66
                  %Total/Weighted
                      Average
                  
                  $
                  208,879
                  
                  
                  6.37
                  %
                  $
                  78,565
                  
                  
                  5.80
                  %
                  $
                  201,518
                  
                  
                  5.84
                  %
                  $
                  488,962
                  
                  
                  6.06
                  %
  *Mortgage
        Loans Held in Securitization Trusts* —
        Included in our portfolio are adjustable-rate mortgage loans that we originated
        or purchased in bulk from third parties that meet our investment criteria
        and
        portfolio requirements. If the securitization qualifies as a financing for
        SFAS
        No. 140 purposes the loans are classified as “mortgage loans held in
        securitization trusts.”
  The
        NYMT
        2006-1 securitization qualifies as a sale under SFAS No. 140, which resulted
        in
        the recording of residual assets and mortgage servicing rights. The residual
        assets total $1.8 million and are included in investment securities available
        for sale (see note 2 in our consolidated financial statements). The
        residual interest carrying values are determined by dealer quotes. These
        quotes
        take into consideration certain pricing assumptions including, constant
        prepayment rate, discount rate, loan loss frequency and loan loss severity
        rates.
  47
  At
        June
        30, 2007, mortgage loans held in securitization trusts totaled $504.5 million,
        or 50% of total assets. Of this portfolio of
        mortgage loans held in securitization trusts, all are traditional or
        hybrid ARMs and 76.1% are 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.
  **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 June
        30, 2007 (dollar amounts in thousands):
  **#
                    of Loans**
                
                **Par
                    Value**
                
                **Carrying
                    Value****Loan
                    Characteristics:**Mortgage
                    loans held in securitization trusts
                
                
                1,113
                
                $
                502,222
                
                $
                504,522Retained
                    interest in securitization (included in Investment
                  securities
                    available for sale)
                
                
                414
                
                
                222,201
                
                
                19,258Total
                    Loans Held
                
                
                1,527
                
                $
                724,423
                
                $
                523,780
  ****
                
                **Average**
                
                **High**
                
                **Low****General
                    Loan Characteristics:**Original
                    Loan Balance
                
                $
                494,327
                
                $
                3,500,000
                
                $
                40,000Coupon
                    Rate
                
                
                5.72
                %
                
                9.50
                %
                
                4.00
                %Gross
                    Margin
                
                
                2.35
                %
                
                6.50
                %
                
                1.13
                %Lifetime
                    Cap
                
                
                11.15
                %
                
                13.75
                %
                
                9.00
                %Original
                    Term (Months)
                
                
                360
                
                
                360
                
                
                360Remaining
                    Term (Months)
                
                
                336
                
                
                345
                
                
                301
  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
                
                $
                500,932
                
                $
                3,500,000
                
                $
                25,000Coupon
                    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
  48
  The
        following tables provide additional characteristics of the mortgage loans
        held
        in securitization trusts and retained interest in securitization as of June
        30,
        2007 and December 31, 2006:
 **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Arm
                    Loan Type**Traditional
                    ARMs
                
                
                2.3
                %
                
                2.9
                %2/1
                    Hybrid ARMs
                
                
                2.9
                %
                
                3.8
                %3/1
                    Hybrid ARMs
                
                
                14.6
                %
                
                16.8
                %5/1
                    Hybrid ARMs
                
                
                78.0
                %
                
                74.5
                %7/1
                    Hybrid ARMs
                
                
                2.2
                %
                
                2.0
                %Total
                
                
                100.0
                %
                
                100.0
                %Percent
                    of ARM loans that are Interest Only
                
                
                76.1
                %
                
                75.9
                %Weighted
                    average length of interest only period
                
                
                8.1
                    years
                
                
                8.0
                    years
  **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Traditional
                    ARMs - Periodic Caps**None
                
                
                70.8
                %
                
                61.9
                %1%
                
                
                7.0
                %
                
                8.8
                %Over
                    1%
                
                
                22.2
                %
                
                29.3
                %Total
                
                
                100.0
                %
                
                100.0
                %
  **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Hybrid
                    ARMs - Initial Cap**3.00%
                    or less
                
                
                12.3
                %
                
                14.8
                %3.01%-4.00%
                
                
                6.8
                %
                
                7.5
                %4.01%-5.00%
                
                
                79.9
                %
                
                76.6
                %5.01%-6.00%
                
                
                1.0
                %
                
                1.1
                %Total
                
                
                100.0
                %
                
                100.0
                %
 ****
                
                **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****FICO
                    Scores**650
                    or less
                
                
                3.9
                %
                
                3.8
                %651
                    to 700
                
                
                17.3
                %
                
                16.9
                %701
                    to 750
                
                
                33.6
                %
                
                34.0
                %751
                    to 800
                
                
                41.2
                %
                
                41.5
                %801
                    and over
                
                
                4.0
                %
                
                3.8
                %Total
                
                
                100.0
                %
                
                100.0
                %Average
                    FICO Score
                
                
                737
                
                
                737
  49
 **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Loan
                    to Value (LTV)**50%
                    or less
                
                
                9.6
                %
                
                9.8
                %50.01%
                    - 60.00%
                
                
                8.7
                %
                
                8.8
                %60.01%
                    - 70.00%
                
                
                28.3
                %
                
                28.1
                %70.01%
                    - 80.00%
                
                
                51.1
                %
                
                51.1
                %80.01%
                    and over
                
                
                2.3
                %
                
                2.2
                %Total
                
                
                100.0
                %
                
                100.0
                %Average
                    LTV
                
                
                69.6
                %
                
                69.4
                %
 **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Property
                    Type**Single
                    Family
                
                
                51.4
                %
                
                52.3
                %Condominium
                
                
                22.7
                %
                
                22.9
                %Cooperative
                
                
                9.4
                %
                
                8.8
                %Planned
                    Unit Development
                
                
                13.5
                %
                
                13.0
                %Two
                    to Four Family
                
                
                3.0
                %
                
                3.0
                %Total
                
                
                100.0
                %
                
                100.0
                %
  ****
                
                **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Occupancy
                    Status**Primary
                
                
                84.7
                %
                
                85.3
                %Secondary
                
                
                11.6
                %
                
                10.7
                %Investor
                
                
                3.7
                %
                
                4.0
                %Total
                
                
                100.0
                %
                
                100.0
                %
 **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Documentation
                    Type**Full
                    Documentation
                
                
                71.4
                %
                
                70.1
                %Stated
                    Income
                
                
                20.3
                %
                
                21.3
                %Stated
                    Income/ Stated Assets
                
                
                6.9
                %
                
                7.2
                %No
                    Documentation
                
                
                0.9
                %
                
                0.9
                %No
                    Ratio
                
                
                0.5
                %
                
                0.5
                %Total
                
                
                100.0
                %
                
                100.0
                %
 **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December
                    31,**
                  **2006**
                  **Percentage****Loan
                    Purpose**Purchase
                
                
                57.0
                %
                
                57.3
                %Cash
                    out refinance
                
                
                16.6
                %
                
                26.1
                %Rate
                    and term refinance
                
                
                26.4
                %
                
                16.6
                %Total
                
                
                100.0
                %
                
                100.0
                %
  50
 **June
                    30,**
                  **2007**
                  **Percentage**
                
                **December 31,**
                  **2006**
                  **Percentage****Geographic
                    Distribution: 5% or more in any one state**NY
                
                
                30.0
                %
                
                29.1
                %MA
                
                
                17.5
                %
                
                17.5
                %CA
                
                
                9.4
                %
                
                11.4
                %FL
                
                
                7.8
                %
                
                7.5
                %NJ
                
                
                5.5
                %
                
                5.1
                %Other
                    (less than 5% individually)
                
                
                29.8
                %
                
                29.4
                %Total
                
                
                100.0
                %
                
                100.0
                %
  *Delinquency
        Status —* As of
        June 30, 2007 and December 31, 2006, we had 10 delinquent loans totaling
        $8.1
        million and 6 delinquent loans totaling $6.2 million, respectively, categorized
        as mortgage loans held in securitization trusts. The table below shows
        delinquencies in our loan portfolio as of June 30, 2007 (dollar amounts in
        thousands):
  **Days
                    Late**
                
                
                **Number
                    of**
                  **Delinquent**
                  **Loans**
                
                
                **Total**
                  **Dollar**
                  **Amount**
                
                
                **%
                    of**
                  **Loan**
                  **Portfolio**30-60
                
                
                3
                
                $
                1,117
                
                
                0.22
                %61-90
                
                
                -
                
                
                -
                
                
                0.00
                %90+
                
                
                7
                
                
                6,935
                
                
                1.38
                %Real
                    estate owned
                
                
                2
                
                $
                1,774
                
                
                0.35
                %
 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.
 
 The
        Company has established a $0.9 million loan loss reserve for delinquent mortgage
        loans held in securitization trusts.
 
 *Cash
        and cash equivalents —* We had
        unrestricted cash and cash equivalents of $1.9 million at June 30, 2007 versus
        $1.0 million at December 31, 2006.
  *Restricted
        Cash* —
        Restricted cash includes amounts held by counterparties as collateral for
        hedging instruments, amounts held as collateral for two letters of credit
        related to the Company's lease of office space, including its corporate
        headquarters and amounts held in an escrow account to support warranties
        and
        indemnifications related to the sale of the retail mortgage lending platform
        to
        IndyMac.
  51
  *Accounts
        and accrued interest receivable* —
        Accounts and accrued interest receivable includes accrued interest receivable
        for investment securities and mortgage loans held in securitization trusts
        are
        also included.
  *Prepaid
        and other assets* —
Prepaid
        and other assets totaled $20.3 million as of
        June 30, 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.
 
 *Property
        and Equipment, Net —* Property
        and equipment totaled $0.1 million as
        of
        June 30, 2007 and $0.1 million as of December 31, 2006 and have estimated
        lives
        ranging from three to ten years, and are stated at cost less accumulated
        depreciation and amortization. Depreciation is determined in amounts sufficient
        to charge the cost of depreciable assets to operations over their estimated
        service lives using the straight-line method.
 
 *Assets
        Related to Discontinued Operations*
  The
        balances of the following assets related to the discontinued operations have
        declined as of June 30, 2007 as compared to December 31, 2006 primarily due
        to our exit from the mortgage lending business:
  *Mortgage
        Loans Held for Sale* —
        Mortgage loans that we have originated but do not intend to hold for investment
        and are held pending sale to investors are classified as “mortgage loans held
        for sale.” We had mortgage loans held for sale of $8.4 million at June 30, 2007
        as compared to $106.9 million at December 31, 2006. We use cash on a short-term
        basis to finance our mortgage loans held for sale.
  *Due
        from Purchasers* —
We
        had
        amounts due from loan purchasers totaling $0.4 million at June 30, 2007 as
        compared to $88.4 million at December 31, 2006. Amounts due from loan purchasers
        are a receivable for the principal and premium due to us for loans that have
        been shipped to permanent investors but for which payment has not yet been
        received at period end.
 
 **Balance
        Sheet Analysis - Financing Arrangements**
  *Financing
        Arrangements, Portfolio Investments* —
We
        have
        arrangements to enter into repurchase agreements with 21 different financial
        institutions. As of June 30, 2007 and December 31, 2006, there were $423.7
        million and $815.3 million, 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 June 30, 2007
        and December 31, 2006, respectively.
  *Collateralized
        Debt Obligations* —
There
        were no new securitization transactions accounted for as a financing during
        the
        six months ended June 30, 2007 or during the year ended December 31, 2006.
        We
        had $465.8 million and
        $197.4 million of CDO outstanding as of June 30, 2007 and December 31, 2006,
        respectively. The weighted average borrowing rate on these CDOs was
        5.65% and
        5.72% as of June 30, 2007 and December 31, 2006, respectively. The increase
        in
        the amount of CDOs outstanding between December 31, 2006 and June 30, 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
        June 30, 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.
  52
  $25.0
        million of our subordinated debentures have a floating interest rate equal
        to
        three-month LIBOR plus 3.75%, resetting quarterly (9.11% at June 30, 2007
        and
        9.12% at December 31, 2006). These securities mature on March 15, 2035 and
        may
        be called at par by the Company any time after March 15, 2010. 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 and not
        for
        speculation. The decision of whether or not a given transaction (or portion
        thereof) is hedged is made on a case-by-case basis, based on the risks involved
        and other factors as determined by senior management, including the financial
        impact on income and asset valuation and the restrictions imposed on REIT
        hedging activities by the Internal Revenue Code, among others. In determining
        whether to hedge a risk, we may consider whether other assets, liabilities,
        firm
        commitments and anticipated transactions already offset or reduce the risk.
        All
        transactions undertaken as a hedge are entered into with a view towards
        minimizing the potential for economic losses that could be incurred by us.
        Generally, all derivatives entered into are intended to qualify as hedges
        in
        accordance with GAAP, unless specifically precluded under SFAS No. 133. To
        this
        end, terms of the hedges are matched closely to the terms of hedged
        items.
  53
  The
        following table summarizes the estimated fair value of derivative assets
        as of
        June 30, 2007 and December 31, 2006 (dollar amounts in thousands):
  **June
                    30,**
                  **2007**
                
                **December
                    31,**
                  **2006****Derivative
                    Assets:**Interest
                    rate caps
                
                $
                1,688
                
                $
                2,011Interest
                    rate swaps
                
                
                798
                
                
                621**Total
                    derivative assets**
                
                $
                2,486
                
                $
                2,632
  **Balance
        Sheet Analysis - Stockholders' Equity**
  Stockholders'
        equity at June 30, 2007 was $55.7 million and included $0.8 million of net
        unrealized losses on available for sale securities and cash flow hedges
        presented as accumulated other comprehensive income.
  **Securitizations**
  During
        the six month period ended June 30, 2007, we did not complete a securitization
        transaction.
  54
  *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.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)**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
 
 (1)
        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 for the pool of
        mortgage loans is approximately 5.36%, the weighted average maximum loan
        rate
        (after periodic rate resets) is 10.62%, and weighted average months until
        the
        initial mortgage rate resets is 17 months with 64% resetting 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%.
  55
  *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):
 **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**
  The
        cumulative prepayment rate (“CPR”) on our mortgage loan portfolio averaged
        approximately 20% during the six month period ended June 30, 2007 as compared
        to
        19% for the six month period ended June 30, 2006. CPRs on our purchased
        portfolio of investment securities averaged approximately 15% while the CPRs
        on
        mortgage loans held for investment or held in our securitization trusts averaged
        approximately 25% during the six month period ended June 30, 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**
  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.
  56
  **Other
        Operational Information**
  **June
                      30,****2007
                      (1)**
                  
                  **2006**
                  
                  **%
                      change**Loan
                      officers
                  
                  
                  0
                  
                  
                  403
                  
                  
                  (100.0
                  )%Other
                      employees
                  
                  
                  12
                  
                  
                  324
                  
                  
                  (96.3
                  )%Total
                      employees
                  
                  
                  12
                  
                  
                  727
                  
                  
                  (98.3
                  )%Number
                      of sales locations
                  
                  
                  0
                  
                  
                  51
                  
                  
                  (100.0
                  )%
 
 (1)
        In
        connection with the sale of our mortgage lending platform assets at the end
        of
        the first quarter of 2007, the Company exited the mortgage lending business
        and
        significantly reduced its staffing needs. As of March 31, 2007, the Company
        did
        not employ any loan officers and did not maintain any sales
        locations. ****The
        Company further reduced its staff to 9 persons in August 2007 and
        anticipates a long term staffing level of between 8 - 10
        people.
 
 **Results
        of Operations - Comparison of Six and Three Months Ended June 30, 2007
        and June 30, 2006**
  ***Net
        Income***
 **Comparative
          Net Income**
  **for
                    the six months ended June 30,**
                
                
                **for
                    the three months ended June 30,****2007**
                
                **2006**
                
                **%
                    Change**
                
                
                **2007**
                
                **2006**
                
                **%
                    Change**Net
                    (loss)/income
                
                $
                (18,937
                )
                $
                (1,618
                )
                
                (1,070.4
                )%
                
                $
                (14,196
                )
                $
                178
                
                
                (8,075.3
                )%EPS
                    (Basic)
                
                $
                (1.05
                )
                $
                (0.09
                )
                
                (1,066.7
                )%
                
                $
                (0.79
                )
                $
                0.01
                
                
                (8,000.0
                )%EPS
                    (Diluted)
                
                $
                (1.05
                )
                $
                (0.09
                )
                
                (1,066.7
                )%
                
                $
                (0.79
                )
                $
                0.01
                
                
                (8,000.0
                )%
  For
          the
          six months ended June 30, 2007, we reported net loss of $18.9 million,
          as
          compared to net loss of $1.6 million for the six months ended
          June 30, 2006. For the three months end June 30, 2007, we reported a net
          loss of
          $14.2 million, as compared to net gain of $0.2 million for the
          three
          months ended June 30, 2006. See the following table for the selected components
          of the increase net loss for the three and six months ended
          June 30, 2007 and 2006.
  **Detailed
                    Components of Increase in loss:**
                
                **for
                    the six months ended June 30,**
                
                
                **for
                    the three months ended June 30,****2007**
                
                **2006**
                
                **%
                    Change**
                
                
                **2007**
                
                **2006**
                
                **%
                    Change**Net
                    interest income on investment portfolio
                
                $
                1,635
                
                $
                6,614
                
                
                (75.3
                )%
                
                $
                1,006
                
                $
                3,109
                
                
                (67.6
                )%Impairment
                      loss/Realized
                      loss on investment securities
                
                
                (3,821
                )
                
                (969
                )
                
                294.3
                %
                
                
                (3,821
                )
                
                —
                
                
                —Loan
                    loss reserve on loans held in securitization trust
                
                
                (940
                )
                
                —
                
                
                —
                
                
                
                (940
                )
                
                —
                
                
                —Loss
                    from discontinued operations
                
                $
                (12,859
                )
                $
                (4,164
                )
                
                208.8
                %
                
                $
                (9,018
                )
                $
                (1,279
                )
                
                605.1
                %
 The
            Company recorded a $3.8 million impairment charge on lower yielding securities
            in the investment portfolio for the quarter ending June 30, 2007. In
            addition,
the
            Company incurred a $0.9 million loan loss reserve for loans held in
            securitization trusts during the same period. The increase in loss in
            discontinued operations will
            be
            explained in detail later in this section.
  **Comparative
              Net Interest Income**
 **for
                    the six months ended June 30,**
                
                
                **for
                    the three months ended June 30,****2007**
                
                **2006**
                
                **%
                    Change**
                
                
                **2007**
                
                **2006**
                
                **%
                    Change**Interest
                    income investment securities and loans held in securitization
                    trusts
                
                $
                26,611
                
                $
                33,052
                
                
                (19.5
                )%
                
                $
                12,898
                
                $
                15,468
                
                
                (16.6
                )%Interest
                    expense investment securities and loans held in securtization
                    trusts
                
                
                24,976
                
                
                26,438
                
                
                (5.5
                )%
                
                
                11,892
                
                
                12,359
                
                
                (3.8
                )%Net
                      interest (expense) income from investment securities and loans
                      held in
                      securitization trusts
                
                
                1,635
                
                
                6,614
                
                
                (75.3
                )%
                
                
                1,006
                
                
                3,109
                
                
                (67.6
                )%Subordinated
                    debentures
                
                
                1,776
                
                
                1,779
                
                
                (0.2
                )%
                
                
                894
                
                
                894
                
                
                (0.0
                )%Net
                    interest (expense) income
                
                $
                (141
                )
                $
                4,835
                
                
                (102.9
                )%
                
                $
                112
                
                $
                2,215
                
                
                (94.9
                )%
  The
              decrease of $5.0 million and $2.1 million for the six and three months
              ended
              June 30, 2007 as compared to the same periods in 2006 was primarily due to
              a decrease in earning assets as well as the
              inclusion of suborinated debentures interest expnese without the corresponding
              interest income from the discontinued operations. The capital invested
              in the discontined
              operations was partially redeployed at the end of the second quarter
              but will
              have a more material impact on the third quarter.
 57
  *Net
        Interest Income* —
The
        following table summarizes the changes in net interest income for the six
        months
        ended June 30, 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
                  
                  $
                  981.7
                  
                  $
                  27,602
                  
                  
                  5.62
                  %
                  $
                  1,343.3
                  
                  $
                  34,050
                  
                  
                  5.03
                  %Amortization
                      of net premium
                  
                  $
                  4.0
                  
                  $
                  (991
                  )
                  
                  (0.16
                  )%
                  $
                  6.0
                  
                  $
                  (998
                  )
                  
                  (0.15
                  )%Interest
                      income/weighted average
                  
                  $
                  985.70
                  
                  $
                  26,611
                  
                  
                  5.46
                  %
                  $
                  1,349.3
                  
                  $
                  33,052
                  
                  
                  4.88
                  %**Interest
                      expense:**Investment
                      securities and loans held in the securitization trusts
                  
                  $
                  928.3
                  
                  $
                  24,976
                  
                  
                  5.43
                  %
                  $
                  1,272.9
                  
                  $
                  26,438
                  
                  
                  4.13
                  %Subordinated
                      debentures
                  
                  $
                  45.00
                  
                  $
                  1,776
                  
                  
                  7.94
                  %
                  $
                  45.0
                  
                  $
                  1,779
                  
                  
                  7.91
                  %Interest
                      expense/weighted average
                  
                  $
                  973.30
                  
                  $
                  26,752
                  
                  
                  5.47
                  %
                  $
                  1,317.9
                  
                  $
                  28,217
                  
                  
                  4.26
                  %Net
                      interest income/weighted average
                  
                  
                  
                  
                  $
                  (141
                  )
                  
                  (0.01
                  )%
                  
                  
                  
                  $
                  4,835
                  
                  
                  0.62
                  %
  *Net
          Interest Income* —
The
          following table summarizes the changes in net interest income for the three
          months ended June 30, 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
                    
                    $
                    945.4
                    
                    $
                    13,388
                    
                    
                    5.77
                    %
                    $
                    1,213.6
                    
                    $
                    16,109
                    
                    
                    5.29
                    %Amortization
                        of net premium
                    
                    $
                    3.2
                    
                    $
                    (490
                    )
                    
                    (0.22
                    )%
                    $
                    6.1
                    
                    $
                    (641
                    )
                    
                    (0.21
                    )%Interest
                        income/weighted average
                    
                    $
                    948.6
                    
                    $
                    12,898
                    
                    
                    5.55
                    %
                    $
                    1,219.7
                    
                    $
                    15,468
                    
                    
                    5.08
                    %**Interest
                        expense:**Investment
                        securities and loans held in the securitization trusts
                    
                    $
                    876.4
                    
                    $
                    11,892
                    
                    
                    4.04
                    %
                    $
                    1,138.0
                    
                    $
                    12,359
                    
                    
                    4.30
                    %Subordinated
                        debentures
                    
                    $
                    45.0
                    
                    $
                    894
                    
                    
                    7.95
                    %
                    $
                    45.0
                    
                    $
                    894
                    
                    
                    7.95
                    %Interest
                        expense/weighted average
                    
                    $
                    921.4
                    
                    $
                    12,786
                    
                    
                    5.55
                    %
                    $
                    1,183.0
                    
                    $
                    13,253
                    
                    
                    4.44
                    %Net
                        interest income/weighted average
                    
                    
                    
                    
                    $
                    112
                    
                    
                    0.00
                    %
                    
                    
                    
                    $
                    2,215
                    
                    
                    0.64
                    %
 For
        our
        portfolio investments of investment securities, mortgage loans held for
        investment and mortgage 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
                    Cash**
                  **Yield
                    on**
                  **Interest**
                  **Earning**
                  **Assets**
                
                **Cost
                    of**
                  **Funds**
                
                **Net
                    Interest**
                  **Spread**June
                    30, 2007
                
                $
                948.6
                
                
                5.66
                %
                
                5.55
                %
                
                5.43
                %
                
                0.12
                %March
                    31, 2007
                
                $
                1,022.7
                
                
                5.59
                %
                
                5.36
                %
                
                5.34
                %
                
                0.02
                %December
                    31, 2006
                
                $
                1,111.0
                
                
                5.53
                %
                
                5.35
                %
                
                5.26
                %
                
                0.09
                %September
                    30, 2006
                
                $
                1,287.6
                
                
                5.50
                %
                
                5.28
                %
                
                5.12
                %
                
                0.16
                %June
                    30, 2006
                
                $
                1,217.9
                
                
                5.29
                %
                
                5.08
                %
                
                4.30
                %
                
                0.78
                %March
                    31, 2006
                
                $
                1,478.6
                
                
                4.85
                %
                
                4.75
                %
                
                4.04
                %
                
                0.71
                %December
                    31, 2005
                
                $
                1,499.0
                
                
                4.84
                %
                
                4.43
                %
                
                3.81
                %
                
                0.62
                %September
                    30, 2005
                
                $
                1,494.0
                
                
                4.69
                %
                
                4.08
                %
                
                3.38
                %
                
                0.70
                %June
                    30, 2005
                
                $
                1,590.0
                
                
                4.50
                %
                
                4.06
                %
                
                3.06
                %
                
                1.00
                %March
                    31, 2005
                
                $
                1,447.9
                
                
                4.39
                %
                
                4.01
                %
                
                2.86
                %
                
                1.15
                %December
                    31, 2004
                
                $
                1,325.7
                
                
                4.29
                %
                
                3.84
                %
                
                2.58
                %
                
                1.26
                %September
                    30, 2004
                
                $
                776.5
                
                
                4.04
                %
                
                3.86
                %
                
                2.45
                %
                
                1.41
                %
  58
 **Comparative
            Expenses**
 **for
                    the six months ended June 30,**
                
                
                **for
                    the three months ended June 30,****2007**
                
                **2006**
                
                **%
                    Change**
                
                
                **2007**
                
                **2006**
                
                **%
                    Change**Salaries
                    and benefits
                
                $
                496
                
                $
                452
                
                
                9.7
                %
                
                $
                151
                
                $
                202
                
                
                (25.2
                )%Marketing
                    and promotion
                
                
                62
                
                
                34
                
                
                82.4
                %
                
                
                39
                
                
                26
                
                
                50.0
                %Data
                    processing and communications
                
                
                93
                
                
                119
                
                
                (21.8
                )%
                
                
                56
                
                
                63
                
                
                (11.1
                )%Professional
                    fees
                
                
                205
                
                
                365
                
                
                (43.8
                )%
                
                
                105
                
                
                271
                
                
                (61.3
                )%Depreciation
                    and amortization
                
                
                149
                
                
                127
                
                
                17.3
                %
                
                
                81
                
                
                60
                
                
                35.0
                %Other
                
                
                171
                
                
                223
                
                
                (23.3
                )%
                
                
                97
                
                
                136
                
                
                (28.7
                )%$
                1,176
                
                $
                1,320
                
                
                (10.9
                )%
                
                $
                529
                
                $
                758
                
                
                (30.2
                )%
  The
          Company's expenses for the continuing operations decreased by $0.1
          million for the period ending June 30, 2007 as compared to the same period
          of 2006, primarily due to a decrease in professional fees. The
          ongoing Company's expenses going forward will reflect the transition to
          a
          passive REIT from an active REIT strategy, including a significant reduction
          in
          headcount to 12 employees as of June 30, 2007 from 727 as of June 30, 2006.
          Certain ongoing expenses were included in the disconitnued operations through
          allocations and in the future will be included in continuing operations.
 **Discontinued
          Operation**
  **for
                    the six months ended June 30,**
                
                
                **for
                    the three months ended June 30,****2007**
                
                **2006**
                
                **%
                    Change**
                
                
                **2007**
                
                **2006**
                
                **%
                    Change****Revenues:**Net
                    interest income
                
                $
                752
                
                $
                2,328
                
                
                (67.7)%
                
                
                $
                156
                
                $
                601
                
                
                (74.0)%Gain
                    on sale of mortgage loans
                
                
                2,550
                
                
                10,051
                
                
                (74.6)%
                
                
                
                213
                
                
                5,981
                
                
                (96.4)%Loan
                    losses
                
                
                (8,242
                )
                
                —
                
                
                —
                
                
                
                (5,081
                )
                
                
                
                
                —Brokered
                    loan fees
                
                
                2,316
                
                
                6,270
                
                
                (63.1)%
                
                
                
                181
                
                
                3,493
                
                
                (94.8)%Gain
                    on sale of retail lending segment
                
                
                4,525
                
                
                —
                
                
                —
                
                
                
                (635
                )
                
                
                
                
                —Other
                    income (expense)
                
                
                15
                
                
                (480
                )
                
                (103.1)%
                
                
                
                (12
                )
                
                174
                
                
                (106.9)%Total
                    net revenues
                
                $
                1,916
                
                $
                18,169
                
                
                (89.5)%
                
                
                $
                (5,178
                )
                $
                10,249
                
                
                (150.5)%**Expenses:**Salaries,
                    commissions and benefits
                
                $
                6,084
                
                $
                11,890
                
                
                (48.8)%
                
                
                $
                1,078
                
                $
                5,799
                
                
                (81.4)%Brokered
                    loan expenses
                
                
                1,731
                
                
                4,935
                
                
                (64.9)%
                
                
                
                8
                
                
                2,767
                
                
                (99.7)%Occupancy
                    and equipment
                
                
                2,210
                
                
                2,615
                
                
                (15.5)%
                
                
                
                898
                
                
                1,290
                
                
                (30.4)%General
                    and administrative
                
                
                4,750
                
                
                7,472
                
                
                (36.4)%
                
                
                
                1,856
                
                
                3,335
                
                
                (44.3)%Total
                    expenses
                
                
                14,775
                
                
                26,912
                
                
                (45.1)%
                
                
                
                3,840
                
                
                13,191
                
                
                (70.9)%**Loss
                    before inomce tax benefit**
                
                
                (12,859
                )
                
                (8,743
                )
                
                47.1%
                
                
                
                (9,018
                )
                
                (2,942
                )
                
                206.5%Income
                    tax benefit
                
                
                —
                
                
                4,579
                
                
                (100.0)%
                
                
                
                
                
                
                1,663
                
                
                (100.0)%**Loss
                    from discontinued operations - net of tax**
                
                $
                (12,859
                )
                $
                (4,164
                )
                
                208.8%
                
                
                $
                (9,018
                )
                $
                (1,279
                )
                
                605.0%
 The
              majority of the decreases are due to the Company's exit from the mortgage
              lending business in the first quarter of 2007. In addition, the Company
experienced
              loan losses of $8.2 million and $5.1 million for the six and three
              months ending
              June 30, 2007 as compared to no losses during the previous respective
              periods. The Company recorded a net gain of $4.5 million for the sale
              of the
              retail segment during the six months ending June 30,
              2007.
 59
  **Off-Balance
        Sheet Arrangements**
  Since
        inception, we have not maintained any relationships with unconsolidated entities
        or financial partnerships, such as entities often referred to as structured
        finance or special purpose entities, established for the purpose of facilitating
        off-balance sheet arrangements or other contractually narrow or limited
        purposes. Further, we have not guaranteed any obligations of unconsolidated
        entities nor do we have any commitment or intent to provide funding to any
        such
        entities. Accordingly, we are not materially exposed to any market, credit,
        liquidity or financing risk that could arise if we had engaged in such
        relationships.
 **Liquidity
          and Capital Resources**
  Liquidity
          is a measure of our ability to meet potential cash requirements, including
          ongoing commitments to repay borrowings, fund and maintain investments,
          pay
          dividends to our stockholders and other general business needs. We recognize
          the
          need to have funds available for our operating businesses and our investment
          portfolio. We plan to meet liquidity through normal operations with the
          goal of
          avoiding unplanned sales of assets or emergency borrowing of funds.
  As
          of the
          date of this report, we believe our existing cash balances, funds available
          under our current repurchase agreements and cash flows from operations
          will be
          sufficient for our liquidity requirements for at least the next 12 months.
          At
          June 30, 2007, we had cash balances of $1.9 million and outstanding repurchase
          agreements for $423.7 million. At June 30, 2007, we also have longer-term
          capital resources from CDOs outstanding of $465.8 million and from subordinated
          debt of $45.0 million.
 
 We
          have
          arrangements to enter into repurchase agreements, a form of collateralized
          short-term borrowing, with 21 different financial institutions as of June
          30,
          2007. These agreements are secured by our mortgage-backed securities and
          bear
          interest rates that have historically moved in close relationship to LIBOR.
          Our
          borrowings under repurchase agreements are based on the fair value of our
          mortgage backed securities portfolio.  See "Market (Fair Value) Risk" under
          Item 3 of this Form 10-Q.  Interest rate changes can have a negative impact
          on the valuation of these securities reducing the amount we can borrow
          under
          these agreements.  Moreover because these lines of financing are not
          committed, meaning the counterparty can call the loan at any time, interest
          rate
          changes, concern regarding the fair value of our mortgage-backed securities
          portolio, and shared concerns in the credit markets may lead to margin
          calls initiated by the repurchase agreement providers. External disruptions
          to
          credit markets might also impair access to additional liquidity.  See "Risk
          Factors" relating to liquidity under Part II, Item 1A of this Form 10-Q
          and
          "Liquidity and Funding Risk" under Item 3 of this Form 10-Q for a discussion
          of
          additional risks and uncertainties relating to our liquidity.
  Subsequent
          to June 30, 2007, the market for short-term collateralized borrowing through
          repurchase agreements has tightened considerably, primarily as a result
          of the
          fall-out from increasing defaults in the sub-prime mortgage market and
          losses
          incurred at a number of larger companies in the mortgage industry.  At
          June 30, 2007, we had outstanding balances under repurchase agreements with
          seven different counterparties and, as of the date of this report, we have
          been
          successful at resetting all outstanding balances under our various repurchase
          agreements as they have become due.  In the event a counterparty elected to
          not reset the outstanding balance into a new repurchase agreement, we would
          be
          required to repay the outstanding balance with proceeds received from a
          new
          counterparty or to surrender the mortgage-backed securities that serve as
          collateral for the outstanding balance.  If we are unable to secure
          financing from another counterparty and surrender the collateral, we would
          expect to incur a significant loss.  Although we presently expect the
          short-term collateralized borrowing markets to continue providing us with
          necessary financing through repurchase agreements, we cannot assure you
          that this form of financing will be available to us in the future on
          comparable terms, if at all.
 
 Our
          investments and assets will also generate liquidity on an ongoing basis
          through
          mortgage principal and interest payments, pre-payments and net earnings
          held
          prior to payment of dividends. Should our liquidity needs ever exceed the
          on-going or immediate sources of liquidity discussed above, we believe
          that our
          securities could be sold to raise additional cash. Such sales might occur
          at prices lower than the carrying value of the assets, which would result
          in
          losses.
 
 To
          finance our investment portfolio, we generally seek to borrow between eight
          and
          12 times the amount of our equity. At June 30, 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
          June 30,
          2007 as a form of equity which would result in an adjusted leverage ratio
          of 9
          to 1.
  We
          enter
          into interest rate swap agreements to extend the maturity of our repurchase
          agreements as a mechanism to reduce the interest rate risk of the securities
          portfolio. At June 30, 2007 we had $275.0 million in interest rate swaps
          outstanding with two different financial institutions. The weighted average
          maturity of the swaps was 530 days at June 30, 2007. The impact of the
          interest
          swaps extends the maturity of the repurchase agreements to 12
          months.
  On
            July
            3, 2007, the Company’s board of directors elected to omit a dividend for the
            2007 second quarter. The board of director’s decision reflected the Company’s
            focus on elimination of operating losses through the sale of the mortgage
            lending businesses with a view to conserving capital to build future
            earnings
            from our portfolio management operations. The Company’s board of directors will
            continue to evaluate the Company's dividend policy each quarter and
            will make adjustments as necessary, based on a variety of factors, including,
            among other things, the Company’s financial condition, liquidity, earnings
            projections and business prospects. Our dividend policy does not constitute
            an
            obligation to pay dividends, which only occurs when the board of directors
            declares a dividend. Including this omitted dividend, during the six
            months
            ended June 30, 2007, we distributed approximately $1.8 million in common
            stock
            dividends.
  We
          intend
          to make distributions to our stockholders to comply with the various
          requirements to maintain our REIT status and to minimize or avoid corporate
          income tax and the nondeductible excise tax. However, differences in timing
          between the recognition of REIT taxable income and the actual receipt of
          cash
          could require us to sell assets or to borrow funds on a short-term basis
          to meet
          the REIT distribution requirements and to avoid corporate income tax and
          the
          nondeductible excise tax.
  60
  Certain
          of our assets may generate substantial mismatches between REIT taxable
          income
          and available cash. These assets could include mortgage-backed securities
          we
          hold that have been issued at a discount and require the accrual of taxable
          income in advance of the receipt of cash. As a result, our REIT taxable
          income
          may exceed our cash available for distribution and the requirement to distribute
          a substantial portion of our net taxable income could cause us to:
  ·
                sell
                    assets in adverse market
                    conditions;
  ·
                borrow
                    on unfavorable terms; or
  ·
                distribute
                    amounts that would otherwise be invested in assets or repayment
                    of debt,
                    in order to comply with the REIT distribution
                    requirements.
 
 Repurchase
          requests from mortgage loan investors are an important factor affecting
          our
          liquidity. Repurchase requests predominately result from early payment
          defaults
          (“EPDs”) (i.e., where the borrowers have not timely made some or all of their
          first three mortgage payments) or in the event of a breach of a representation,
          warranty or covenant under the loan sale agreement. While in the past we
          complied with the repurchase demands by repurchasing the loan and reselling
          it
          at a loss, more recently we have addressed these requests by negotiation
          of a
          net cash settlement amount payable to the investor in lieu of repurchasing
          the
          loans. Repurchase
          demands increased during the three months ended June 30, 2007 to an aggregate
          of
          approximately $25.2 million, as compared to $14.3 million for the three
          months
          ended March 31, 2007. As of August 6, 2007 approximately 52% of all repurchase
          demands were settled and we are in negotiations regarding settlement of
          substantially all remaining repurchase demands. We cannot assure that we
          will be successful in settling these remaining repurchase demands on favorable
          terms, or at all.If the Company cannot continue to resolve its current
          repurchase demands through negotiated net cash settlements, the Company’s
          liquidity could be adversely affected. In addition, we may be subject to
          new
          repurchase requests from investors with whom we have not settled or with
          respect to repurchase obligations not covered under the settlement.
 
 **Inflation**
  For
          the
          periods presented herein, inflation has been relatively low and we believe
          that
          inflation has not had a material effect on our results of operations. The
          impact
          of inflation is primarily reflected in the increased costs of our operations.
          Virtually all our assets and liabilities are financial in nature. Our
          consolidated financial statements and corresponding notes thereto have
          been
          prepared in accordance with GAAP, which require the measurement of financial
          position and operating results in terms of historical dollars without
          considering the changes in the relative purchasing power of money over
          time due
          to inflation. As a result, interest rates and other factors influence our
          performance far more than inflation. Inflation affects our operations primarily
          through its effect on interest rates, since interest rates typically increase
          during periods of high inflation and decrease during periods of low inflation.
          During periods of increasing interest rates, demand for mortgages and a
          borrower's ability to qualify for mortgage financing in a purchase transaction
          may be adversely affected. During periods of decreasing interest rates,
          borrowers may prepay their mortgages, which in turn may adversely affect
          our
          yield and subsequently the value of our portfolio of mortgage
          assets.
 61
 
 **Item
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
  Market
        risk is the exposure to loss resulting from changes in interest rates, credit
        spreads, foreign currency exchange rates, commodity prices and equity prices.
        Because we are invested solely in U.S.-dollar denominated instruments, primarily
        residential mortgage instruments, and our borrowings are also domestic and
        U.S.
        dollar denominated, we are not subject to foreign currency exchange, or
        commodity and equity price risk; the primary market risk that we are exposed
        to
        is interest rate risk and its related ancillary risks. Interest rate risk
        is
        highly sensitive to many factors, including governmental monetary and tax
        policies, domestic and international economic and political considerations
        and
        other factors beyond our control. All of our market risk sensitive assets,
        liabilities and related derivative positions are for non-trading purposes
        only.
  Management
        recognizes the following primary risks associated with our business and the
        industry in which we conduct business:
  ·
              Interest
                  rate risk
  ·
              Market
                  (fair value) risk
  ·
                Credit
                    spread risk
 ·
                Liquidity
                    and funding risk
 ·
                  Prepayment
                      risk
 ·
                Credit
                      risk
  **Interest
          Rate Risk**
  Our
        primary interest rate exposure relates to the portfolio of adjustable-rate
        mortgage loans and mortgage-backed securities we acquire, as well as our
        variable-rate borrowings and related interest rate swaps and caps. Interest
        rate
        risk is defined as the sensitivity of our current and future earnings to
        interest rate volatility, variability of spread relationships, the difference
        in
        re-pricing intervals between our assets and liabilities and the effect that
        interest rates may have on our cash flows, especially the speed at which
        prepayments occur on our residential mortgage related assets.
  Changes
        in the general level of interest rates can affect our net interest income,
        which
        is the difference between the interest income earned on interest earning
        assets
        and our interest expense incurred in connection with our interest bearing
        debt
        and liabilities. Changes in interest rates can also affect, among other things,
        our ability to acquire loans and securities, the value of our loans, mortgage
        pools and mortgage-backed securities, and our ability to realize gains from
        the
        resale and settlement of such originated loans.
  In
        our
        investment portfolio, our primary market risk is interest rate risk. Interest
        rate risk can be defined as the sensitivity of our portfolio, including future
        earnings potential, prepayments, valuations and overall liquidity to changes
        in
        interest rates. We attempt to manage interest rate risk by adjusting portfolio
        compositions, liability maturities and utilizing interest rate derivatives
        including interest rate swaps and caps. Management's goal is to maximize
        the
        earnings potential of the portfolio while maintaining long term stable portfolio
        valuations.
  We
        utilize a model based risk analysis system to assist in projecting portfolio
        performances over a scenario of different interest rates. The model incorporates
        shifts in interest rates, changes in prepayments and other factors impacting
        the
        valuations of our financial securities, including mortgage-backed securities,
        repurchase agreements, interest rate swaps and interest rate caps.
  62
  Based
        on
        the results of this model, as of June 30, 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):
 **June
                    30, 2007****Notional**
                  **Amount**
                
                **Carrying**
                  **Amount**
                
                **Estimated**
                  **Fair
                    Value****Continuing
                    Operations:**Investment
                    securities available for sale
                
                $
                458,103
                
                $
                454,935
                
                $
                454,935Mortgage
                    loans held in the securitization trusts
                
                
                502,222
                
                
                504,522
                
                
                499,289Commitments
                    and contingencies:Interest
                    rate swaps
                
                
                275,000
                
                
                798
                
                
                798Interest
                    rate caps
                
                $
                1,446,891
                
                $
                1,688
                
                $
                1,688
 **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
  The
        impact of changing interest rates may be mitigated by portfolio prepayment
        activity that we closely monitor and the portfolio funding strategies we
        employ.
        First, our floating rate borrowings may react to changes in interest rates
        before our adjustable rate assets because the weighted average next re-pricing
        dates on the related borrowings may have shorter time periods than that of
        the
        adjustable rate assets. Second, interest rates on adjustable rate assets
        may be
        limited to a “periodic cap” or an increase of typically 1% or 2% per adjustment
        period, while our borrowings do not have comparable limitations. Third, our
        adjustable rate assets typically lag changes in the applicable interest rate
        indices by 45 days, due to the notice period provided to adjustable rate
        borrowers when the interest rates on their loans are scheduled to
        change.
  In
        a
        period of declining interest rates or nominal differences between long-term
        and
        short-term interest rates, the rate of prepayment on our mortgage assets
        may
        increase. Increased prepayments would cause us to amortize any premiums paid
        for
        our mortgage assets faster, thus resulting in a reduced net yield on our
        mortgage assets. Additionally, to the extent proceeds of prepayments cannot
        be
        reinvested at a rate of interest at least equal to the rate previously earned
        on
        such mortgage assets, our earnings may be adversely affected.
  Conversely,
        if interest rates rise or if the differences between long-term and short-term
        interest rates increase the rate of prepayment on our mortgage assets may
        decrease. Decreased prepayments would cause us to amortize the premiums paid
        for
        our ARM assets over a longer time period, thus resulting in an increased
        net
        yield on our mortgage assets. Therefore, in rising interest rate environments
        where prepayments are declining, not only would the interest rate on the
        ARM
        Assets portfolio increase to re-establish a spread over the higher interest
        rates, but the yield also would rise due to slower prepayments. The combined
        effect could mitigate other negative effects that rising short-term interest
        rates might have on earnings.
  63
  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.
  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.
  64
  ***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 June 30, 2007 and do not take into consideration the effects
        of subsequent interest rate fluctuations.
  We
        note
        that the values of our investments in mortgage-backed securities, and in
        derivative instruments, primarily interest rate hedges on our debt, will
        be
        sensitive to changes in market interest rates, interest rate spreads, credit
        spreads and other market factors. The value of these investments can vary
        and
        has varied materially from period to period. Historically, the values of
        our
        mortgage loan portfolio have tended to vary inversely with those of its
        derivative instruments.
  The
        following describes the methods and assumptions we use in estimating fair
        values
        of our financial instruments:
  Fair
        value estimates are made as of a specific point in time based on estimates
        using
        present value or other valuation techniques. These techniques involve
        uncertainties and are significantly affected by the assumptions used and
        the
        judgments made regarding risk characteristics of various financial instruments,
        discount rates, estimate of future cash flows, future expected loss experience
        and other factors.
  65
  Changes
        in assumptions could significantly affect these estimates and the resulting
        fair
        values. Derived fair value estimates cannot be substantiated by comparison
        to
        independent markets and, in many cases, could not be realized in an immediate
        sale of the instrument. Also, because of differences in methodologies and
        assumptions used to estimate fair values, the fair values used by us should
        not
        be compared to those of other companies.
  The
        fair
        values of the Company's residential mortgage-backed securities are generally
        based on market prices provided by five to seven dealers who make markets
        in
        these financial instruments. If the fair value of a security is not reasonably
        available from a dealer, management estimates the fair value based on
        characteristics of the security that the Company receives from the issuer
        and on
        available market information.
  The
        fair
        value of mortgage loans held for investment are determined by the loan pricing
        sheet which is based on internal management pricing and third party competitors
        in similar products and markets.
  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 June 30, 2007. The other two scenarios assume interest
        rates
        are instantaneously 100 and 200 bps higher that those implied by market rates
        as
        of June 30, 2007.
  66
  The
        use
        of hedging instruments is a critical part of our interest rate risk management
        strategies, and the effects of these hedging instruments on the market value
        of
        the portfolio are reflected in the model's output. This analysis also takes
        into
        consideration the value of options embedded in our mortgage assets including
        constraints on the re-pricing of the interest rate of ARM Assets resulting
        from
        periodic and lifetime cap features, as well as prepayment options. Assets
        and
        liabilities that are not interest rate-sensitive such as cash, payment
        receivables, prepaid expenses, payables and accrued expenses are excluded.
        The
        duration calculated from this model is a key measure of the effectiveness
        of our
        interest rate risk management strategies.
  Changes
        in assumptions including, but not limited to, volatility, mortgage and financing
        spreads, prepayment behavior, defaults, as well as the timing and level of
        interest rate changes will affect the results of the model. Therefore, actual
        results are likely to vary from modeled results.
  **Net
        Portfolio Duration**
 **June
        30, 2007**
  **Basis
                    point increase****Base**
                
                **+100**
                
                **+200**Mortgage
                    Portfolio
                
                
                0.81
                    years
                
                
                1.01
                    years
                
                
                1.21
                    yearsBorrowings
                    (including hedges)
                
                
                0.37
                    years
                
                
                0.37
                    years
                
                
                0.37
                    yearsNet
                
                
                0.44
                    years
                
                
                0.64
                    years
                
                
                0.84
                    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.
  67
  ***Credit
          Spread Risk***
  The
          mortgage-backed securities we currently, and will in the future, own are
          also
          subject to spread risk. The majority of these securities will be adjustable-rate
          securities that are valued based on a market credit spread to U.S. Treasury
          security yields. In other words, their value is dependent on the yield
          demanded
          on such securities by the market based on their credit relative to U.S.
          Treasury
          securities. Excessive supply of such securities combined with reduced demand
          will generally cause the market to require a higher yield on such securities,
          resulting in the use of a higher or wider spread over the benchmark rate
          (usually the applicable U.S. Treasury security yield) to value such securities.
          Under such conditions, the value of our securities portfolio would tend
          to
          decline. Conversely, if the spread used to value such securities were to
          decrease or tighten, the value of our securities portfolio would tend to
          increase. Such changes in the market value of our portfolio may affect
          our net
          equity, net income or cash flow directly through their impact on unrealized
          gains or losses on available-for-sale securities, and therefore our ability
          to
          realize gains on such securities, or indirectly through their impact on
          our
          ability to borrow and access capital.
  Furthermore,
          shifts in the U.S. Treasury yield curve, which represents the market's
          expectations of future interest rates, would also affect the yield required
          on
          our securities and therefore their value. These shifts, or a change in
          spreads,
          would have a similar effect on our portfolio, financial position and results
          of
          operations.
 ***Liquidity
        and Funding Risk***
  Liquidity
        is a measure of our ability to meet potential cash requirements, including
        ongoing commitments to repay borrowings, margin requirements 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.
 
 As
        it
        relates to our investment portfolio, derivative financial instruments we
        use
        also subject us to “margin call” risk based on their market values. Under our
        interest rate swaps, we pay a fixed rate to the counterparties while they
        pay us
        a floating rate. When floating rates are low, on a net basis we pay the
        counterparty and visa-versa. In a declining interest rate environment, we
        would
        be subject to additional exposure for cash margin calls due to accelerating
        prepayments of mortgage assets. However, the asset side of the balance sheet
        should increase in value in a further declining interest rate scenario. Most
        of
        our interest rate swap agreements provide for a bi-lateral posting of margin,
        the effect being that either swap party must post margin, depending on the
        change in value of the swap over time. Unlike typical unilateral posting
        of
        margin only in the direction of the swap counterparty, this provides us with
        additional flexibility in meeting our liquidity requirements as we can call
        margin on our counterparty as swap values increase.
  Incoming
        cash on our mortgage loans and securities is a principal source of cash.
        The
        volume of cash depends on, among other things, interest rates. The volume
        and
        quality of such incoming cash flows can be impacted by severe and immediate
        changes in interest rates. If rates increase dramatically, our short-term
        funding costs will increase quickly. While many of our investment portfolio
        loans are hybrid ARMs, they typically will not reset as quickly as our funding
        costs creating a reduction in incoming cash flow. Our derivative financial
        instruments are used to mitigate the effect of interest rate
        volatility.
  We
        manage
        liquidity to ensure that we have the continuing ability to maintain cash
        flows
        that are adequate to meet commitments on a timely and cost-effective basis.
        Our
        principal sources of liquidity are the repurchase agreement market, the issuance
        of CDOs, loan warehouse facilities as well as principal and interest payments
        from portfolio assets. We believe our existing cash balances and cash flows
        from
        operations will be sufficient for our liquidity requirements for at least
        the
        next 12 months.
  ***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
        six and three months ended June 30, 2007, our mortgage assets paid down at
        an
        approximate average annualized constant paydown rate (“CPR”) of 20% and 21%,
        respectively, compared to 19% and 20%, respectively, for the comparable periods
        in 2006 and 19% for the year ended December 31, 2006. When prepayment experience
        increases, we have to amortize our premiums over a shorter time period,
        resulting in a reduced yield to maturity on our ARM Assets. Conversely, if
        actual prepayment experience decreases, we would amortize the premium over
        a
        longer time period, resulting in a higher yield to maturity. We monitor our
        prepayment experience on a monthly basis and adjust the amortization of the
        net
        premium, as appropriate.
  68
  ***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
        mortgage loans held in securitization are concentrated in geographic markets
        that are generally supply constrained. We believe that these markets have
        less
        exposure to sudden declines in housing values than those markets which have
        an
        oversupply of housing. 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 June 30, 2007. Based upon that evaluation, our
        management, including our Co-Chief Executive Officers and our Chief Financial
        Officer, concluded that our disclosure controls and procedures were effective
        as
        of June 30, 2007.
  *Changes
        in Internal Control over Financial Reporting* —
Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting for our company, as such term is defined
        in
        Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934,
        as
        amended. Our internal control system was designed to provide reasonable
        assurance to our management and board of directors regarding the reliability,
        preparation and fair presentation of published financial statements in
        accordance with generally accepted accounting principles.
  69
 
 As
        previously disclosed in the Company's Annual Report on Form 10-K for the
        fiscal
        year ended December 31, 2006, filed with the SEC on April 2, 2007, we identified
        a material weakness in our internal control over financial reporting as of
        December 31, 2006. A material weakness is a control deficiency or combination
        of
        control deficiencies that results in more than a remote likelihood that a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. The material weakness identified was an inadequacy
        in the
        operation of our control activities involving the completion and review of
        the
        accounting period closing process. The sale of substantially all of the
        operating assets of our mortgage lending platform to IndyMac Bank, F.S.B.,
        which
        closed as of March 31, 2007, significantly increased the workload demands
        of the
        existing accounting staff, thereby disrupting the timely completion and review
        of the accounting period closing process. In addition, in connection with
        the
        uncertainty of the consummation and effect of the Indymac transaction, the
        accounting department was affected by the departure of certain key accounting
        personnel during this time. The increased workload and decreased staff levels
        resulted in a significant number of post-closing journal entries and contributed
        to a request for additional time to file our Annual Report on Form
        10-K.
 
 In
        making
        our assessment of the internal control over financial reporting, our management
        used the criteria issued by the Committee of Sponsoring Organizations of
        the
        Treadway Commission (COSO) in *Internal Control-Integrated Framework.* Because
        of the material weaknesses described above, management concluded that our
        internal control over financial reporting was not effective as of December
        31,
        2006. At March 31, 2007, due to post-closing transition requirements related
        to
        the IndyMac transaction, we determined that the material weakness had not
        yet
        been remediated. Although we believe the actions and events outlined below
        have
        improved our internal controls, we determined that the material weakness
        had not been remediated at June 30, 2007.
 
 As
        previously disclosed in our Annual Report on Form 10-K for the year ended
        December 31, 2006 and in our quarterly report on Form 10-Q for the three
        months
        ended March 31, 2007 during the first and second quarter of 2007, our management
        actively assessed our accounting needs to determine appropriate staffing
        levels.
        Subsequent to March 31, 2007, management identified and engaged certain
        accounting consultants to perform the functions of controller for the Company.
        In addition, with the completion of substantially all of the post-closing
        requirements related to the IndyMac transaction the workload demands on our
        accounting staff and disruptions to the accounting period closing process
        have
        been greatly reduced. Management believes that our internal controls have
        improved as a result of these actions and events and will continue to assess
        the
        Company’s accounting needs and take such steps as necessary to maintain
        effective controls.
  70
  **PART
        II: OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 On
        December 13, 2006, Steven B. Yang and Christopher Daubiere (“Plaintiffs”), filed
        suit in the United States District Court for the Southern District of New
        York
        (the “Court”) against NYMC and our Company alleging that we failed to pay them,
        and similarly situated employees, overtime in violation of the Fair Labor
        Standards Act (“FLSA”) and New York state law. Plaintiffs, who are former
        employees in our discontinued Mortgageline division, purport to bring a FLSA
        "collective action" on behalf of similarly situated loan officers in our
        now
        discontinued mortgage lending operations, and are
        seeking unspecified amounts for alleged unpaid overtime wages, liquidated
        damages, attorney's fees and costs. As of July 31, 2007, Plaintiffs had yet
        to
        apply to the Court for permission to certify the class or send notice
        of the collective action to prospective collective action members.
 
 We
        are
        currently engaged in discovery and continue to investigate Plaintiffs’ claims.
 This
          case
          involves complex issues of law and fact and has not yet progressed to the
          point
          where the Company can: (1) predict its outcome; (2) precisely estimate
          damages that might result from such case due to the uncertainty of the
          class
          certification and the number of potential participants in any class that
          may be
          certified; or (3) predict the effect that final resolution of this
          litigation might have on it, its business, financial condition or results
          of
          operations, although such effect could be materially adverse. After consulting
          with counsel, the Company believes that it has defenses to the claims against
          it
          in these cases and is vigorously defending these proceedings.
  **Item
          1A. Risk Factors**
  We
          previously disclosed risk factors under "Item 1A. Risk Factors" in our
          Annual
          Report on Form 10-K for the year ended December 31, 2006. In addition to
          those
          risk factors and the other information included elsewhere in this report,
          you
          should also carefully consider the risk factors discussed below. The risks
          described below and in our Annual Report on Form 10-K for the year ended
          December 31, 2006 are not the only risks facing our company. Additional
          risks
          and uncertainties not currently known to us or that we deem to be immaterial
          also may materially adversely affect our business, financial condition
          and/or
          results of operations.
  ***Possible
          market developments could reduce the amount of liquidity available to us
          and
          could cause our*** ***lenders
          to require us to pledge additional assets as collateral. If we are unable
          to
          obtain sufficient short-term financing or our assets are insufficient to
          meet
          the collateral requirements, then we may be compelled to liquidate*** ***particular
          assets at an inopportune time.***
 
 Possible
          market developments, including a sharp rise in interest rates, a change
          in
          prepayment rates or increasing
          market concern about the value or liquidity of one or more types of mortgage-related
          assets in which our portfolio
          is concentrated may reduce the market value of ** our
          portfolio, which may reduce the amount of liquidity available
          to us or may cause our lenders to require additional collateral. If we
          are
          unable to obtain sufficient short- term
          financing or our lenders start to require additional collateral, we may
          be
          compelled to liquidate our assets at a disadvantageous
          time, thus harming our operating results, net profitability and ability
          to make
          distributions to you.
 
 ***Our
          use of repurchase agreements to borrow funds may give our lenders greater
          rights
          in the event that*** ***either
          we or a lender files for bankruptcy.***
 
 Our
          borrowings under repurchase agreements may qualify for special treatment
          under
          the bankruptcy code, giving our lenders the ability to avoid the automatic
          stay
          provisions of the bankruptcy code and to take possession of and liquidate
          our
          collateral under the repurchase agreements without delay in the event that
          we
          file for bankruptcy. Furthermore,
          the special treatment of repurchase agreements under the bankruptcy code
          may
          make it difficult for us to
          recover our pledged assets in the event that a lender files for bankruptcy.
          Thus, the use of repurchase agreements exposes our pledged assets to risk
          in the
          event of a bankruptcy filing by either a lender or us.
 
 ***Our
          common stock could be delisted by the New York Stock Exchange if we do
          not
          comply with its continued*** ***listing
          standards.***
 
 Our
          common stock is listed on the New York Stock Exchange, or NYSE. Under the
          NYSE's
          current listing standards,
          we are required to have market capitalization or shareholders' equity of
          more
          than $25 million in order to maintain compliance with continued listing
          standards. Failure to have average market capitalization of more than $25
          million over 30 consecutive trading days will result in our immediate
          delisting from the NYSE. As
          of ** and
          including August 8, 2007, our market capitalization has been less than
          $25
          million for 10 consecutive trading days, commencing
          on July 26, 2007. As of August 8, 2007, our market capitalization was
          approximately $18.2 million. We
          cannot
          assure you that our average market capitalization over 30 consecutive
          days will exceed $25 million in the near future or
          that
          we can continue to comply with the listing procedures and that the
          NYSE
          will maintain our listing in the future. In the event that our common stock
          is
          delisted by the NYSE, or if ** it becomes
          apparent to us that we will be unable to meet the NYSE's continued listing
          criteria in the foreseeable future,
          we will seek to have our stock listed or quoted on another national securities
          exchange or quotation system. However,
          we cannot assure you that, if ** our
          common stock is listed or quoted on such other exchange or system, the market
          for our common stock will be as liquid as it has been on the NYSE. As a
          result,
          if we are delisted by the NYSE
          or
          transfer our listing to another exchange or quotation system, the market
          price
          for our common stock may become more volatile than it has been
          historically.
 
 Delisting
          of our common stock would likely cause a reduction in the liquidity of
          an
          investment in our common stock.
          Delisting also could reduce the ability of holders of our common stock
          to
          purchase or sell our securities as quickly
          and inexpensively as they would have been able to do had our common stock
          remained listed. This lack of liquidity
          also could make it more difficult for us to raise capital in the
          future.
  71
  ***The
            Company’s liquidity may be adversely affected by margin calls under its
            repurchase agreements because they are dependent in part on the lenders’
valuation of the collateral securing the financing.***
 
 Each
            of
            these repurchase agreements allows the lender, to varying degrees, to
            revalue
            the collateral to values that the lender considers to reflect market.
            If a
            lender determines that the value of the collateral has decreased, it
            may
            initiate a margin call requiring the Company to post additional collateral
            to
            cover the decrease. When the Company is subject to such a margin call,
            it must
            provide the lender with additional collateral or repay a portion of the
            outstanding borrowings with minimal notice. Any such margin call could
            harm the
            Company’s liquidity, results of operation, financial condition, and business
            prospects. Additionally, in order to obtain cash to satisfy a margin
            call, the
            Company may be required to liquidate assets at a disadvantageous time,
            which
            could cause it to incur further losses and adversely affect its results
            of
            operations and financial condition.
  ***The
            Company’s loan delinquencies may increase as a result of significantly increased
            monthly payments required from ARM borrowers after the initial fixed
            period.***
  Scheduled
            increase in monthly payments on adjustable rate mortgage loans may result
            in
            higher delinquency rates on mortgage loans and could have a material
            adverse
            affect on our net income and results of operations. This increase in
            borrowers’
monthly payments, together with any increase in prevailing market interest
            rates, may result in significantly increased monthly payments for borrowers
            with
            adjustable rate mortgage loans. Borrowers seeking to avoid these increased
            monthly payments by refinancing their mortgage loans may no longer be
            able to
            fund available replacement loans at comparably low interest rates. A
            decline in
            housing prices may also leave borrowers with insufficient equity in their
            homes
            to permit them to refinance their loans or sell their homes. In addition,
            these
            mortgage loans may have prepayment premiums that inhibit
            refinancing.
 
 ***We
            may be required to repurchase loans if we breached representations and
            warranties from loan sale transactions, which could harm our profitability
            and
            financial condition.***
  Loans
            from our discontinued mortgage lending operations are sold to third parites
            under agreements with numerous representations and
            warranties regarding the manner in which the loan was
            originated, the property securing the loan and the borrower. If these
            representations or warranties are found to have been breached, we may
            be
            required to repurchase such loan. We may be forced to resell these repurchased
            loans at a loss, which could harm our profitability and financial condition.
  ***We
            may incur increased borrowing costs related to repurchase agreements
            and that
            would harm our profitability.***
  Currently,
            a significant portion of our borrowings are collateralized borrowings
            in the
            form of repurchase a agreements. If the interest rates on these agreements
            increase, that would harm our profitability.
  Our
            borrowing costs under repurchase agreements generally correspond to short-term
            interest rates such as LIBOR or a short-term Treasury index, plus or
            minus a
            margin. The margins on these borrowings over or under short-term interest
            rates
            may vary depending upon:
  ·
                  the
                      movement of interest rates;
 ·
                    the
                        availability of financing in the market;
                        and
 ·
                      the
                          value and liquidity of our mortgage-related
                          assets.
  ***Because
              assets we acquire may experience periods of illiquidity, we may lose
              profits or
              be prevented from earning capital gains if we cannot sell mortgage-related
              assets at an opportune time.***
  We
              bear
              the risk of being unable to dispose of our mortgage-related assets
              at
              advantageous times or in a timely manner because mortgage-related assets
              generally experience periods of illiquidity. The lack of liquidity
              may result
              from the absence of a willing buyer or an established market for these
              assets,
              as well as legal or contractual restrictions on resale. As a result,
              the
              illiquidity of mortgage-related assets may cause us to lose profits
              and the
              ability to earn capital gains.
  ***We
              have not established a minimum dividend payment level for our common
              stockholders and there are no assurances of our ability to pay dividends
              to them
              in the future.***
  We
              intend
              to pay quarterly dividends and to make distributions to our common
              stockholders
              in amounts such that all or substantially all of our taxable income
              in each
              year, subject to certain adjustments, is distributed. This, along with
              other
              factors, should enable us to qualify for the tax benefits accorded
              to a REIT
              under the Code. We have not established a minimum dividend payment
              level for our
              common stockholders and our ability to pay dividends may be harmed
              by the risk
              factors described in this annual report on Form 10-K. On July 23, 2007,
              our
              board of directors elected to omit declaring and paying a dividend
              to common
              stockholders for the 2007 second quarter.  The board of directors' decision
              reflected the company's focus on elimination of operating losses through
              the sole of our mortgage lending business with a view to conserving
              capital to
              build future earnings from our portfolio management operations.  All
              distributions to our common stockholders will be made at the discretion
              of our
              board of directors and will depend on our earnings, our financial condition,
              maintenance of our REIT status and such other factors as our board
              of directors
              may deem relevant from time to time. There are no assurances of our
              ability to
              pay dividends in the future.
 72
  **Item
          4. Submission of Matters to a Vote of Security Holders**
 
 The
          Company held its 2007 annual meeting of stockholders on June 14, 2007.
          The
          following are the matters considered and voted upon at the annual
          meeting:
 
 *Election
          of Directors*
  **Name**
                **TermExpires**
                **Number
                    of Shares For**
                **Number
                    of Shares Withheld**David
                    A. Akre
                2008
                16,041,745
                593,478David
                    R. Bock
                2008
                16,039,188
                596,035Alan
                    L. Hainey
                2008
                16,041,912
                593,281Steven
                    G. Norcutt
                2008
                15,715,337
                919,886Mary
                    Dwyer Pembroke
                2008
                16,042,537
                592,686Steven
                    B. Schnall
                2008
                15,715,844
                919,379Jerome
                    F. Sherman
                2008
                15,904,732
                730,491Steve**R.
                    Mumma.
                2008
                15,711,606
                923,617Thomas
                    W. White, Jr.
                2008
                16,036,744
                598,479
  Stockholders
          also ratified and approved the appointment of Deloitte & Touche LLP as the
          Company's independent registered pubic accounting firm for the fiscal year
          ending December 31, 2007: 16,179,187 shares voted
          in
          favor; 202,730 shares voted against and 253,305 shares abstained.
 
 **Item
          5. Other Information**
 
 On
          each
          of April 15, 2007 and June 30, 2007, the Company paid a cash retention
          bonus of
          $25,000 to A. Bradley Howe,
          Senior Vice President and General Counsel of the Company, in connection
          with Mr.
          Howe's continued employment
          by the Company through the closing of the sale of the Company's retail
          mortgage
          lending platform assets
          to
          Indymac and the close of the 2007 second quarter.
 **Item
        6. Exhibits**
  The
        information set forth under “Exhibit Index” below is incorporated herein by
        reference.
 
 73
  ******SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  NEW
                  YORK MORTGAGE TRUST, INC.Date:
                  August 10, 2007
              By:
              /s/ David
                A.
                AkreDavid
                  A. Akre
                Co-Chief
                  Executive Officer
  Date:
                      August 10, 2007
                By:
                /s/
                    Steven R. MummaSteven
                      R. Mumma
                    Chief
                      Financial Officer
  74
 
 **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).10.1
              
              Amendment
                No. 2
                to Employment Agreement between New York Mortgage Trust, Inc. and
                Steven
                R. Mumma dated March 31, 2007.*31.1
              
              Certification
                  of Co-Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.*31.2
              
              Certification
                  of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
                  of the
                  Securities Exchange Act of 1934, as adopted pursuant to Section
                  302 of the
                  Sarbanes-Oxley Act of 2002.*32.1
              
              Certification
                  of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.*32.2
              
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.*
  *
              Filed
                  herewith
  75