**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  
 **FORM
        10-Q**
 
 
 þ  **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 **For
        the quarterly period ended March 31, 2006**
 
  ̈  **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF**
 **THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 **For
        the transition period from __________ to ___________**
 
 **Commission
        File Number: 1-32171**
 
 **Opteum
        Inc.**
 **(Exact
        name of registrant as specified in its charter)**
 
 **Maryland**
              
              **72-1571637****(State
                  or other jurisdiction of**
                **incorporation
                  or organization)**
              
              **(I.R.S.
                  Employer**
                **Identification
                  No.)**
 
 **3305
        Flamingo Drive, Vero Beach, Florida 32963**
 **(Address
        of principal executive offices) (Zip Code)**
 
 **(772)
        231-1400**
 **(Registrant’s
        telephone number, including area code)**
 
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. YES þ NO  ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
 Large
                  accelerated filer ̈
              
              Accelerated
                  filerþ
              
              Non-accelerated
                  filer ̈
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 YES  ̈ NO þ
 As
        of May
        5, 2006, the number of shares outstanding of the registrant’s Class A Common
        Stock, $0.001 par value, was 24,318,586; the number of shares outstanding
        of the
        registrant’s Class B Common Stock, $0.001 par value, was 319,388; and the number
        of shares outstanding of the registrant’s Class C Common Stock, $0.001 par
        value, was 319,388.
  
   
  
 **OPTEUM INC.**
  **INDEX**
 
 
 
 PART
                  I. FINANCIAL INFORMATION
              3ITEM
                  1. FINANCIAL STATEMENTS
              3Consolidated
                  Balance Sheets as of March 31, 2006 (unaudited) and December 31,
                  2005
              3Consolidated
                  Statements of Operations for the three months ended March 31, 2006
                  and 2005 (unaudited)
              4Consolidated
                  Statement of Stockholders’ Equity for the three months ended March 31,
                  2006 (unaudited)
              5Consolidated
                  Statements of Cash Flows for the three months ended March 31, 2006
                  and
                  2005 (unaudited)
              6Notes
                  to Consolidated Financial Statements (unaudited)
              8ITEM
                  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                  OF OPERATIONS
              32ITEM
                  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              47ITEM
                  4. CONTROLS AND PROCEDURES
              55PART
                  II. OTHER INFORMATIONITEM
                  1. LEGAL PROCEEDINGS
              56ITEM
                  1A. RISK FACTORS
              56ITEM
                  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
              56ITEM
                  3. DEFAULTS UPON SENIOR SECURITIES
              57ITEM
                  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              57ITEM
                  5. OTHER INFORMATION
              57ITEM
                  6. EXHIBITS
              57
 
 
 
  
  **PART
        1. FINANCIAL INFORMATION**
 
 **ITEM
        1. Financial Statements.**
 
 **OPTEUM
                  INC.****CONSOLIDATED
                  BALANCE SHEETS****(Unaudited)****March
                  31,**
              
              **December
                  31,**ASSETS
              
              **2006**
              
              **2005**MORTGAGE
                  BACKED SECURITIES:Pledged
                  to counterparties, at fair value
              $
              3,528,646,943
              $
              3,493,490,046Unpledged,
                  at fair value
              
              9,907,267
              
              539,313TOTAL
                  MORTGAGE BACKED SECURITIES
              
              3,538,554,210
              
              3,494,029,359Cash
                  and cash equivalents
              
              90,872,039
              
              130,510,948Restricted
                  cash
              
              -
              
              2,310,000Mortgage
                  loans held for sale, net
              
              721,593,366
              
              894,237,630Retained
                  interests, trading
              
              105,196,205
              
              98,010,592Securities
                  held for sale
              
              1,847,248
              
              2,782,548Mortgage
                  servicing rights, net
              
              93,337,355
              
              86,081,594Receivables,
                  net
              
              6,656,880
              
              24,512,118Principal
                  payments receivable
              
              15,624,670
              
              21,497,365Accrued
                  interest receivable
              
              16,441,403
              
              15,740,475Property
                  and equipment, net
              
              17,038,985
              
              16,067,170Prepaid
                  and other assets
              
              18,882,146
              
              19,321,766$
              4,626,044,507
              $
              4,805,101,565LIABILITIES
                  AND STOCKHOLDERS' EQUITYLIABILITIES:Repurchase
                  agreements
              $
              3,413,954,826
              $
              3,337,598,362Warehouse
                  lines of credit and drafts payable
              
              697,860,930
              
              873,741,429Other
                  secured borrowings
              
              105,452,119
              
              104,886,339Junior
                  subordinated notes due to Bimini Capital Trust I & II
              
              103,097,000
              
              103,097,000Accrued
                  interest payable
              
              34,639,214
              
              30,232,719Unsettled
                  security purchases
              
              1,709,728
              
              58,278,701Dividends
                  payable
              
              2,645,853
              
              -Deferred
                  tax liability
              
              16,243,642
              
              18,360,679Accounts
                  payable, accrued expenses and other
              
              18,850,263
              
              26,417,996TOTAL
                  LIABILITIES
              
              4,394,453,575
              
              4,552,613,225COMMITMENTS
                  AND CONTINGENCIESSTOCKHOLDERS'
                  EQUITY:Preferred
                  stock, $0.001 par value; 10,000,000 shares authorized; designated,
                  1,800,000 shares as Class A Redeemable and 2,000,000 shares as
                  Class B
                  Redeemable; shares issued and outstanding at March 31, 2006 and
                  December
                  31, 2005, 1,223,208 Class A Redeemable and no Class B
                  Redeemable
              
              1,223
              
              1,223Class
                  A common stock, $0.001 par value; 98,000,000 shares designated;
                  24,172,598
                  shares issued and 23,083,498 shares outstanding at March 31, 2006,
                  and
                  24,129,042 shares issued and 23,567,242 shares outstanding at December
                  31,
                  2005
              
              24,173
              
              24,129Class
                  B common stock, $0.001 par value; 1,000,000 shares designated,
                  319,388
                  shares issued and outstanding at March 31, 2006 and December 31,
                  2005
              
              319
              
              319Class
                  C common stock, $0.001 par value; 1,000,000 shares designated,
                  319,388
                  shares issued and outstanding at March 31, 2006 and December 31,
                  2005
              
              319
              
              319Additional
                  paid-in capital
              
              342,759,382
              
              342,230,342Accumulated
                  other comprehensive loss
              
              (88,309,476)
              
              (76,494,378)Accumulated
                  deficit
              
              (13,148,327)
              
              (8,037,260)Treasury
                  Stock; Class A common stock, at cost; 1,089,100 shares at March
                  31, 2006
                  and 561,800 shares at December 31, 2005
              
              (9,736,681)
              
              (5,236,354)STOCKHOLDERS'
                  EQUITY, NET
              
              231,590,932
              
              252,488,340$
              4,626,044,507
              $
              4,805,101,565See
                  notes to consolidated financial
                  statements.
 
 
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(Unaudited)****Three
                  Months Ended March 31,****2006**
              
              **2005**INTEREST
                  INCOME:Interest
                  income, net of amortization of premium and discount
              $
              60,690,122
              $
              31,069,934Interest
                  expense
              
              (56,206,771)
              
              (19,841,710)NET
                  INTEREST INCOME:
              
              4,483,351
              
              11,228,224NON-INTEREST
                  INCOME:GAIN
                  OF SALE OF MORTGAGE LOANS
              
              7,076,658
              
              -GAINS
                  ON SALES OF MORTGAGE BACKED SECURITIES
              
              -
              
              1,982,382Servicing
                  fee income
              
              6,299,224
              
              -Fair
                  Value adjustments to mortgage servicing rights
              
              (8,062,481)
              
              -NET
                  SERVICING (LOSS)
              
              (1,763,257)
              
              -OTHER
                  NON-INTEREST INCOME
              
              1,748,142
              
              -TOTAL
                  NON-INTEREST INCOME
              
              7,061,543
              
              1,982,382TOTAL
                  NET REVENUE
              
              11,544,894
              
              13,210,606DIRECT
                  OPERATING EXPENSES
              
              319,250
              
              589,973GENERAL
                  AND ADMINISTRATIVE EXPENSES:Compensation
                  and related benefits
              
              8,023,814
              
              1,205,333Directors'
                  fees and liability insurance
              
              209,896
              
              156,450Audit,
                  legal and other professional fees
              
              1,202,147
              
              198,005Other
                  interest expense
              
              1,731,785
              
              -Other
                  administrative expenses
              
              8,938,478
              
              153,006TOTAL
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              20,106,120
              
              1,712,794(LOSS)
                  INCOME BEFORE INCOME TAXES
              
              (8,880,476)
              
              10,907,839INCOME
                  TAX BENEFIT
              
              (3,793,344)
              
              -NET
                  (LOSS) INCOME
              $
              (5,087,132)
              $
              10,907,839BASIC
                  AND DILUTED NET (LOSS) INCOME:PER
                  CLASS A REDEEMABLE PREFERRED SHARE
              $
              -
              $
              -PER
                  CLASS A COMMON SHARE
              $
              (0.21)
              $
              0.52PER
                  CLASS B COMMON SHARE
              $
              (0.21)
              $
              0.51WEIGHTED
                  AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTING BASIC AND
                  DILUTED
                  PER SHARE AMOUNTS:CLASS
                  A REDEEMABLE PREFERRED SHARES
              
              1,223,208
              
              N/ACLASS
                  A COMMON SHARES
              
              23,436,534
              
              20,795,612CLASS
                  B COMMON SHARES
              
              319,388
              
              319,388CASH
                  DIVIDENDS DECLARED PER:CLASS
                  A REDEEMABLE PREFERRED SHARE
              $
              -
              $
              -CLASS
                  A COMMON SHARE
              $
              0.11
              $
              0.53CLASS
                  B COMMON SHARE
              $
              0.11
              $
              0.53See
                  notes to consolidated financial
                  statements.
 
  
  
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)****Three
                  Months Ended March 31, 2006**Common
                  Stock,
                Amounts
                  at par value
              Class
                  A Redeemable Preferred
              Treasury
              Additional
                  Paid-in
              Accumulated
                  Other Comprehensive
              AccumulatedClass
                  A
              Class
                  B
              Class
                  C
              Stock
              Stock
              Capital
              Loss
              Deficit
              TotalBalances,
                  December 31, 2005
              $
                  24,129
              $
                  319
              $
                  319
              $
                  1,223
              $(5,236,354)
              $342,230,342
              $
                  (76,494,378)
              $(8,037,260)
              $
                  252,488,340Fair
                  value adjustment upon adoption of SFAS No. 156 (see Note
                  5)
              -
              -
              -
              -
              -
              -
              -
              2,621,918
              2,621,918Issuance
                  of Class A common shares for board compensation and plan phantom
                  share
                  exercises, net
              44
              -
              -
              -
              -
              98,105
              -
              -
              98,149Treasury
                  stock purchases
              -
              -
              -
              -
              (4,500,327)
              -
              -
              -
              (4,500,327)Cash
                  dividends declared
              -
              -
              -
              -
              -
              -
              -
              (2,645,853)
              (2,645,853)Phantom
                  shares vested and amortization of equity plan compensation,
                  net
              -
              -
              -
              -
              -
              559,318
              -
              -
              559,318Stock
                  issuance costs
              -
              -
              -
              -
              -
              (128,383)
              -
              -
              (128,383)Net
                  loss
              -
              -
              -
              -
              -
              -
              -
              (5,087,132))
              (5,087,132)Unrealized
                  loss on available for sale securities, net
              -
              -
              -
              -
              -
              -
              (11,815,098)
              -
              (11,815,098)Comprehensive
                  loss
              -
              -
              -
              -
              -
              -
              -
              -
              (16,902,230)Balances,
                  March 31, 2006
              $
                  24,173
              $
                  319
              $
                  319
              $
                  1,223
              $(9,736,681)
              $
                  342,759,382
              $(88,309,476)
              $(13,148,327)
              $
                  231,590,932See
                  notes to consolidated financial
                  statements.
 
  
  
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(Unaudited)****Three
                  Months Ended March 31,****2006**
              
              **2005**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  (loss) income
              $
              (5,087,132)
              $
              10,907,839Adjustments
                  to reconcile net (loss) income to net cash provided by operating
                  activities:Gain
                  on sale of mortgage loans held for sale
              
              (7,076,658)
              
              -Amortization
                  of premium and discount on mortgage backed securities
              
              3,080,393
              
              8,097,698Retained
                  interest, trading
              
              (7,185,613)
              
              -Securities
                  held for sale
              
              935,300
              
              -Mortgage
                  servicing rights, net
              
              (4,633,843)
              
              -Deferred
                  tax liability
              
              (2,117,037)
              
              -Gains
                  on sales of mortgage backed securities
              
              -
              
              (1,982,382)Stock
                  compensation
              
              808,614
              
              554,784Depreciation
                  and amortization
              
              1,027,644
              
              11,974Changes
                  in operating assets and liabilities:Mortgage
                loans held for sale
              
              179,720,922
              
              -Receivables,
                  net
              
              17,855,238
              
              -Accrued
                  interest receivable
              
              (700,928)
              
              (2,304,010)Prepaids
                  and other assets
              
              282,625
              
              (5,041,862)Accrued
                  interest payable
              
              4,406,495
              
              6,945,692Accounts
                  payable, accrued expenses and other
              
              2,682,549
              
              (27,280)NET
                  CASH PROVIDED BY OPERATING ACTIVITIES
              
              183,998,569
              
              17,162,453CASH
                  FLOWS FROM INVESTING ACTIVITIES:From
                  available-for-sale securities:Purchases
              
              (432,101,377)
              
              (827,611,830)Sales
              
              -
              
              172,040,665Principal
                  repayments
              
              321,984,757
              
              233,893,795Purchases
                  of property and equipment
              
              (1,842,465)
              
              (92,180)NET
                  CASH USED IN INVESTING ACTIVITIES
              
              (111,959,085)
              
              (421,769,550)CASH
                  FLOWS FROM FINANCING ACTIVITIES:Decrease
                  (increase) in restricted cash
              
              2,310,000
              
              (20,928,000)Net
                  borrowings under repurchase agreements
              
              76,356,464
              
              410,492,399Decrease
                  in warehouse lines of credit, drafts payable and other secured
                  borrowings
              
              (185,565,000)
              
              -Stock
                  issuance and other costs
              
              (279,530)
              
              (43,930)Purchases
                  of treasury stock
              
              (4,500,327)
              
              -NET
                  CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
              
              (111,678,393)
              
              389,520,469NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              (39,638,909)
              
              (15,086,628)CASH
                  AND CASH EQUIVALENTS, Beginning of the period
              
              130,510,948
              
              128,942,436CASH
                  AND CASH EQUIVALENTS, End of the period
              $
              90,872,039
              $
              113,855,608
 
  
  
 **OPTEUM
                  INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (CONT’D)****(Unaudited)****Three
                  Months Ended March 31,****2006**
              
              **2005**SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Cash
                  paid during the period for interest
              $
              51,800,276
              $
              12,896,018SUPPLEMENTAL
                  SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:Cash
                  dividends declared and payable, not yet paid
              $
              2,645,853
              $
              11,241,953Unsettled
                  security purchases
              $
              1,709,728
              $
              -See
                  notes to consolidated financial
                  statements.
 
 
 
  
  **OPTEUM INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **MARCH
        31, 2006**
 
 
 **NOTE
        1.**  **ORGANIZATION
        AND SIGNIFICANT ACCOUNTING POLICIES**
 
 **Organization
        and Business Description**
 
 Opteum
        Inc. (“Opteum”) was incorporated in Maryland on September 24, 2003, and
        commenced its planned business activities on December 19, 2003, the date of
        the initial closing of a private issuance of its common stock.
 
 On
        February 6, 2006, Opteum announced that its Board of Directors voted unanimously
        to change its name from Bimini Mortgage Management, Inc. to Opteum Inc. On
        February 10, 2006, the corporate name change was effective and its New York
        Stock Exchange, ticker symbol was changed from “BMM” to “OPX.” The corporate
        name change leverages the brand identity of Opteum Financial Services, LLC
        (our
        taxable REIT subsidiary - see Note 2), and further enhances the integration
        of
        Opteum and the associates of Opteum Financial Services, LLC. One company
        and one
        national brand now represent a unified image to investors, customers and
        associates.
 
 Opteum
        was formed to invest primarily in, but not limited to, residential mortgage
        related securities issued by the Federal National Mortgage Association (more
        commonly known as Fannie Mae), the Federal Home Loan Mortgage Corporation
        (more
        commonly known as Freddie Mac) and the Government National Mortgage Association
        (more commonly known as Ginnie Mae). Opteum funds investments in its portfolio
        of mortgage backed securities (“MBS”) through borrowings under repurchase
        agreements. Opteum earns a net interest spread between the yield on the
        investments in mortgage backed securities and the borrowing costs on the
        repurchase agreements.
 
 Opteum
        has elected to be taxed as a real estate investment trust ("REIT") under
        the
        Internal Revenue Code of 1986, as amended (the “Code”). In order to maintain its
        REIT qualification, Opteum must comply with a number of requirements under
        federal tax law, including that it must distribute at least 90% of its annual
        REIT taxable income to its stockholders, subject to certain adjustments.
        Such
        portfolio management activity mentioned above comprises the REIT qualifying
        operations of Opteum.
 
 On
        September 29, 2005, Opteum executed a definitive merger agreement with Opteum
        Financial Services, LLC (“OFS”), a privately held home mortgage lender
        headquartered in Paramus, New Jersey. OFS has approximately 1,000 associates
        operating out of 35 offices and lending in 46 states. The transaction, in
        which
        OFS became a wholly-owned taxable REIT subsidiary (“TRS”) of Opteum, closed on
        November 3, 2005 (see Note 2). OFS acquires and originates mortgages that
        are
        either sold to third parties or securitized by Opteum Mortgage Acceptance
        Corporation (“OPMAC”). OFS services the mortgages securitized by
        OPMAC.
 
 As
        used
        in this document, the parent company, the registrant, “Opteum” and discussions
        related to REIT qualifying activities or the general management of Opteum’s
        portfolio of mortgage backed securities (“MBS”) refers to “Opteum Inc.” Further,
        as used in this document, “OFS,” the TRS or non REIT eligible assets refer to
        Opteum Financial Services, LLC. Discussions relating to the “Company” refer to
        the consolidated entity (the combination of Opteum and OFS). The assets and
        activities that are not REIT eligible, such as mortgage origination, acquisition
        and servicing activities, are conducted by OFS.
  **Interim
        Financial Statements**
 
 The
        accompanying interim financial statements reflect all adjustments, consisting
        of
        normal recurring items that, in the opinion of management, are necessary
        for a
        fair presentation of the Company’s financial position, results of operations,
        statement of stockholder equity and cash flows for the periods presented.
        These
        interim financial statements have been prepared in accordance with disclosure
        requirements for interim financial information and accordingly, they may
        not
        include all of the information and footnotes required by U.S. generally accepted
        accounting principles (“GAAP”) for annual financial statements. The operating
        results for the interim period ended March 31, 2006 are not necessarily
        indicative of results that can be expected for the year ended December 31,
        2006.
        The operating results of the interim period ended March 31, 2005 do not include
        the results of OFS, as the merger closed in November 2005. The financial
        statements included as part of this Form 10-Q should be read in conjunction
        with
        the financial statements and notes thereto included in the Company’s Annual
        Report on Form 10-K for the year ended December 31, 2005.
 **Basis
        of Presentation and Use of Estimates**
 
 The
        accompanying consolidated financial statements are prepared on the accrual
        basis
        of accounting in accordance with GAAP. The preparation of financial statements
        in conformity with GAAP requires management to make estimates and assumptions
        that affect the reported amounts of assets and liabilities and disclosure
        of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates. Significant estimates
        affecting the accompanying financial statements include the fair values of
        mortgage backed securities, the prepayment speeds used to calculate amortization
        and accretion of premiums and discounts on mortgage backed securities, the
        deferred tax liability valuation, the valuation allowance on mortgage loans
        held
        for sale, the valuation of derivative financial instruments and the fair
        value
        of mortgage servicing rights.
 
 **Consolidation**
 
 The
        accompanying March 31, 2006 consolidated financial statements include the
        accounts of Opteum and its wholly-owned subsidiary, OFS, as well the
        wholly-owned and majority owned subsidiaries of OFS. Opteum uses the equity
        method to account for other investments for which it has the ability to exercise
        significant influence over operating and financial policies. Consolidated
        net
        earnings of Opteum include Opteum’s share of the net earnings (losses) of these
        companies, if any. The inter-company loan and all other material inter-company
        accounts and transactions have been eliminated from the consolidated financial
        statements.
 
 As
        further described in Note
        11,
        Opteum has a
        common share investment in two trusts used to issue Opteum’s junior subordinated
        notes. Pursuant to the accounting guidance provided in Financial Accounting
        Standards Board (“FASB”) Interpretation (“FIN”) No. 46, *Consolidation
        of Variable Interest Entities* ,
        Opteum’s common share investment in the trusts are not consolidated in the
        financial statements of Opteum, and accordingly, these investments are accounted
        for on the equity method.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include cash on hand and highly liquid investments with
        original maturities of three months or less. The carrying amount of cash
        equivalents approximates its fair value at March 31, 2006 and December 31,
        2005.
 
 Restricted
        cash represents cash held on deposit as collateral with certain repurchase
        agreement counter-parties (i.e. lenders). Such amounts may be used to make
        principal and interest payments on the related repurchase
        agreements.
 
 **Valuation
        of Mortgage Backed Securities**
 
 In
        accordance with GAAP, Opteum classifies its investments in MBS as either
        trading
        investments, available-for-sale investments or held-to-maturity investments.
        Management determines the appropriate classification of the securities at
        the
        time they are acquired and evaluates the appropriateness of such classifications
        at each balance sheet date. Although Opteum intends to hold its MBS until
        maturity, it may, from time to time, sell any of its MBS as part of the overall
        management of the business. Opteum currently classifies all of its securities
        as
        available-for-sale, and assets so classified are carried on the balance sheet
        at
        fair value, and unrealized gains or losses arising from changes in market
        values
        are reported as other comprehensive income or loss as a component of
        stockholders' equity. Other-than-temporary impairment losses, if any, are
        reported in earnings.
  When
        the
        fair value of an available-for-sale security is less than amortized cost,
        management considers whether there is an other-than-temporary impairment
        in the
        value of the security.   The decision is based on the credit quality
        of the issue (agency versus non-agency, and for non-agency, the credit
        performance of the underlying collateral), the security prepayment speeds,
        the
        length of time the security has been in an unrealized loss position and our
        ability and intent to hold securities. At March 31, 2006, Opteum did not
        hold
        any non-agency securities in its portfolio. If, in management's judgment,
        an
        other-than-temporary impairment exists, the cost basis of the security is
        written down in the period to 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).
 
 **Mortgage
        Loans Held for Sale**
  Mortgage
        loans held for sale represent mortgage loans originated and held pending
        sale to
        investors. The mortgages are carried at the lower of cost or market as
        determined by outstanding commitments from investors or current investor
        yield
        requirements calculated on the aggregate loan basis. Deferred net fees or
        costs
        are not amortized during the period the loans are held for sale, but are
        recognized when the loan is sold. OFS generally, but not always, sells or
        securitizes loans with servicing rights retained. These transfers of financial
        assets are accounted for as sales for financial reporting purposes when control
        over the assets has been surrendered. Control over transferred assets is
        surrendered when (i) the assets have been isolated from OFS; (ii) the investor
        obtains the right, free of conditions that constrain it from taking advantage
        of
        that right, to pledge or exchange the transferred assets and (iii) OFS does
        not
        maintain effective control over the transferred assets through an agreement
        to
        repurchase them before their maturity. These transactions are treated as
        sales
        in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 140 *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishment of
        Liabilities* .
        Gains
        or losses on such sales, are recognized at the time legal title transfers
        to the
        investor, are based upon the difference between the sales proceeds from the
        final investor and the allocated basis of the loan sold, adjusted for net
        deferred loan fees and certain direct costs and selling costs.
  **Valuation
        Allowance**
  A
        valuation allowance is recorded to adjust mortgage loans held for sale to
        the
        lower of cost or market.
  **Retained
        Interest, Trading**
  OFS
        uses
        warehouse loan arrangements to finance the origination and purchase of pools
        of
        principally fixed and adjustable-rate residential first mortgage loans (the
        “Mortgage Loans”). Subsequent to their origination or purchase, OFS either sells
        these loans to third party institutional investors through bulk sale
        arrangements, or through securitization transactions. OFS generally makes
        several representations and warranties regarding the performance of the Mortgage
        Loans in connection with each sale or securitization. OFS accumulates the
        desired amount of Mortgage Loans, and securitizes them in order to create
        marketable securities.
 
 OFS,
        pursuant to a purchase and sale agreement, transfers the Mortgage Loans to
        OPMAC, the wholly-owned special purpose entity set-up for the execution of
        these
        securitizations.
 
 OPMAC
        then sells the Mortgage Loans to an institutional third party to serve as
        Depositor, pursuant to a Mortgage Loan Purchase and Servicing Agreement
        (“P&S Agreement”). Under this P&S Agreement, OFS makes general
        representations and warranties for Mortgage Loans sold by OFS.
 
 The
        Depositor then deposits the Mortgage Loans into a Real Estate Mortgage
        Investment Conduit trust (the “REMIC”) where the rights to such Mortgage Loans
        are pooled and converted into marketable debt securities pursuant to the
        P&S
        Agreement. These securities, issued by the REMIC, are divided into different
        classes of certificates (the “Certificates”) with varying claims to payments
        received on the Mortgage Loans. These Certificates are transferred to the
        Depositor in exchange for all of its rights in the Mortgage Loans deposited
        into
        the REMIC.
 
 Certain
        Certificates are rated by Moody’s Investors Service, Inc. (“Moody’s”) and
        Standard & Poor’s (“S&P”). In all of the securitizations to date, all of
        the senior certificate classes were rated “AAA” by S&P, and “Aaa” by
        Moody’s, respectively. In addition, most of the mezzanine classes of
        Certificates, starting with Class M-1 through the lowest respective subordinate
        class for each offering, with each lower numerical class designation being
        subordinated to the previous designation, are each given investment grade
        ratings. The subordinate classes not given an investment grade rating are
        sold
        through a private placement offering memorandum. Certain of these Certificates
        are offered to the public (the “Public Certificates”) pursuant to a prospectus.
        These Public Certificates are sold to underwriters on the closing date pursuant
        to an underwriting agreement. The proceeds from the sale of the Public
        Certificates to the underwriters (less an underwriting discount) and the
        remaining non-publicly offered Certificates are transferred to OFS as
        consideration for the Mortgage Loans sold to the Depositor pursuant to the
        P&S Agreement.
 
 Finally,
        OFS transfers the proceeds from the sale of the Public Certificates and the
        non-publicly offered Certificates representing the residual interest in the
        REMIC to OPMAC pursuant to the P&S Agreement. The additional non-publicly
        offered Certificates, representing prepayment penalties and
        over-collateralization fundings (the “Underlying Certificates”) are held by
        OPMAC in anticipation of a net interest margin (“NIM”) securitization.
        Subsequent to a securitization transaction as described above, OFS executes
        an
        additional securitization or “resecuritization” of the Underlying Certificates
        being held by OPMAC. This NIM securitization is typically transacted as follows:
 
 OPMAC
        deposits the Underlying Certificates into a trust (the “NIM Trust”) pursuant to
        a deposit trust agreement. The NIM Trust is a Delaware statutory trust. The
        NIM
        Trust, pursuant to an indenture, issues (i) notes (the “NIM Notes”) representing
        interests in the Underlying Certificates and (ii) an owner trust certificate
        representing the residual interest in the NIM trust. The NIM Notes are sold
        to
        third parties via private placement transactions, and the Trust Certificate
        is
        transferred from OPMAC to OFS in consideration for the deposit of the Underlying
        Certificates.
 
 **Securities
        Held for Sale**
 
 Securities
        held for sale are recorded as of the date of purchase or sale at fair value.
        Changes in fair value subsequent to the purchase date are reflected in earnings
        as gains and losses from investments. Realized gains and losses are determined
        on a specific identified basis cost basis.
 
 **Mortgage
        Servicing Rights**
 
 OFS
        recognizes mortgage servicing rights (“MSRs”) as an asset when separated from
        the underlying mortgage loans, upon the sale of the loans. Upon sale of a
        loan,
        OFS measures the retained MSRs by allocating the total cost of originating
        a
        mortgage loan between the loan and the servicing right based on their relative
        fair values. Fair value is estimated based on expected cash flows considering
        market prepayment estimates, historical prepayment rates, portfolio
        characteristics, interest rates, and other economic factors. Gains or losses
        on
        the sale of MSRs are recognized when title and all risks and rewards have
        irrevocably passed to the buyer and there are no significant unresolved
        contingencies.
 
 In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets* ("SFAS
        156"). SFAS 156 amends SFAS 140 with respect to the accounting for
        separately-recognized servicing assets and liabilities. SFAS 156 requires
        all
        separately-recognized servicing assets and liabilities to be initially measured
        at fair value, and permits companies to elect, on a class-by-class basis,
        to
        account for servicing assets and liabilities on either a lower of cost or
        market
        value basis or a fair value measurement basis. Opteum elected to early adopt
        SFAS 156 as of January 1, 2006 and to measure all mortgage servicing assets
        at
        fair value (and as one class). Servicing assets and liabilities at December
        31,
        2005 were accounted for at the lower of amortized cost or market value basis.
        As
        a result of adopting SFAS 156, Opteum recognized $2.6 million after-tax increase
        ($4.3 million pre-tax) as a cumulative effect adjustment to opening retained
        earnings as of January 1, 2006, representing the effect of re-measuring all
        servicing assets and liabilities that existed at December 31, 2005 from a
        lower
        of amortized cost or market basis to a fair value basis.
 
 **Property
        and Equipment, net**
 
 Property
        and equipment, net, consisting primarily of computer equipment, office
        furniture, leasehold improvements, land and buildings, is recorded at
        acquisition cost and depreciated using the straight-line method over the
        estimated useful lives of the assets. Asset lives range from five years for
        computer equipment to thirty years for the building. Property and equipment
        at
        March 31, 2006 and December 31, 2005 is net of accumulated depreciation of
        $1,477,539 and $606,889, respectively. Depreciation expense for the three
        months
        ended March 31, 2006 and 2005 was $870,650 **** and **** $11,968,
        respectively.
 
 **Goodwill
        and Other Intangible Assets**
  Goodwill
        represents the excess of the purchase price over the fair value of net assets
        acquired in a business combination. Opteum’s goodwill all arose from the OFS
        merger. Contingent consideration paid in subsequent periods under the terms
        of
        the OFS purchase agreement, if any, would be considered acquisition costs
        and
        classified as goodwill. Goodwill was $3.0 million as of March 31,
        2006.
  In
        accordance with SFAS No. 142, *Goodwill
        and Other Intangible Assets,* Opteum
        will subject its goodwill to at least an annual assessment for impairment
        by
        applying a fair value-based test. If the carrying value exceeds the fair
        value,
        goodwill is impaired. There has been no impairment charge recorded for the
        OFS
        goodwill.
  See
        Note
        2 to our 2005 10-K for a description of identified intangible assets associated
        with the acquisition.
  **Derivative
        Assets and Derivative Liabilities**
 
 OFS’s
        mortgage committed pipeline includes interest rate lock commitments (“IRLCs”)
        that have been extended to borrowers who have applied for loan funding and
        meet
        certain defined credit and underwriting criteria. Effective with the adoption
        of
        SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        as
        amended, OFS classifies and accounts for the IRLCs as freestanding derivatives.
        Accordingly, IRLCs are recorded at their fair value with changes in fair
        value
        recorded to current earnings. OFS uses other derivative instruments to
        economically hedge the IRLCs, which are also classified and accounted for
        as
        freestanding derivatives.
  OFS’s
        risk management objective for its mortgage loans held for sale includes use
        of
        mortgage forward delivery contracts designed as fair value derivative
        instruments to protect earnings from an unexpected change due to a decline
        in
        value. Effective with the adoption of SFAS No. 133, OFS’s mortgage forward
        delivery contracts are recorded at their fair value with changes in fair
        value
        recorded to current earnings.
  IRLCs
        and
        derivative assets or liabilities arising from OFS’s derivative activities are
        included in either receivables or accounts payable and accrued liabilities
        in
        the accompanying consolidated balance sheets. OFS also evaluates its contractual
        arrangements, assets and liabilities for the existence of embedded derivatives.
  **Repurchase
        Agreements**
 
 Opteum
        finances the acquisition of its MBS through the use of repurchase agreements.
        Under these repurchase agreements, Opteum transfers securities to a lender
        and
        agrees to repurchase the same securities in the future for a price that is
        higher than the original sales price. The difference between the sales price
        that Opteum receives and the repurchase price that Opteum pays represents
        interest paid to the lender. Although structured as a sale and repurchase
        obligation, a repurchase agreement operates as a financing under which Opteum
        pledges its securities as collateral to secure a loan which is equal in value
        to
        a specified percentage of the estimated fair value of the pledged collateral.
        Opteum retains beneficial ownership of the pledged collateral. At the maturity
        of a repurchase agreement, Opteum is required to repay the loan and concurrently
        receives back its pledged collateral from the lender or, with the consent
        of the
        lender, Opteum may renew such agreement at the then prevailing financing
        rate.
        These repurchase agreements may require Opteum to pledge additional assets
        to
        the lender in the event the estimated fair value of the existing pledged
        collateral declines. As of March 31, 2006 and December 31, 2005, Opteum did
        not have any margin calls on its repurchase agreements that it was not able
        to
        satisfy with either cash or additional pledged collateral.
 
 Original
        terms to maturity of Opteum's repurchase agreements generally, but not always,
        range from one month to twelve months; however, Opteum is not precluded
        from entering into repurchase agreements with shorter or longer maturities.
        Should a counter-party decide not to renew a repurchase agreement at maturity,
        Opteum must either refinance elsewhere or be in a position to satisfy this
        obligation. If, during the term of a repurchase agreement, a lender should
        file
        for bankruptcy, Opteum might experience difficulty recovering its pledged
        assets
        and may have an unsecured claim against the lender's assets for the difference
        between the amount loaned to Opteum and the estimated fair value of the
        collateral pledged to such lender. At March 31, 2006, Opteum had amounts
        outstanding under repurchase agreements with fifteen separate lenders with
        a
        maximum net exposure (the difference between the amount loaned to Opteum
        and the
        estimated fair value of the security pledged by Opteum as collateral) to
        any
        single lender of approximately $16.9 million. At December 31, 2005, Opteum
        had amounts outstanding under repurchase agreements with fourteen separate
        lenders with a maximum net exposure to any single lender of approximately
        $27.0
        million.
 
 Opteum
        has entered into contracts and paid commitment fees to three lenders providing
        for an aggregate of $1.65 billion in committed repurchase lines at
        pre-determined borrowing rates and haircuts for a 364 day period following
        the
        commencement date of each contract. Opteum has no obligation to utilize these
        repurchase lines and at March 31, 2006 had approximately $500 million
        outstanding.
 
 At
        March 31, 2006, Opteum's repurchase agreements had the following
        counter-parties, amounts at risk and weighted average remaining maturities:
 
 **Repurchase
                  Agreement Counter-parties**
              
              **Amount**
                **Outstanding**
                **($000)**
              
              **Amount**
                **at
                  Risk(1)**
                **($000)**
              **Weighted
                  Average**
                **Maturity
                  of**
                **Repurchase**
                **Agreements**
                **in
                  Days**
              **Percent**
                **of
                  Total**
                **Amount**
                **Outstanding**Deutsche
                  Bank Securities, Inc.
              $
              963,877
              $
              11,941
              66
              28.23
              %Nomura
                  Securities International, Inc.
              
              430,521
              
              16,862
              85
              12.61Washington
                  Mutual
              
              410,994
              
              12,625
              9
              12.04Bear
                  Stearns & Co. Inc.
              
              299,764
              
              7,788
              44
              8.78UBS
                  Investment Bank, LLC
              
              246,670
              
              8,448
              54
              7.23Cantor
                  Fitzgerald
              
              209,148
              
              10,256
              24
              6.13Goldman
                  Sachs
              
              170,567
              
              4,645
              50
              5.00Morgan
                  Stanley
              
              165,555
              
              5,053
              41
              4.85JP
                  Morgan Securities
              
              149,603
              
              4,665
              78
              4.38Merrill
                  Lynch
              
              112,255
              
              4,129
              55
              3.29RBS
                  Greenwich Capital
              
              94,053
              
              2,631
              55
              2.75BNP
                  Paribas
              
              67,430
              
              1,993
              8
              1.98Lehman
                  Brothers
              
              56,782
              
              1,499
              89
              1.66Daiwa
                  Securities America Inc.
              
              19,732
              
              884
              98
              0.57Countrywide
                  Securities Corp
              
              17,004
              
              491
              24
              0.50**Total**
              **$**
              **3,413,955**
              **$**
              **93,910**
              
              **100.00**
              **%**
 
 (1)  Equal
        to
        the fair value of securities sold, plus accrued interest income, minus the
        sum
        of repurchase agreement liabilities, plus accrued interest expense.
 
 At
        December 31, 2005, Opteum's repurchase agreements had the following
        counter-parties, amounts at risk and weighted average remaining maturities:
 
 **Repurchase
                  Agreement Counter-parties**
              
              **Amount**
                **Outstanding**
                **($000)**
              
              **Amount**
                **at
                  Risk(1)**
                **($000)**
              **Weighted
                  Average**
                **Maturity
                  of**
                **Repurchase**
                **Agreements**
                **in
                  Days**
              **Percent**
                **of
                  Total**
                **Amount**
                **Outstanding**Deutsche
                  Bank Securities, Inc.
              $
              894,748
              $
              12,018
              135
              26.81
              %Nomura
                  Securities International, Inc.
              
              623,631
              
              27,010
              122
              18.69Cantor
                  Fitzgerald
              
              467,638
              
              15,958
              70
              14.01Washington
                  Mutual
              
              375,345
              
              11,630
              7
              11.25Goldman
                  Sachs
              
              207,525
              
              7,438
              44
              6.22Bear
                  Stearns & Co. Inc.
              
              167,610
              
              6,096
              157
              5.02UBS
                  Investment Bank, LLC
              
              158,781
              
              5,059
              93
              4.76Merrill
                  Lynch
              
              128,119
              
              (7,949)
              96
              3.84JP
                  Morgan Securities
              
              115,807
              
              1,652
              151
              3.47Morgan
                  Stanley
              
              73,505
              
              1,767
              26
              2.20Lehman
                  Brothers
              
              62,643
              
              2,399
              87
              1.88Countrywide
                  Securities Corp
              
              22,930
              
              1,238
              86
              0.69Daiwa
                  Securities America Inc.
              
              19,732
              
              39
              188
              0.58Bank
                  of America Securities, LLC
              
              19,584
              
              815
              27
              0.58**Total**
              **$**
              **3,337,598**
              **$**
              **85,170**
              
              **100.00**
              **%**
 
 
 (1)  Equal
        to
        the fair value of securities sold, plus accrued interest income, minus the
        sum
        of repurchase agreement liabilities, plus accrued interest expense.
 
 **Interest
        Income Recognition on MBS**
 
 Securities
        are recorded on the date the securities are purchased or sold, which is
        generally the trade date. Realized gains or losses from securities transactions
        are determined based on the specific identified cost of the securities. Interest
        income is accrued based on the outstanding principal amount of the securities
        and their stated contractual terms. Premiums and discounts associated with
        the
        purchase of the securities are amortized or accreted into interest income
        over
        the estimated lives of the assets adjusted for estimated prepayments using
        the
        effective interest method. Adjustments are made using the retrospective method
        to the effective interest computation each reporting period based on the
        actual
        prepayment experiences to date, and the present expectation of future
        prepayments of the underlying mortgages.
 
 
 **Gain
        on Sale of Loans**
 
 OFS
        recognizes gain (or loss) on the sale of loans.  Gains or losses on such
        sales are recognized at the time legal title transfers to the investor based
        upon the difference between the sales proceeds from the final investor and
        the
        allocated basis of the loan sold, adjusted for net deferred loan fees and
        certain direct costs and selling costs. OFS defers net loan origination costs
        and fees as a component of the loan balance on the balance sheet. Such costs
        are
        not amortized and are recognized into income as a component of the gain or
        loss
        upon sale. The net gain on sale of loans was $7.1 million for the three months
        ended March 31, 2006.
 
 **Servicing
        Fee Income**
 
 Servicing
        fee income is generally a fee based on a percentage of the outstanding principal
        balances of the mortgage loans serviced by OFS (or by a subservicer where
        OFS is
        the master servicer) and is recorded as income as the installment payments
        on
        the mortgages are received by OFS or the subservicer.
 
 **Loan
        Origination Fees and Costs**
 
 Loan
        fees, discount points, and certain direct origination costs are recorded
        as an
        adjustment of the cost of the loan and are included in gain on sales of loans
        when the loan is sold. Accordingly, salaries, commissions, benefits and other
        operating expenses have been reduced by $16.0 million during the three months
        ended March 31, 2006, due to direct loan origination costs, including commission
        costs. Loan fees related to the origination and funding of mortgage loans
        held
        for sale were $1.6 million during the three months ended March 31, 2006.
 
 **Comprehensive
        Income (Loss)**
  In
        accordance with SFAS No. 130, *Reporting
        Comprehensive Income* ,
        the
        Company is required to separately report its comprehensive income (loss)
        each
        reporting period. Other comprehensive income refers to revenue, expenses,
        gains,
        and losses that under GAAP are included in comprehensive income but are excluded
        from net income, as these amounts are recorded directly as an adjustment
        to
        stockholders’ equity. Other comprehensive income (loss) arises from unrealized
        gains or losses generated from changes in market values of its securities
        held
        as available-for-sale.
 
 Comprehensive
        (Loss) is as follows:
 
 **(Unaudited)****Three
                  Months Ended March 31,****2006**
              
              **2005**Net
                  (Loss)/Income
              $
              (5,087,132)
              $
              10,907,839Realized
                  gain on available for sale securities, net
              
              -
              
              (1,982,382)Unrealized
                  loss on available for sale securities, net
              
              (11,815,098)
              
              (19,539,061)Comprehensive
                  (Loss)
              $
              (16,902,230)
              $
              (10,613,604)
 
 **Stock-Based
        Compensation**
 
 The
        Company adopted SFAS No. 123(R), *Share-Based
        Payment* on
        January 1, 2006, and this adoption did not have an impact on the Company,
        as the
        Company had previously accounted for stock-based compensation using the fair
        value based method prescribed by SFAS No. 123, *Accounting
        for Stock-Based Compensation* .
        For
        stock and stock-based awards issued to employees, a compensation charge is
        recorded against earnings based on the fair value of the award. For transactions
        with non-employees in which services are performed in exchange for Opteum's
        common stock or other equity instruments, the transactions are recorded on
        the
        basis of the fair value of the service received or the fair value of the
        equity
        instruments issued, whichever is more readily measurable at the date of
        issuance. Opteum's stock-based compensation transactions resulted in an
        aggregate of $0.8 million and $0.6 million of compensation expense for the
        three
        months ended March 31, 2006 and 2005, respectively.
  
 **Earnings
        Per Share**
 
 The
        Company follows the provisions of SFAS No. 128, *Earnings
        per Share* ,
        and the
        guidance provided in the FASB’s Emerging Issues Task Force (“EITF”) Issue No.
        03-6, *Participating
        Securities and the Two-Class Method under FASB Statement No. 128, Earnings
        Per Share* ,
        which
        requires companies with complex capital structures, common stock equivalents,
        or
        two (or more) classes of securities that participate in the declared dividends
        to present both basic and diluted earnings per share (“EPS”) on the face of the
        statement of income. Basic EPS is calculated as income available to common
        stockholders divided by the weighted average number of common shares outstanding
        during the period. Diluted EPS is calculated using the “if converted” method for
        common stock equivalents. However, the common stock equivalents are not included
        in computing diluted EPS if the result is anti-dilutive.
 
 Effective
        July 9, 2004, the shares of Class B common stock, participating and
        convertible into Class A common stock, became entitled to receive dividends
        in an amount equal to the dividends declared on each share of Class A
        common stock if, as and when authorized and declared by the Board of Directors.
        Following the provisions of EITF 03-6, the Class B common stock is included
        in the computation of basic EPS using the two-class method, and consequently
        is
        presented separately from Class A common stock.
 
 The
        Class C common shares are not included in the basic EPS computation as
        these shares do not have participation rights. The Class C common shares
        totaling 319,388 are not included in the computation of diluted Class A EPS
        as the conditions for conversion to Class A shares were not met.
 
 Effective
        November 3, 2005, the Company issued 1,223,208 shares of Class A
        Redeemable preferred stock, pursuant to the acquisition of OFS. After January
        1,
        2006 and prior to March 31, 2006, holders of preferred stock are entitled
        to
        receive dividends according to the formula described in the Company’s amended
        charter. For the Company’s first quarter 2006 dividend, declared on March 10,
        2006, the preferred shares, although considered to be participating securities,
        did not receive a dividend pursuant to the formula. Following the provisions
        of
        EITF 03-6, the preferred stock is a participating security and is included
        in
        the computation of basic EPS using the two-class method and is separately
        presented from the common stock classes.
 
 EITF
        03-6
        also discusses the allocation of losses to nonconvertible and convertible
        participating securities when using the two-class method. Losses are only
        allocated to a participating security if this security has a contractual
        obligation to share in the loss, and there is no such obligation for the
        Class A
        Redeemable preferred stock. Therefore, for the three months ended March 31,
        2006, the shares of Class A preferred stock are not allocated any of the
        loss in
        the computation of basic EPS, even though it is a participating security
        that is
        includable in the basic EPS presentation.
 
 The
        shares of Class A Redeemable preferred stock are eligible to convert into
        shares
        of Class A common stock. Since this conversion was approved after March 31,
        2006, the shares are not included in the computation of diluted Class A common
        stock EPS. (The conversion of the Class A Redeemable Preferred Stock was
        approved by a majority number of stockholders at the Company’s annual meeting on
        April 28, 2006).
 
 The
        Company has dividend eligible stock incentive plan shares that were outstanding
        during the three months ended March 31, 2006. These stock incentive plan
        (or
        "phantom") shares have dividend participation rights, but like the preferred
        shares, the phantom shares have no contractual obligation to share in the
        loss;
        since there is no such obligation, phantom shares are not included, pursuant
        to
        EITF 03-6, in the March 31, 2006 basic EPS computation for the Class A common
        shares, even though they are considered to be a participating security. For
        the
        computation of diluted EPS for the Class A common shares, phantom shares,
        totaling 650,320 at March 31, 2006, are not included as their inclusion would
        be
        anti-dilutive.
  The
        table
        below reconciles the numerators and denominators of the basic and diluted
        EPS.
 
 **(Unaudited)****Three
                  Months Ended March 31,****2006**
              
              **2005**Basic
                  and diluted EPS per Class A common share:Numerator:
                  net (loss) income allocated to the shares of Class A common shares
              $
              (5,018,738)
              $
              10,743,594Denominator:
                  basic and diluted:Class
                  A common shares outstanding at the balance sheet date
              
              23,083,498
              
              20,374,883Dividend
                  eligible equity plan shares issued as of the balance sheet
                  date
              
              -
              
              516,961Effect
                  of weighting
              
              353,036
              
              (96,232)Weighted
                  average shares-basic and diluted
              
              23,436,534
              
              20,795,612Basic
                  and diluted EPS per Class A common share
              $
              (0.21)
              $
              0.52Basic
                  and diluted EPS per Class B common share:Numerator:
                  net (loss) income allocated to Class B common shares
              $
              (68,394)
              $
              164,245Denominator:
                  basic and diluted:Class
                  B common shares outstanding at the balance sheet date
              
              319,388
              
              319,388Basic
                  and diluted EPS per Class B common share
              $
              (0.21)
              $
              0.51Basic
                  and diluted EPS per Class A redeemable preferred share:Numerator:
                  net (loss) income allocated to Class A redeemable preferred shares
              $
              -
              $
              N/ADenominator:
                  basic and diluted:Class
                  A redeemable preferred shares outstanding at the balance sheet
                  date
              
              1,223,208
              
              N/ABasic
                  and diluted EPS per Class A redeemable preferred share
              $
              -
              $
              N/A
 
 **Income
        Taxes**
 
 The
        Company has elected to be taxed as a REIT under the Code. As further described
        below, the Company’s TRS is a taxpaying entity for income tax purposes, and is
        taxed separately from Opteum. Opteum will generally not be subject to federal
        income tax on its taxable net income to the extent that Opteum distributes
        its
        taxable net income to its stockholders and satisfies the ongoing REIT
        requirements including meeting certain asset, income and stock ownership
        tests.
        A REIT must generally distribute at least 90% of its net taxable income to
        its
        stockholders of which 85% generally must be distributed within the taxable
        year
        in order to avoid the imposition of an excise tax. The remaining balance
        may be
        distributed up to the end of the following taxable year, provided the REIT
        elects to treat such amount as a prior year distribution and meets certain
        other
        requirements.
 
 OFS
        is
        the Company’s TRS, and its activities are subject to corporate income taxes and
        the applicable provisions of SFAS No. 109, *Accounting
        for Income Taxes* .
        Deferred tax assets and liabilities are recognized for the future tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax
        basis. Deferred tax assets and liabilities are measured using enacted tax
        rates
        expected to apply to taxable income in the years in which those temporary
        differences are expected to be recovered or settled. The effect on deferred
        tax
        assets and liabilities of a change in tax rates is recognized in income in
        the
        period that includes the enactment date.
 
 **Recent
        Accounting Pronouncements**
 
 In
        February 2006, the FASB issued SFAS No. 155, *Accounting
        for Certain Hybrid Financial Instruments — an amendment of FASB Statements
        No. 133 and 140* .
        SFAS
        155 permits an entity to measure at fair value any financial instrument that
        contains an embedded derivative that otherwise would require bifurcation.
        As
        permitted, the Company early adopted SFAS 155 in the first quarter of 2006.
        Adoption did not have any material effect on the Company’s financial condition,
        results of operations or cash flows.
 
 See
        Note
        5 for a description of the adoption of SFAS No. 156, *Accounting
        for Servicing of Financial Assets* .
 
 **NOTE
        2.**  **ACQUISITION
        OF OPTEUM FINANCIAL SERVICES, LLC**
 
 On
        November 3, 2005, Opteum acquired 100% of the equity interests of OFS
        through a newly formed wholly-owned subsidiary of Opteum. OFS is a mortgage
        lender that originates loans nationwide. Opteum acquired OFS to diversify
        its
        revenue stream while remaining in Opteum’s area of expertise. For OFS, the
        acquisition provides increased access to capital to fund growth. The results
        of
        operations of OFS have been included in the Company’s consolidated financial
        statements since November 3, 2005. During the three months ended March 31,
        2006,
        the Company has increased the aggregate purchase price by $0.6 million for
        additional legal and accounting fees incurred, and it has made insignificant
        modifications to the allocation of the purchase price to the net assets
        acquired, based on final valuations and completion of analysis . See Note
        2 to
        the Company Form 10-K for the year ended 2005 for a complete description.
 
 **NOTE
        3.**  **MORTGAGE
        LOANS HELD FOR SALE, NET**
 
 Upon
        the
        closing of a residential mortgage loan or shortly thereafter, OFS will
        securitize the majority of its mortgage loan originations. OFS also sells
        mortgage loans insured or guaranteed by various government-sponsored entities
        and private insurance agencies. The insurance or guaranty is provided primarily
        on a nonrecourse basis to OFS, except where limited by the Federal Housing
        Administration and Veterans Administration and their respective loan programs.
        At March 31, 2006, OFS serviced approximately $1.7 billion of mortgage loans
        sold into the secondary market. All of OFS’s loans held for sale are pledged as
        collateral under the various financing arrangements described in Note
        8. Mortgage
        loans held for sale consist of the following as of March 31, 2006:
  Mortgage
                  loans held for sale
              $
              707,095,613Deferred
                  loan origination costs—and others
              
              14,803,327Valuation
                  allowance
              
              (305,574)$
              721,593,366
 
  **NOTE
        4.**  **RETAINED
        INTEREST, TRADING**
 
 Subordinated
        interests retained represent the over-collateralization and net interest
        spread,
        which represents the estimated cash-flows to be received from the trust in
        the
        future from mortgage loan securitizations structured as sales in accordance
        with
        SFAS No. 140. Generally, to meet the sale treatment requirements of SFAS
        No.
        140, the REMIC Trust is structured as a “qualifying special purpose entity” or
        QSPE, which specifically limits the trust’s activities, and OFS surrenders
        control over the mortgage loans upon their transfer to the REMIC Trust. All
        of
        OFS’s securitization issues were accounted for as a sale under SFAS No. 140.
        The
        subordinated interests retained are classified as “trading securities” and are
        reported at fair value with unrealized gains or losses reported in earnings.
  **Valuation
        of Investments.** OFS
        classifies its retained interests as trading securities and therefore records
        these securities at their estimated fair value. In order to value the unrated,
        unquoted, investments, OFS will record these assets at their estimated fair
        value utilizing either pricing available directly from dealers or the present
        value calculated by projecting the future cash flows of an investment on
        a
        publicly available analytical system. When a publicly available analytical
        system is utilized, OFS will input the following variable factors which will
        have an impact on determining the market value:
  **Interest
        Rate Forecast** .
        The
        forward London Interbank Offered Rate (“LIBOR”) interest rate curve.
  **Discount
        Rate** .
        The
        present value of all future cash flows utilizing a discount rate assumption
        established at the discretion of OFS to represent market conditions and value.
  **Prepayment
        Forecast** .
        The
        prepayment forecast may be expressed by OFS in accordance with one of the
        following standard market conventions: Constant Prepayment Rate (“CPR”) or
        Percentage of a Prepayment Vector. Prepayment forecasts may be changed as
        OFS
        observes trends in the underlying collateral as delineated in the Statement
        to
        Certificate Holders generated by the REMIC trust’s Trustee for each underlying
        security.
  **Credit
        Performance Forecast** .
        A
        forecast of future credit performance of the underlying collateral pool will
        include an assumption of default frequency, loss severity and a recovery
        lag. In
        general, OFS will utilize the combination of default frequency and loss severity
        in conjunction with a collateral prepayment assumption to arrive at a target
        cumulative loss to the collateral pool over the life of the pool based on
        historical performance of similar collateral by the originator. The target
        cumulative loss forecast will be developed and noted at the pricing date
        of the
        individual security but may be updated by OFS consistent with observations
        of
        the actual collateral pool performance.
  Default
        Frequency may be expressed by OFS in accordance with any of three standard
        market conventions: Constant Default Rate, Percentage of a Standard Default
        Assumption curve or a vector or curve established to meet forecasted performance
        for specific collateral pools.
  Loss
        Severity will be expressed by OFS in accordance with historical performance
        of
        similar collateral and the standard market conventions of a percentage of
        the
        unpaid principal balance of the forecasted defaults lost during the foreclosure
        and liquidation process.
  During
        the first year of a new issue OFS may balance positive or adverse effects
        of the
        prepayment forecast and the credit performance forecast allowing for deviation
        between actual and forecasted performance of the collateral pool. After the
        first year OFS will generally adjust the Prepayment and Credit Performance
        Forecasts to replicate actual performance trends without balancing adverse
        and
        positive effects.
  The
        following table summarizes OFS’s residual interests in securitizations as of
        March 31, 2006 and December 31, 2005:
  **Series**
              
              **Issue
                  Date**
              
              **March
                  31, 2006**
              
              **December
                  31, 2005**HMAC
                  2004-1
              
              March
                  4, 2004
              $
              4,152,435
              $
              5,096,056HMAC
                  2004-2
              
              May
                  10, 2004
              
              2,719,505
              
              3,240,431HMAC
                  2004-3
              
              June
                  30, 2004
              
              513,216
              
              1,055,651HMAC
                  2004-4
              
              August
                  16, 2004
              
              3,475,833
              
              3,749,261HMAC
                  2004-5
              
              September
                  28, 2004
              
              5,965,609
              
              6,177,669HMAC
                  2004-6
              
              November
                  17, 2004
              
              12,732,512
              
              14,321,046OpteMac
                  2005-1
              
              January
                  31, 2005
              
              15,049,058
              
              14,720,910OpteMac
                  2005-2
              
              April
                  5, 2005
              
              13,443,741
              
              11,301,619OpteMac
                  2005-3
              
              June
                  17, 2005
              
              15,627,247
              
              14,656,477OpteMac
                  2005-4
              
              August
                  25, 2005
              
              10,969,462
              
              12,551,775OpteMac
                  2005-5
              
              November
                  23, 2005
              
              8,985,248
              
              11,139,697OpteMac
                  2006-1
              
              March
                  23, 2006
              
              11,562,339
              
              -Total
              
              
              $
              105,196,205
              $
              98,010,592
 
  Key
        economic assumptions used in measuring the fair value of retained interests
        at
        the date of securitization resulting from securitizations completed during
        2005
        and 2006 were as follows:
 
 **2006**
              **2005**Prepayment
                  speeds (CPR)
              39.63%
              28.65%Weighted-average-life
              4.810
              2.830Expected
                  credit losses
              0.640%
              1.069%Discount
                  rates
              16.710%
              14.896%Interest
                  rates
              Forward
                  LIBOR Yield curve
              Forward
                  LIBOR Yield curve
  At
        March
        31, 2006 and December 31, 2005, key economic assumptions and the sensitivity
        of
        the current fair value of residual cash flows to the immediate 10% and 20%
        adverse change in those assumptions are as follows:
 
 March
                  31, 2006
              
              December
                  31, 2005Balance
                  Sheet Carrying value of retained interests - fair value
              $
              105,196,205
              $
              98,010,592Weighted
                  average life (in years)
              
              3.81
              
              2.62Prepayment
                  assumption (annual rate)
              
              36.99%
              
              32.53%Impact
                  on fair value of 10% adverse change
              $
              (10,788,268)
              $
              (7,817,000)Impact
                  on fair value of 20% adverse change
              $
              (19,670,422)
              $
              (16,089,000)Expected
                  Credit losses (annual rate)
              
              0.545%
              
              0.607%Impact
                  on fair value of 10% adverse change
              $
              (3,859,312)
              $
              (3,247,000)Impact
                  on fair value of 20% adverse change
              $
              (7,078,785)
              $
              (6,419,000)Residual
                  Cash-Flow Discount Rate
              
              13.99%
              
              13.96%Impact
                  on fair value of 10% adverse change
              $
              (5,761,154)
              $
              (3,804,000)Impact
                  on fair value of 20% adverse change
              $
              (11,014,808)
              $
              (7,392,000)Interest
                  rates on variable and adjustable loans and bonds
              
              Forward
                  LIBOR Yield Curve
              
              Forward
                  LIBOR Yield CurveImpact
                  on fair value of 10% adverse change
              $
              (31,560,231)
              $
              (21,265,000)Impact
                  on fair value of 20% adverse change
              $
              (58,145,201)
              $
              (34,365,000)
 
 
 These
        sensitivities are hypothetical and should be used with caution. As the figures
        indicate, changes in fair value based upon a 10% variation in assumptions
        generally cannot be extrapolated because the relationship of the change in
        assumption to the change in fair value may not be linear. Also, in this table,
        the effect of the variation in a particular assumption on the fair value
        of the
        retained interest is calculated without changing any other assumption, in
        reality, changes in one factor may result in changes in another which may
        magnify or counteract the sensitivities. To estimate the impact of a 10%
        and 20%
        adverse change of the Forward LIBOR curve, a parallel shift in the forward
        LIBOR
        curve was assumed based on the Forward LIBOR curve at March 31,
        2006.
 
 Static
        pool losses are calculated by dividing projected future credit losses (at
        the
        time of securitization) and actual losses incurred as of the date indicated,
        by
        the original balance of each pool of assets. The amount shown here is calculated
        based upon all securitizations that have occurred to date.
 
 
 **Series**
              **Issue
                  Date**
              **Original
                  Unpaid Principal Balance**
              **Projected
                  Aggregate Credit Losses**
              **Through
                  March 31, 2006**
              **Through
                  December 31, 2005**HMAC
                  2004-1
              March
                  4, 2004
              $
                  309,710,005
              0.985%
              0.034%
              0.007%HMAC
                  2004-2
              May
                  10, 2004
              $
                  388,737,548
              1.308%
              0.167%
              0.118%HMAC
                  2004-3
              June
                  30, 2004
              $
                  417,055,285
              1.516%
              0.098%
              0.055%HMAC
                  2004-4
              August
                  16, 2004
              $
                  410,122,752
              1.432%
              0.005%
              0.005%HMAC
                  2004-5
              September
                  28, 2004
              $
                  413,874,856
              1.619%
              0.002%
              0.003%HMAC
                  2004-6
              November
                  17, 2004
              $
                  761,026,691
              1.543%
              0.012%
              0.007%OpteMac
                  2005-1
              January
                  31, 2005
              $
                  802,625,137
              1.366%
              0.019%
              0.010%OpteMac
                  2005-2
              April
                  5, 2005
              $
                  883,987,488
              0.913%
              0.000%
              0.000%OpteMac
                  2005-3
              June
                  17, 2005
              $
                  937,116,704
              0.624%
              0.000%
              0.000%OpteMac
                  2005-4
              August
                  25, 2005
              $
                  1,321,738,691
              0.817%
              0.000%
              0.000%OpteMac
                  2005-5
              November
                  23, 2005
              $
                  986,276,688
              0.720%
              0.000%
              0.000%OpteMac
                  2006-1
              March
                  23, 2006
              $
                  934,441,049
              0.647%
              0.000%
              0.000%Total
              
              $
                  8,566,712,894
 
 
 
 The
        table
        below summarizes certain cash flows received from and paid to securitization
        trusts:
 
 **For
                  the Three Months Ended March 31, 2006**
              
              **For
                  the Period November 3, 2005 (date of merger) through**
                **December
                  31, 2005**Proceeds
                  from securitizations
              $
              939,305,000
              $
              989,843,000Servicing
                  fees received
              
              4,592,355
              
              2,837,500Servicing
                  advances
              
              335,270
              
              290,952Cash
                  flows received on retained interests
              
              1,016,108
              
              261,269Repayments
                  of servicing advances
              $
              -
              $
              -
 
 The
        following information presents quantitative information about delinquencies
        and
        credit losses on securitized financial assets as of March 31, 2006 and December
        31, 2005:
 
 **As
                  of Date**
              
              **Total
                  Principal Amount of Loans**
              
              **Principal
                  Amount of Loans Greater than 60 Days Past Due**
              
              **Net
                  Credit Losses**March
                  31, 2006
              $
              6,666,436,939
              $
              60,544,732
              $
              1,688,294December
                  31, 2005
              $
              6,363,279,281
              $
              57,871,123
              $
              912,990
 
  **NOTE
        5.**  **MORTGAGE
        SERVICING RIGHTS, NET**
 
 Activities
        for MSRs are summarized as follows at March 31, 2006 and December 31, 2005,
        (there is no comparable three month period for 2005 owing to the date of
        the
        merger). As permitted by the effective date provisions of SFAS No. 156, *Accounting
        for Servicing of Financial Assets* ,
        an
        amendment of SFAS No. 140, the Company has early adopted SFAS No. 156 as
        of
        January 1, 2006 with respect to the valuation of its MSRs. (See Note 1 -
        Mortgage Servicing Rights):
  For
                  the Three Months Ended March 31, 2006
              
              For
                  the Period November 3, 2005 (date of merger) through December 31,
                  2005Balance
                  at beginning of period (at Cost)
              $
              86,081,594
              $
              87,079,777Adjustment
                  to fair value upon adoption of SFAS 156 at January 1, 2006
              
              4,298,225
              
              -Additions
              
              11,020,018
              
              1,431,576Changes
                  in Fair Value:Changes
                  in fair value due to run-off
              
              (5,104,756)
              
              -Changes
                  in fair value due to amortization/curtailment
              
              (418,255)
              
              -Change
                  in fair value due to market changes
              
              (1,394,738)
              
              -Amortization
              
              -
              
              (2,429,759)Valuation/impairment
              
              -
              
              -Fair
                  Value at end of period
              
              94,482,088
              
              86,081,594Change
                  in fair value due to change in valuation assumptions
              
              (1,144,733)
              
              -Balance
                  at end of period
              $
              93,337,355
              $
              86,081,594
 
  The
        Company has elected to account for all originated mortgage servicing rights
        as
        one class and therefore all MSR will be carried at fair value. As a result
        of
        the early adoption of SFAS 156, the carrying value of the MSRs has been
        increased by approximately $4.3 million (pre tax) as of January 1, 2006.
        As
        required by the provisions of SFAS 156, the net of tax effect was recorded
        as a
        cumulative-effect adjustment to retained earnings of OFS as of January 1,
        2006.
        In addition, changes in value due to run-offs of the portfolio are recorded
        as
        valuation adjustments instead of amortization.
  The
        fair
        value of MSRs is determined using discounted cash flow techniques. During
        the
        first quarter of 2006, OFS decreased the MSR value in the aggregate by
        $2.5 million primarily as a result of changes in market conditions and
        adoption of a new valuation model. Estimates of fair value involve several
        assumptions, including the key valuation assumptions about market expectations
        of future prepayment rates, interest rates and discount rates. Prepayment
        rates
        are projected using a prepayment model. The model considers key factors,
        such as
        refinance incentive, housing turnover, seasonality and aging of the pool
        of
        loans. Prepayment speeds incorporate expectations of future rates implied
        by the
        forward LIBOR/swap curve, as well as collateral specific information.
  At
        March
        31, 2006 and December 31, 2005, key economic assumptions and the sensitivity
        of
        the current fair value of mortgage servicing rights cash flows to the immediate
        10 percent and 20 percent adverse change in those assumptions are as
        follows:
 
 At
                  March 31, 2006
              
              At
                  December 31, 2005Prepayment
                  assumption (annual rate) (PSA)
              
              429
              
              254Impact
                  on fair value of 10% adverse change
              $
              (3,216,413)
              $
              (3,615,000)Impact
                  on fair value of 20% adverse change
              $
              (6,139,467)
              $
              (6,936,000)MSR
                  Cash-Flow Discount Rate
              
              15.16%
              
              10.74%Impact
                  on fair value of 10% adverse change
              $
              (3,470,252)
              $
              (4,856,000)Impact
                  on fair value of 20% adverse change
              $
              (6,651,529)
              $
              (9,280,000)
 
 These
        sensitivities are hypothetical and should be used with caution. As the figures
        indicate, changes in fair value based upon a 10% and 20% variations in
        assumptions generally cannot be extrapolated because the relationship of
        the
        change in assumption to the change in fair value may not be linear. Also,
        in
        this table, the effect of the variation in a particular assumption on the
        fair
        value of the mortgage servicing right is calculated without changing any
        other
        assumption. In reality, changes in one factor may result in changes in another
        which may magnify or counteract the sensitivities.
 
 **NOTE
        6.**  **MORTGAGE
        BACKED SECURITIES**
 
 At
        March 31, 2006 and December 31, 2005, all of Opteum's MBS were classified
        as available-for-sale and, as such, are reported at their estimated fair
        value.
        Estimated fair value was determined based on the average of third-party broker
        quotes received and/or independent pricing sources when available.
 
 At
        March
        31, 2006, Opteum had financed MBS with a historical amortized cost of
        $200.3  million
        with the party it acquired the MBS. Such securities are included in MBS at
        a
        fair value of $196.8 million and a corresponding repurchase agreement of
        $197.4
        million at March 31, 2006.
 
 The
        following are the carrying values of Opteum's MBS portfolio at March 31,
        2006 and December 31, 2005:
 
 
 **March
                  31, 2006**
              
              **December
                  31, 2005**Hybrid
                  Arms and Balloons
              $
              770,860,599
              $
              753,895,705Adjustable
                  Rate Mortgages
              
              2,005,867,897
              
              2,006,767,437Fixed
                  Rate Mortgages
              
              761,825,714
              
              733,366,217Totals
              $
              3,538,554,210
              $
              3,494,029,359
  The
        following table presents the components of the carrying value of Opteum's
        MBS
        portfolio at March 31, 2006 and December 31, 2005:
 
  **March
                  31, 2006**
              
              **December
                  31, 2005**Principal
                  balance
              $
              3,515,112,798
              $
              3,457,887,912Unamortized
                  premium
              
              114,165,772
              
              115,133,248Unaccreted
                  discount
              
              (2,411,427)
              
              (2,497,423)Gross
                  unrealized gains
              
              633,487
              
              265,615Gross
                  unrealized losses
              
              (88,946,420)
              
              (76,759,993)Carrying
                  value/estimated fair value
              $
              3,538,554,210
              $
              3,494,029,359
 
  The
        following table presents for Opteum's MBS investments with gross unrealized
        losses, the estimated fair value and gross unrealized losses aggregated by
        investment category, at March 31, 2006:
 
 **Loss
                  Position Less than 12 Months**
              **Loss
                  Position More than 12 Months**
              **Total****Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**Hybrid
                  Arms and Balloons
              $
              518,655,723
              $
              (8,158,572)
              $
              190,264,347
              $
              (6,963,295)
              $
              708,920,070
              $
              (15,121,867)Adjustable
                  Rate Mortgages
              
              1,308,104,280
              
              (22,605,886)
              
              641,284,220
              
              (20,290,457)
              
              1,949,388,500
              
              (42,896,343)Fixed
                  Rate Mortgages
              
              225,934,463
              
              (6,117,103)
              
              534,452,912
              
              (24,811,108)
              
              760,387,375
              
              (30,928,211)$
              2,052,694,466
              $
              (36,881,561)
              $
              1,366,001,479
              $
              (52,064,860)
              $
              3,418,695,945
              $
              (88,946,421)
  The
        following table presents for Opteum's MBS investments with gross unrealized
        losses, the estimated fair value and gross unrealized losses aggregated by
        investment category, at December 31, 2005:
  **Loss
                  Position Less than 12 Months**
              **Loss
                  Position More than 12 Months**
              **Total****Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**
              
              **Estimated**
                **Fair
                  Value**
              
              **Unrealized**
                **Losses**Hybrid
                  Arms and Balloons
              $
              563,661,156
              $
              (8,409,428)
              $
              $141,675,752
              $
              (4,510,901)
              $
              705,336,908
              $
              (12,920,329)Adjustable
                  Rate Mortgages
              
              1,648,085,054
              
              (27,917,630)
              
              270,945,493
              
              (8,944,837)
              
              1,919,030,547
              
              (36,862,467)Fixed
                  Rate Mortgages
              
              425,260,838
              
              (10,762,306)
              
              346,435,009
              
              (16,214,890)
              
              771,695,847
              
              (26,977,197)$
              2,637,007,048
              $
              (47,089,364)
              $
              759,056,254
              $
              (29,670,628)
              $
              3,396,063,302
              $
              (76,759,993)
 
 At
        March
        31, 2006, all of Opteum's MBS investments have contractual maturities greater
        than 20 months. Actual maturities of MBS investments are generally shorter
        than
        stated contractual maturities. Actual maturities of Opteum's MBS investments
        are
        affected by the contractual lives of the underlying mortgages, periodic payments
        of principal, and prepayments of principal.
 
 The
        decline in fair value of MBS investments is not considered to be
        other-than-temporary. Accordingly, the write down to fair value is recorded
        in
        other comprehensive loss as an unrealized loss. The factors considered in
        making
        this determination include: the expected cash flow from the MBS investment,
        the
        general quality of the MBS owned, any credit protection available, current
        market conditions, and the magnitude and duration of the historical decline
        in
        market prices as well as Opteum's ability and intention to hold the MBS owned.
 
 **NOTE
        7.**  **FAIR
        VALUE OF FINANCIAL INSTRUMENTS**
 
 The
        valuation of Opteum’s investments in MBS is governed by SFAS No.
        107, *Disclosures about Fair Value of Financial Instruments* .
        SFAS
        No. 107, defines the fair value of a financial instrument as the amount at
        which
        the instrument could be exchanged in a current transaction between willing
        parties. All REIT securities are reflected in the financial statements at
        their
        estimated fair value as of March 31, 2006 and December 31, 2005. Estimated
        fair values for MBS are based on the average of third-party broker quotes
        received and/or independent pricing sources when available. However, the
        fair
        values reported reflect estimates and may not necessarily be indicative of
        the
        amounts Opteum could realize in a current market exchange. Cash and cash
        equivalents, accrued interest receivable, repurchase agreements and accrued
        interest payable are reflected in the financial statements at their costs,
        which
        approximates their fair value because of the short-term nature of these
        instruments.
 
 Fair
        value of mortgage loans held for sale, mortgage servicing rights, interest
        rate
        lock commitments and commitments to deliver mortgages are based on estimates.
        Fair value estimates are made as of a specific point in time based on estimates
        using present value or other valuation techniques. These techniques involve
        uncertainties and are significantly affected by the assumptions used and
        the
        judgments made regarding risk characteristics of various financial instruments,
        discount rates, estimates of future cash flows, future expected loss experience
        and other factors .
 
 Changes
        in assumptions could significantly affect these estimates and the resulting
        fair
        values. Derived fair value estimates cannot be substantiated by comparison
        to
        independent markets and, in many cases, could not be realized in an immediate
        sale of the instrument. Also, because of differences in methodologies and
        assumptions used to estimate fair values, the Company’s fair values should not
        be compared to those of other companies. All forward delivery commitments
        and
        option contracts to buy securities are to be contractually settled within
        six
        months of the balance sheet date.
  Fair
        value estimates are based on existing financial instruments without attempting
        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 do not represent the underlying value
        of
        the Company.
  The
        fair
        value of certain OFS assets and liabilities either equal to or approximate
        carrying value due to their short-term nature, terms of repayment, floating
        interest rate associated with the asset or liability or accounting principles
        applied. Such assets or liabilities include cash, receivables, retained
        interests, other trading securities, accounts payable and other liabilities,
        warehouse lines of credit and drafts payable.
  The
        following describes the methods and assumptions used by OFS in estimating
        fair
        values of other financial instruments:
  §
            Mortgage
                Loans Held for Sale— Mortgage loans held for sale represent mortgage loans
                originated and held pending sale to investors. The mortgages are
                carried
                at the lower of cost or market as determined by outstanding commitments
                from investors or current investor yield requirements calculated
                on the
                aggregate loan basis. Deferred net fees or costs are not amortized
                during
                the period the loans are held for sale, but are recognized when the
                loan
                is sold.  §
            Mortgage
                Servicing Rights— the estimated fair value of MSRs is determined by
                obtaining a market valuation from a specialist who brokers MSRs.
                To
                determine the market valuation, the broker uses a valuation model
                which
                incorporates assumptions relating to the estimate of the cost of
                servicing
                per loan, a discount rate, a float value, an inflation rate, ancillary
                income per loan, prepayment speeds, and default rates that market
                participants use for acquiring similar servicing rights.  §
            Interest
                Rate Lock Commitments—The fair value of interest rate lock commitments is
                estimated using the fees and rates currently charged to enter into
                similar
                agreements, taking into account the remaining terms of the agreements
                and
                the present creditworthiness of the counter-parties. For fixed rate
                loan
                commitments, fair value also considers the difference between current
                levels of interest rates and the committed rates.  §
            Commitments
                to Deliver Mortgages—The fair value of these instruments is estimated
                using current market prices for dealer or investor commitments relative
                to
                the Company’s existing positions. These instruments contain an element of
                risk in the event that the counter-parties may be unable to meet
                the terms
                of such agreements. In the event a counter-party to a delivery commitment
                was unable to fulfill its obligation, the Company would not incur
                any
                material loss by replacing the position at market rates in effect
                at March
                31, 2006. The Company minimizes its risk exposure by limiting the
                counter-parties to those major banks, investment bankers, and private
                investors who meet established credit and capital guidelines. Management
                does not expect any counter-party to default on its obligations and,
                therefore, does not expect to incur any loss due to counter-party
                default.  The
        following tables set forth information about financial instruments and other
        selected assets, except for those noted above for which the carrying value
        approximates fair value.
  **Notional
                  Amounts**
              
              **Carrying
                  Amount**
              
              **Estimated
                  Fair Value**March
                  31, 2006Assets:Mortgage
                  loans held for sale
              $
              -
              $
              707,095,613
              $
              709,910,926Mortgage
                  servicing rights
              
              -
              
              93,337,355
              
              93,337,355Commitments
                  and contingencies:Mortgage
                  loans held for sale related asset (liability) positions:Interest
                  Rate Lock Commitments
              $
              368,156,694
              $
              1,150,707
              $
              1,150,707Interest
                  Rate SWAP Agreements
              
              533,700,000
              
              1,494,429
              
              1,494,429Forward
                  delivery commitments
              
              213,000,000
              
              876,966
              
              876,966
 
   **NOTE
        8.**  **WAREHOUSE
        LINES OF CREDIT AND DRAFTS PAYABLE**
 
 OFS
        issues drafts or wires at loan settlement in order to facilitate the closing
        of
        mortgage loans held for sale. Drafts payable represent mortgage loans on
        which a
        closing has occurred prior to quarter end but the related drafts have not
        cleared the respective bank. Upon clearing the bank, the drafts are funded
        by
        the appropriate warehouse line of credit. Warehouse and aggregate lines of
        credit and loan sale agreements accounted for as financing consisted of the
        following at March 31, 2006:
  **Warehouse
                  and aggregate lines of credit:**
              
              **2006**A
                  committed warehouse line of credit for $100.0 million between OFS
                  and
                  Residential Funding Corporation ("RFC"). The agreement expires
                  on May 31,
                  2006. The agreement provides for interest rates based upon 1 month
                  LIBOR
                  plus a margin between 1.25% and 1.50% depending on the product
                  that was
                  originated or acquired.
              $
              7,095,775A
                  committed warehouse line of credit for $284.5 million between OFS
                  and
                  Colonial Bank. The agreement expires on May 30, 2006. The agreement
                  provides for interest rates, based upon 1 month LIBOR, plus a margin
                  of
                  1.25% to 2.00% depending on the product that was originated or
                  acquired.
              
              199,050,231A
                  committed warehouse line of credit for $150.0 million between OFS
                  and JP
                  Morgan Chase. The agreement expires on May 30, 2006 and is expected
                  to be
                  renewed prior to its expiration. The agreement provides for interest
                  rates
                  based upon 1 month LIBOR plus a margin of 1.25% to 2.00% depending
                  on the
                  product originated or acquired.
              
              90,881,688An
                  aggregation facility for $1.0 billion between OFS and Citigroup
                  Global
                  Markets Realty Inc. to aggregate loans pending securitization.
                  The
                  agreement expires on February 28, 2007. The agreement provides
                  for
                  interest rates based upon 1 month LIBOR plus a margin of
                  0.50%.
              
              273,213,144A
                  $750.0 million purchase and security agreement between OFS and
                  UBS Warburg
                  Real Estate Securities, Inc. (“UBS Warburg”). The facility is due upon
                  demand and can be cancelled by either party upon notification to
                  the
                  counter-party. OFS incurs a charge for the facility based on 1
                  month LIBOR
                  plus 1.00%. The facility is secured by loans held for sale and
                  cash
                  generated from sales to investors.
              
              108,955,338679,196,176Drafts
                  payable
              
              18,664,754Total
                  warehouse lines and drafts payable
              $
              697,860,930
 
  In
        addition to the RFC, Colonial Bank, UBS Warburg, and Citigroup facilities,
        OFS
        has purchase and sale agreements with Greenwich Capital and Fannie Mae. The
        agreements allow for OFS to accelerate the sale of its mortgage loan inventory,
        resulting in a more effective use of its warehouse facilities. OFS has a
        combined capacity of $300.0 million under these purchase and sale agreements.
        There were no amounts sold and being held under these agreements at March
        31,
        2006. The agreements are not committed facilities and may be terminated at
        the
        discretion of either party.
  The
        facilities are secured by mortgage loans and other assets of OFS.  The
        facilities contain various covenants pertaining to tangible net worth, net
        income, available cash and liquidity, leverage ratio, current ratio and
        servicing delinquency.  At March 31, 2006, OFS
        was
        not in compliance with respect to one covenant with one lender. The covenant
        pertained to net income at March 31, 2006. OFS has obtained a waiver from
        the
        covenant violation.
  **NOTE
        9.**  **OTHER
        SECURED BORROWINGS**
 
 Other
        secured borrowings consisted of the following at March 31, 2006:
  
 **2006**A
                  committed working capital line of credit for $82.5 million between
                  OFS and
                  Colonial Bank. The agreement expires on May 30, 2006. The agreement
                  provides for an interest rate, based on 1 month LIBOR plus a margin
                  of up
                  to 2.60% and is secured by the servicing rights for FNMA, FHLMC
                  and REMIC
                  securitizations.
              $
              63,355,607A
                  committed warehouse line of credit for $150.0 million between OFS
                  and JP
                  Morgan Chase, that allows for a sublimit for mortgage servicing
                  rights.
                  The agreement expires May 30, 2006 and is expected to be renewed
                  prior to
                  its expiration. The agreement provides for an interest rate based
                  on LIBOR
                  plus 2.0%
              
              7,710,000Citigroup
                  Global Realty Inc., working capital line of credit secured by the
                  Retained
                  interests in securitizations through OPMAC 2006-1. The facility
                  expires on
                  October 31, 2006. The agreement provides for an interest rate based
                  on
                  LIBOR plus 2.00%
              
              34,386,512$
              105,452,119
 
 
 **NOTE
        10.**  **Repurchase
        Agreements**
 
 Opteum
        has entered into repurchase agreements to finance most of its MBS purchases.
        The
        repurchase agreements are short-term borrowings that bear interest at rates
        that
        have historically moved in close relationship to LIBOR. At March 31, 2006,
        Opteum had an outstanding amount of $3.4 billion with a net weighted average
        borrowing rate of 4.54%, and these agreements were collateralized by MBS
        with a
        fair value of $3.5 billion. At December 31, 2005, Opteum had an outstanding
        amount of $3.3 billion with a net weighted average borrowing rate of 4.15%,
        and
        these agreements were collateralized by MBS with a fair value of $3.5 billion
        and restricted cash of $2.3 million.
 
 At
        March 31, 2006, Opteum's repurchase agreements had remaining maturities as
        summarized below:
 
 **OVERNIGHT**
                **(1
                  DAY OR LESS)**
              
              **BETWEEN
                  2 AND**
                **30
                  DAYS**
              
              **BETWEEN
                  31 AND**
                **90
                  DAYS**
              
              **GREATER
                  THAN**
                **90
                  DAYS**
              
              **TOTAL**Agency-Backed
                  Mortgage Backed securities:Amortized
                  cost of securities sold, including accrued interest
                  receivable
              $
              —
              $
              1,604,222,330
              $
              1,171,220,926
              $
              589,841,287
              $
              3,365,284,543Fair
                  market value of securities sold, including accrued interest
                  receivable
              $
              —
              $
              1,566,314,050
              $
              1,143,914,636
              $
              574,915,061
              $
              3,285,143,747Repurchase
                  agreement liabilities associated with these securities
              $
              —
              $
              1,644,318,455
              $
              1,142,548,371
              $
              627,088,000
              $
              3,413,954,826Net
                  weighted average borrowing rate
              
              —
              
              4.49%
              
              4.67%
              
              4.43%
              
              4.54%
 
  At
        December 31, 2005, Opteum's repurchase agreements had remaining maturities
        as summarized below:
 
 **OVERNIGHT**
                **(1
                  DAY OR LESS)**
              
              **BETWEEN
                  2 AND**
                **30
                  DAYS**
              
              **BETWEEN
                  31 AND**
                **90
                  DAYS**
              
              **GREATER
                  THAN**
                **90
                  DAYS**
              
              **TOTAL**Agency-Backed
                  Mortgage Backed securities:Amortized
                  cost of securities sold, including accrued interest
                  receivable
              $
              —
              $
              906,106,459
              $
              813,436,832
              $
              1,533,016,956
              $
              3,252,560,247Fair
                  market value of securities sold, including accrued interest
                  receivable
              $
              —
              $
              893,159,892
              $
              791,259,152
              $
              1,498,980,224
              $
              3,183,399,268Repurchase
                  agreement liabilities associated with these securities
              $
              —
              $
              914,262,355
              $
              857,995,007
              $
              1,565,341,000
              $
              3,337,598,362Net
                  weighted average borrowing rate
              
              —
              
              4.22%
              
              4.01%
              
              4.19%
              
              4.15%
 
 
 **NOTE
        11.**  **TRUST
        PREFERRED SECURITIES**
  On
        May 17, 2005, Opteum completed a private offering of $50.0 million of trust
        preferred securities of Bimini Capital Trust I, a Delaware statutory business
        trust sponsored by Opteum.
  Bimini
        Capital Trust I (“BCTI”) used the proceeds of the private offering, together
        with Opteum’s investment of $1.6 million in the BCTI common securities, to
        purchase $51.6 million aggregate principal amount of Opteum’s Junior
        Subordinated Notes with terms that parallel the terms of the trust preferred
        securities. The trust preferred securities have a fixed rate of interest
        until
        March 30, 2010 at 7.61% and thereafter through maturity in 2035 the rate
        will float at a spread of 3.30% over the prevailing three-month LIBOR
        rate.  The trust preferred securities require quarterly interest
        distributions and are redeemable at Opteum’s option, in whole or in part and
        without penalty, beginning March 30, 2010 and at any date thereafter. 
The notes are subordinate and junior in right of payment of all present and
        future senior indebtedness. The proceeds from the private offering net of
        costs
        were approximately $48.5 million.
  On
        October 5, 2005, Opteum completed a private offering of $50.0 million of
        trust
        preferred securities of Bimini Capital Trust II, a Delaware statutory business
        trust sponsored by Opteum.
  Bimini
        Capital Trust II (“BCTII”) used the proceeds of the private offering, together
        with Opteum’s investment of $1.5 million in the BCTII common securities to
        purchase $51.5 million aggregate principal amount of Opteum’s Junior
        Subordinated Notes with terms that parallel the terms of the trust preferred
        securities. The trust preferred securities have a fixed rate of interest
        until
        December 15, 2010 at 7.8575% and thereafter through maturity in 2035 the
        rate
        will float at a spread of 3.50% over the prevailing three-month LIBOR rate.
        The
        trust preferred securities require quarterly interest distributions and are
        redeemable at Opteum’s option, in whole or in part and without penalty,
        beginning December 15, 2010 and at any date thereafter. The notes are
        subordinate and junior in right of payment of all present and future senior
        indebtedness. The proceeds from the private offering net of costs were
        approximately $48.5 million.
 
 The
        trust
        is a variable interest entity pursuant to FIN No. 46, because the holders
        of the equity investment at risk do not have adequate decision making ability
        over the trust’s activities. Because Opteum’s investment in the trust’s common
        shares was financed directly by the trust as a result of its loan of the
        proceeds to Opteum, that investment is not considered to be an equity investment
        at risk pursuant to FIN No. 46. Since Opteum’s common shares investments in BCTI
        and BCTII are not a variable interest, Opteum is not the primary beneficiary
        of
        the trusts. Therefore, Opteum has not consolidated the financial statements
        of
        BCTI and BCTII into its financial statements.  Based on the aforementioned
        accounting guidance, the financial statements present the notes issued to
        the
        trusts as liabilities and the investments in BCTI and BCTII as assets. For
        financial statement purposes, Opteum records payments of interest on the
        corresponding notes issued to BCTI and BCTII as interest expense.
  **NOTE
        12.**  **CAPITAL
        STOCK**
 
 **Changes
        in Class A Common Stock**
 
 During
        the three months ended March 31, 2006, the Company issued a total of 10,115
        shares of Class A Common Stock to its five independent directors for the
        payment
        of director fees for services rendered.
 
 For
        the
        three months ended March 31, 2006, the Company issued 33,441 shares of its
        Class
        A Common Stock to two officers pursuant to the terms of the stock incentive
        plan
        phantom share grants (see Note
        14 ).
 
 During
        the three months ended March 31, 2006, the Company repurchased 527,300 shares
        of
        its Class A Common Stock for an aggregate of $4.5 million and recorded them
        as
        Treasury Stock on the accompanying balance sheet.
 
 **Dividends**
 
 On
        March
        10, 2006, the Company's Board of Directors declared a $0.11 per share cash
        distribution to the holders of its dividend eligible securities. Dividends
        were
        payable on 23,083,498 shares of Class A Common Stock, 650,320 phantom
        shares granted under the Company's stock incentive plan (see Note 14 )
        and
        319,388 shares of Class B Common Stock. No dividends were paid on the Class
        A Redeemable Preferred Stock as the provisions of a formula in the Company’s
        amended charter were not met. The distribution totaling $2,645,853 was paid
        on
        April 7, 2006.
 
 **Other
        Classes of Common and Preferred Stock**
 
 There
        was
        no change in the issued and outstanding shares of the Company’s Class B and
        Class C Common Stock or its Class A Redeemable Preferred Stock during the
        three
        month period ended March 31, 2006. However, the conversion of the Class A
        Redeemable Preferred Stock to Class A Common Stock was approved by a majority
        number of stockholders at the Company’s annual meeting on April 28,
        2006.
 
 **NOTE
        13.**  **TRANSACTIONS
        WITH RELATED PARTIES**
 
 In
        January 2006, the five independent directors received a total of 10,115
        shares of Class A Common Stock, valued at $98,149, as compensation for
        their activities as directors.
 
 OFS
        has a
        subordinated promissory agreement with Opteum for borrowings in the amount
        of
        $65.0 million at March 31, 2006. The note bears an annual interest rate of
        11%.
        This promissory agreement matures on November 1, 2015. OFS also has a short
        term
        loan from Opteum in the amount of $8.1 million at March 31, 2006. This short
        term loan bears an annual interest rate of 11%. Interest accrued at March
        31,
        2006 was $0.7 million. These amounts are eliminated during the process of
        preparing consolidated financial statements for the Company. A portion of
        these
        loan proceeds were used to repay $18.3 million of debt to the former OFS
        owners
        immediately after the closing of the merger transaction.
  In
        January 2005, the four independent directors received a total of 5,968 shares
        of
        Class A Common Stock, valued at $92,027, as compensation for their activities
        as
        directors.
  **NOTE
        14.**  **STOCK
        INCENTIVE PLAN**
  On
        December 1, 2003, Opteum adopted the 2003 Long Term Incentive Compensation
        Plan (the “2003 Plan”) to provide Opteum with the flexibility to use stock
        options and other awards as part of an overall compensation package to provide
        a
        means of performance-based compensation to attract and retain qualified
        associates. The 2003 Plan was amended and restated in March 2004. Key
        employees, directors and consultants are eligible to be granted stock options,
        restricted stock, phantom shares, dividend equivalent rights and other
        stock-based awards under the 2003 Plan. Subject to adjustment upon certain
        corporate transactions or events, a maximum of 4,000,000 shares of the Class
        A
        Common Stock (but not more than 10% of the Class A Common Stock outstanding
        on
        the date of grant) may be subject to stock options, shares of restricted
        stock,
        phantom shares and dividend equivalent rights under the 2003 Plan.
  During
        the period ended March 31, 2006, Opteum granted 200,784 phantom
        shares to employees with an aggregate fair value of $1.8 million. Each phantom
        share represents a right to receive a share of Opteum’s Class A Common
        Stock. Dividend equivalent rights were also granted on these phantom
        shares.
  Phantom
        share awards are valued at the fair value of Opteum’s Class A Common Stock
        at the date of the grant. The total grant date value of all awards since
        the
        2003 Plan’s inception is $ 9.7 million.
        The phantom awards do not have an exercise price. The grant date value is
        being
        amortized to compensation expense on a straight-line basis over the vesting
        period of the respective award.  The phantom shares vest, based on the
        employees’ continuing employment, following a schedule as provided in the
        grant agreements, for periods through December 15,
        2008 .
  As
        of
        March 31, 2006, a total of 719,245 phantom
        stock awards have been granted since the inception of the 2003 Plan, however
        2,090 shares were forfeited during 2005. The future compensation charge that
        was
        eliminated by the forfeiture totaled $31,852. Of the remaining shares, 224,637 shares
        have fully vested and 492,518 shares
        remain unvested.  No phantom share awards have expired. Of the vested
        shares, 33 ,441 were
        issued to grantees during the period ended March 31, 2006, 16,809 were
        surrendered to pay for the income taxes due on the issued shares and a total
        of
        65,335 shares have been distributed since inception. As of March 31, 2006, 651,820 phantom
        shares remain outstanding.  Total compensation cost recognized for the
        three months ended March 31, 2006 and 2005 was $ 0.7 million
        and $ 0.5 million,
        respectively. Dividends paid on phantom shares are charged to retained earnings
        when declared.
 
 **NOTE
        15.**  **SAVINGS
        INCENTIVE PLAN**
 
 Opteum’s
        employees have the option to participate in the Bimini Mortgage Management
        Inc.,
        401K Plan (the “Plan”). Under the terms of the Plan, eligible employees can make
        tax-deferred 401(k) contributions, and at Opteum’s sole discretion, Opteum can
        match the employees’ contributions. For the three months ended March 31, 2006
        and 2005, Opteum made 401(k) matching contributions of $20,290 and zero,
        respectively.
  OFS’s
        employees have the option to participate in The Company Savings and Incentive
        Plan (the “OFS Plan”). Under the terms of the OFS Plan, eligible employees can
        make tax-deferred 401(k) contributions, and at OFS’s sole discretion, OFS can
        match the employees’ contributions as well as make annual profit-sharing
        contributions to the OFS Plan. For the three months ended March 31, 2006,
        OFS
        made 401(k) matching contributions of $246,828.
  **NOTE
        16.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 **Loans
        Sold to Investors** .
        Generally, OFS is not exposed to significant credit risk on its loans sold
        to
        investors. In the normal course of business, OFS provides certain
        representations and warranties during the sale of mortgage loans which obligate
        it to repurchase loans which are subsequently unable to be sold through the
        normal investor channels. The repurchased loans are secured by the related
        real
        estate properties, and can usually be sold directly to other permanent
        investors. There can be no assurance, however, that OFS will be able to recover
        the repurchased loan value either through other investor channels or through
        the
        assumption of the secured real estate.
  OFS
        recognizes a liability for the estimated fair value of this obligation at
        the
        inception of each mortgage loan sale based on the anticipated repurchase
        levels
        and historical experience. The liability is recorded as a reduction of the
        gain
        on sale of mortgage loans and included as part of other liabilities in the
        accompanying financial statements.
  Changes
        in the liability for the three months ended March 31, 2006:
  Balance—Beginning
                  of period
              $
              2,037,980Provision
              
              551,213Charge-Offs
              
              (662,961)Balance—End
                  of period
              $
              1,926,232
 
  **Loan
        Funding and Delivery Commitments** .
        At
        March 31, 2006, OFS has commitments to fund loans approximating $368.2 million.
        OFS hedges the interest rate risk of such commitments primarily with mandatory
        delivery commitments. The remaining commitments to fund loans with agreed-upon
        rates are anticipated to be sold through “best-efforts” and investor programs.
        OFS does not anticipate any material losses from such sales.
  **Net
        Worth Requirements** .
        OFS is
        required to maintain certain specified levels of minimum net worth to maintain
        its approved status with Fannie Mae, HUD, and other investors. At March 31,
        2006, the highest minimum net worth requirement applicable to OFS was
        approximately $55.0 million.
 
 **Outstanding
        Litigation** .
        OFS is
        involved in litigation arising in the normal course of business. Although
        the
        amount of any ultimate liability arising from these matters cannot presently
        be
        determined, OFS does not anticipate that any such liability will have a material
        effect on OFS’s consolidated financial position or results of operations.
  **NOTE
        17.**  **SEGMENTS**
 
 Opteum
        follows SFAS No. 131, *Disclosures
        about Segments of an Enterprise and Related Information.* The
        Company operates in two reportable segments: as a REIT, and as an originator
        of
        mortgage loans.
 
 Certain
        of our operations qualify as a REIT, under applicable provisions of the Code.
        The REIT activities primarily involve Opteum investing in residential
        mortgage-related securities. As a REIT, these activities are not subject
        to
        federal income tax as long as the net taxable earnings from REIT activities
        are
        distributed to our stockholders.
 
 On
        November 3, 2005, Opteum acquired OFS. OFS is a mortgage lender that
        originates loans. It offers retail and wholesale products including fixed-
        and
        adjustable-rate mortgages, 100% financing, interest-only products and home
        loans
        for the credit challenged. Opteum has 35 offices and lending in 46 states.
        Goodwill associated with OFS was $3.0 million at March 31, 2006.
 
 The
        accounting policies of the segments are the same as those described in the
        summary of significant accounting policies in Note 1. The
        Company evaluates the performance of its REIT segment and mortgage origination
        business segment results based on net income. Each of the business segments’ net
        income or loss includes direct costs incurred at each segment’s operating level,
        plus a minimal amount of allocated corporate-level expenses.
 
 The
        following table shows first quarter 2006 summarized financial information
        concerning the Company’s reportable segments. Figures
        reflect the elimination of inter-company transactions between Opteum and
        OFS.
 
 
 (Amounts
                  in thousands)
              
              REIT
              
              OFS
              
              TOTALNet
                  interest income
              $
              1,508
              $
              2,975
              $
              4,483Other
                  revenues, net
              
              -
              
              7,062
              
              7,062Income
                  (loss) before income taxes
              
              892
              
              (9,772)
              
              (8,880)Other
                  interest expense
              
              -
              
              1,732
              
              1,732Depreciation
                  and amortization
              
              184
              
              844
              
              1,028Income
                  tax expense (benefit)
              
              -
              
              (3,793)
              
              (3,793)Total
                  assets
              
              3,668,317
              
              957,728
              
              4,626,045Capital
                  expenditures
              
              392
              
              1,450
              
              1,842
 
 
 The
        following information is needed to reconcile the segment amounts to the total
        information, which agrees to the amounts shown in the accompanying consolidated
        financial statements. During
        the consolidation process, loans receivable totaling $73.1 million, and the
        related interest income and accrued interest, which are recorded on Opteum’s
        segment financial information, are eliminated against corresponding liabilities
        and expenses recorded on OFS’s segment financial statements. The interest income
        related to these loans is reported above as inter-segment interest income.
        There
        were no inter-segment gross revenues during the period ended March 31, 2006,
        except for this interest, and therefore all other revenues were from external
        sources.
 
 No
        single
        customer accounted for more than 10% of revenues at OFS. For the REIT activities,
        approximately 94.8 %
        of the
        interest income was derived from MBS issued by U.S. Government
        agencies.
 
 **NOTE
        18.**  **INCOME
        TAXES**
 
 As
        more
        fully described in Note
        2, Opteum
        acquired OFS on November 3, 2005. OFS is a TRS, which is a taxpaying entity
        for
        income tax purposes, and is taxed separately from Opteum. There is no tax
        provision for the Company for the three months ended March 31, 2005, as this
        was
        prior to the acquisition of the TRS, and Opteum was solely a non-taxpaying
        REIT
        during this period. At the date of acquisition, OFS recorded a deferred tax
        liability of approximately $22.6 million related to the difference in the
        carrying amount and the tax basis of the originated mortgage servicing rights
        at
        the date of the business combination, among other items.
 
 The
        income tax benefit computed on the OFS loss is as follows for the three months
        ended March 31, 2006:
 
 **Deferred
                  income tax benefit:**Federal
              $
              (6,401,371)State
              
              (713,295)
              (7,114,666)Total
                  deferred income tax benefit**Deferred
                  income tax expense**:Federal
              
              2,987,557State
              
              333,566
              3,321,123Total
                  deferred income tax expenseTotal
                  deferred income tax (benefit)
              $
              
              (3,793,543)
 
 The
        effective income tax (benefit) for the three months ended March 31, 2006
        differs
        from the amount determined by applying the statutory Federal rate of 35%
        to the
        OFS loss before income tax as follows:
 
 Net
                  loss, if taxed at the Federal tax rate
              $
              (3,420,034)Permanent
                  tax differences
              
              7,780State
                  tax benefit, net of Federal tax effect
              
              (381,090)Total
                  deferred income tax (benefit)
              $
              (3,793,344)
 
 The
        tax
        effected cumulative temporary differences that give rise to deferred tax
        assets
        and liabilities as of March 31, 2006 are as follows:
 
 **Deferred
                  tax assets:**Federal
                  tax loss carry-forward
              $
              8,723,698State
                  tax loss carry-forward
              
              1,136,821Mark-to-market
                  adjustments
              
              675,765**Total
                  gross deferred tax assets**
              $
              10,536,284**Deferred
                  tax liabilities:**Capitalized
                  cost of mortgage servicing rights
              $
              21,616,169Loan
                  origination and other amounts
              
              3,472,946Intangibles
                  assets
              
              1,690,811**Total
                  gross deferred tax liabilities**
              $
              26,779,926**Net
                  deferred tax liabilities**
              $
              16,243,642
 
 Management
        believes that the deferred tax assets will more likely than not be realized
        due
        to the reversal of the deferred tax liabilities and expected future taxable
        income. As of March 31, 2006, Opteum had an estimated Federal tax net operating
        loss carry-forward of $24.3 million, which expires in 2025, and is fully
        available to offset future taxable income.
 
 **Tax
        differences on REIT income**
 
 Taxable
        net income, as generated by Opteum’s qualifying REIT activities, is computed
        differently from Opteum’s financial statement net income from REIT activities as
        computed in accordance with GAAP. Depending on the number and size of the
        various items or transactions being accounted for differently, the differences
        between Opteum’s taxable net income and Opteum’s financial statement net income
        from REIT activities can be substantial, and each item can affect several
        years.
        Opteum's most significant items and transactions currently being accounted
        for
        differently from REIT activities include restricted stock awards, depreciation
        of property and equipment, and the accounting for debt issuance costs.
 
 For
        the
        three months ended March 31, 2006, Opteum's taxable net income was approximately
        $0.4 million greater than Opteum's financial statement net income from REIT
        activities. Substantially all of this amount is attributable to the phantom
        stock awards, and the future deduction of this amount against taxable net
        income
        is uncertain both as to the year (as the timing of the tax impact of each
        restricted stock award is up to each employee who has received a grant) and
        as
        to the amount (the amount of the tax impact is measured at the fair value
        of the
        shares as of a future date, and this amount may be greater than or less than
        the
        financial statement deduction already taken by Opteum). Since inception through
        March 31, 2006, Opteum's taxable net income is approximately $3.3 million
        greater than Opteum's financial statement net income from REIT activities
        as
        reported in its financial statements.
  **ITEM
        2. Management's Discussion and Analysis of Financial Condition and Results
        of
        Operations.**
 **Forward-Looking
        Statements**
  When
        used
        in this quarterly report, on Form 10-Q, in future filings with the
        Commission or in press releases or other written or oral communications,
        statements which are not historical in nature, including those containing
        words
        such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and
        similar expressions, are intended to identify “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended
        (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934,
        as amended (“Exchange Act”), and, as such, may involve known and unknown risks,
        uncertainties and assumptions.
  These
        forward-looking statements are subject to various risks and uncertainties,
        including, but not limited to, those relating to: changes in the prepayment
        rates on the mortgage loans securing Opteum’s mortgage backed securities
        (“MBS”); changes in interest rates and the market value of Opteum’s MBS,
        Opteum’s ability to use borrowings to finance its assets; changes in government
        regulations affecting Opteum’s business; Opteum’s ability to maintain its
        qualification as a Real Estate Investment Trust (“REIT”) for federal income tax
        purposes; and changes in business conditions and the general economy. These
        and
        other risks, uncertainties and factors, including those described in reports
        that Opteum files from time to time with the Commission, could cause Opteum’s
        actual results to differ materially from those projected in any forward-looking
        statements it makes. All forward-looking statements speak only as of the
        date
        they are made and Opteum does not undertake, and specifically disclaims,
        any
        obligation to update or revise any forward-looking statements to reflect
        events
        or circumstances occurring after the date of such statements.
 
 The
        following discussion of our financial condition and results of operations
        should
        be read in conjunction with the consolidated financial statements and related
        notes included elsewhere in this report.
 
 **Introduction
        and Overview**
 
 Opteum
        Inc., formerly Bimini Mortgage Management, Inc., was formed in September
        2003 to
        invest primarily in but not limited to, residential mortgage related securities
        issued by the Federal National Mortgage Association (more commonly known
        as
        Fannie Mae), the Federal Home Loan Mortgage Corporation (more commonly known
        as
        Freddie Mac) and the Government National Mortgage Association (more commonly
        known as Ginnie Mae). Opteum earns returns on the spread between the yield
        on
        its assets and its costs, including the interest expense on the funds it
        borrows. It generally intends to borrow between eight and twelve times the
        amount of its equity capital to attempt to enhance its returns to stockholders.
        Our leverage may be adjusted above or below this range to the extent management
        or our board deems necessary. For purposes of this calculation, Opteum treats
        its trust preferred securities as an equity capital equivalent. Opteum is
        self-managed and self-advised.
 
 In
        evaluating its assets and their performance, Opteum’s management team primarily
        evaluates these critical factors: asset performance in differing interest
        rate
        environments, duration of the security, yield to maturity, potential for
        prepayment of principal, and the market price of the investment.
 
 On
        September 29, 2005, Opteum executed a definitive merger agreement with Opteum
        Financial Services, LLC (“OFS”), a privately held home mortgage lender
        headquartered in Paramus, New Jersey. OFS has approximately 1,000 associates
        operating out of 35 offices and lending in 46 states. The transaction, in
        which
        OFS became a wholly-owned taxable REIT subsidiary (“TRS”) of Opteum, closed on
        November 3, 2005. OFS acquires and originates mortgages that are either sold
        to
        third parties or securitized by a wholly-owned
        special purpose entity Opteum
        Mortgage Acceptance Corporation (“OPMAC”). OFS services the mortgages
        securitized by OPMAC.
 
 **Critical
        Accounting Policies**
 
 Opteum’s
        accounting policies are described in Note 1 to the Consolidated Financial
        Statements. Opteum has identified the following accounting policies that
        are
        critical to the presentation of our financial statements and that require
        critical accounting estimates by management.
 
 Opteum’s
        financial statements are prepared in accordance with U.S. generally accepted
        accounting principles (“GAAP”). These accounting principles require Opteum to
        make some complex and subjective decisions and assessments. Its most critical
        accounting policies involve decisions and assessments which could significantly
        affect its reported assets and liabilities, as well as its reported revenues
        and
        expenses. Opteum believes that all of the decisions and assessments upon
        which
        its financial statements are based were reasonable at the time made based
        upon
        information available to it at that time. Management has identified its most
        critical accounting policies to be the following:
 
 **Mortgage
        Backed Securities**
 
 Opteum’s
        investments in MBS are classified as available-for-sale securities. As a
        result,
        changes in fair value are recorded as a balance sheet adjustment to accumulated
        other comprehensive income (loss), which is a component of stockholders'
        equity,
        rather than through the statement of operations. If available-for-sale
        securities were classified as trading securities, there could be substantially
        greater volatility in earnings from period-to-period.
 
 Valuations
        of Opteum’s MBS are carried on the balance sheet at fair value. Statement of
        Financial Accounting Standards (“SFAS”) No. 107, *Disclosures
        about the Fair Value of Financial Instruments* ,
        defines
        the fair value of a financial instrument as the amount at which the instrument
        could be exchanged in a current transaction between willing parties. Opteum’s
        mortgage backed securities have fair values determined by management based
        on
        the average of third-party broker quotes received and/or by independent pricing
        sources when available. Because the price estimates may vary to some degree
        between sources, management must make certain judgments and assumptions about
        the appropriate price to use to calculate the fair values for financial
        reporting purposes. Different judgments and assumptions could affect the
        amounts
        Opteum could realize in a current market exchange.
 
 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 (for example, whether the security will be sold or
        repaid
        by the borrower prior to the recovery of fair 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 this loss is
        realized and charged against earnings. The determination of other-than-temporary
        impairment is a subjective process, and different judgments and assumptions
        could affect the timing of loss realization.
 
 The
        decline in fair value of investments held in the portfolio at March 31,
        2006 is not considered to be other-than- temporary. Accordingly, the write
        down
        to fair value is recorded in other comprehensive loss as an unrealized loss
        (see
        Note 1 to the financial statements). The factors considered in making this
        determination included the expected cash flow from the investment and the
        magnitude and duration of the historical decline in market prices, as well
        as
        Opteum's capacity and intention to hold such securities owned.
 
 Interest
        income on mortgage related securities is accrued based on the actual coupon
        rate
        and the outstanding principal amount of the underlying mortgages. Premiums
        and
        discounts are amortized or accreted into interest income over the estimated
        lives of the securities using the effective yield method adjusted for the
        effects of estimated prepayments based on SFAS No. 91, *Accounting
        for Nonrefundable Fees and Costs Associated with Originating or Acquiring
        Loans
        and Initial Direct Costs of Leases;* an
        amendment of Financial Accounting Standards Board (“FASB”) Statements
        No. 13, 60, and 65 and a rescission of FASB Statement No. 17.
        Adjustments are made using the retrospective method to the effective interest
        computation each reporting period based on the actual prepayment experiences
        to
        date and the present expectation of future prepayments of the underlying
        mortgages. To make assumptions as to future estimated rates of prepayments,
        Opteum currently uses actual market prepayment history for the securities
        it
        owns and for similar securities that Opteum does not own and current market
        conditions. If the estimate of prepayments is incorrect; Opteum is required
        to
        make an adjustment to the amortization or accretion of premiums and discounts
        that would have an impact on future income.
 
 **Mortgage
        Loans Held for Sale**
 
 Mortgage
        loans held for sale represent mortgage loans originated and held pending
        sale to
        investors. The mortgages are carried at the lower of cost or market as
        determined by outstanding commitments from investors or current investor
        yield
        requirements calculated on the aggregate loan basis. OFS generally sells
        or
        securitizes loans with servicing rights retained. Gains or losses on such
        sales
        are recognized at the time legal title transfers to the investor based upon
        the
        difference between the sales proceeds from the final investor and the allocated
        basis of the loan sold, adjusted for net deferred loan fees and certain direct
        costs and selling costs. OFS defers net loan origination costs and fees as
        a
        component of the loan balance on the balance sheet. Such costs are not amortized
        and are recognized into income as a component of the gain or loss upon sale.
 
 **Valuation
        Allowance**
 
 A
        valuation allowance is maintained to adjust mortgage loans held for sale
        to the
        lower of cost or market.
 
 **Retained
        Interest, Trading**
 
 OFS
        uses
        warehouse loan arrangements to finance the origination and purchase of pools
        of
        principally fixed and adjustable-rate residential first mortgage loans (the
        “Mortgage Loans”). Subsequent to their origination or purchase, OFS either sells
        these loans to third party institutional investors through bulk sale
        arrangements or through securitization transactions. OFS generally makes
        several
        representations and warranties regarding the performance of the Mortgage
        Loans
        in connection with each sale or securitization. OFS accumulates the desired
        amount of Mortgage Loans and securitizes them in order to create marketable
        securities.
 
 OFS,
        pursuant to a purchase and sale agreement, transfers the Mortgage Loans to
        OPMAC, a wholly-owned special purpose entity set-up for the execution of
        these
        securitizations.
  OPMAC
        then sells the Mortgage Loans to an institutional third party to serve as
        Depositor, pursuant to a Mortgage Loan Purchase and Servicing Agreement
        (“P&S Agreement”). Under this P&S Agreement, OFS makes general
        representations and warranties for Mortgage Loans sold by OFS.
  The
        Depositor then deposits the Mortgage Loans into the Real Estate Mortgage
        Investment Conduit trust (“REMIC”) where the rights to such Mortgage Loans are
        pooled and converted into marketable debt securities pursuant to the P&S
        Agreement. These securities, issued by the REMIC, are divided into different
        classes of certificates (the “Certificates”) with varying claims to payments
        received on the Mortgage Loans. These Certificates are transferred to the
        depositor in exchange for all of its rights in the Mortgage Loans deposited
        into
        the REMIC.
  Certain
        Certificates are rated by Moody’s Investors Service, Inc. (“Moody’s”) and
        Standard & Poor’s (“S&P”). In all of the securitizations, all of the
        senior certificate classes were rated “AAA” by S&P and “Aaa” by Moody’s,
        respectively. In addition, most of the mezzanine classes of certificates,
        starting with Class M-1 through the lowest respective subordinate class for
        each
        offering, with each lower numerical class designation being subordinated
        to the
        previous designation, were each given investment grade ratings. The subordinate
        classes not given an investment grade rating were sold through a Private
        Placement Offering Memorandum. Certain of these Certificates are offered
        to the
        public (the “Public Certificates”) pursuant to a prospectus. These Public
        Certificates are sold to underwriters on the closing date pursuant to an
        underwriting agreement. The proceeds from the sale of the Public Certificates
        to
        the underwriters (less an underwriting discount) and the remaining non-publicly
        offered Certificates are transferred to OFS as consideration for the Mortgage
        Loans sold to the depositor pursuant to the P&S Agreement.
  Finally,
        OFS transfers the proceeds from the sale of the Public Certificates and the
        non-publicly offered Certificates representing the residual interest in the
        REMIC to OPMAC pursuant to the Purchase and Sale Agreement. The additional
        non-publicly offered Certificates, representing prepayment penalties and
        overcollateralization fundings (the “Underlying Certificates”) are held by OPMAC
        in anticipation of a net interest margin (“NIM”) securitization. Subsequent to a
        securitization transaction as described above, OFS executes an additional
        securitization or “resecuritization” of the Underlying Certificates being held
        by OPMAC. This NIM securitization is typically transacted as follows:
  OPMAC
        deposits the Underlying Certificates into a trust (the “NIM Trust”) pursuant to
        a deposit trust agreement. The NIM Trust is a Delaware statutory trust. The
        NIM
        trust, pursuant to an Indenture, issues (i) notes (the “NIM Notes”) representing
        interests in the Underlying Certificates and (ii) an owner Trust Certificate
        representing the residual interest in the NIM trust. The NIM Notes are sold
        to
        third parties via private placement transactions, and the Trust Certificate
        is
        transferred from OPMAC to OFS in consideration for the deposit of the Underlying
        Certificates.
  **Securities
        Held for Sale**
 
 Securities
        held for sale are recorded as of the date of purchase or sale at fair value.
        Changes in fair value subsequent to the purchase date are reflected in earnings
        as gains and losses from investments. Realized gains and losses are determined
        on a specific identified basis cost basis.
 
 **Mortgage
        Servicing Rights**
 
 OFS
        recognizes mortgage servicing rights (“MSR”) as assets when separated from the
        underlying mortgage loans, upon the sale of the loans. Upon sale of a loan,
        OFS
        measures the retained MSRs by allocating the total cost of originating a
        mortgage loan between the loan and the servicing right based on their relative
        fair values. Gains or losses on the sale of MSRs are recognized when title
        and
        all risks and rewards have irrevocably passed to the buyer and there are
        no
        significant unresolved contingencies.
  In
        March
        2006 the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets* ("SFAS
        156"). SFAS 156 amends SFAS 140 with respect to the accounting for
        separately-recognized servicing assets and liabilities. SFAS 156 requires
        all
        separately-recognized servicing assets and liabilities to be initially measured
        at fair value, and permits companies to elect, on a class-by-class basis,
        to
        account for servicing assets and liabilities on either a lower of cost or
        market
        value basis or a fair value measurement basis. Opteum elected to early adopt
        SFAS 156 as of January 1, 2006 and to measure all mortgage servicing assets
        at
        fair value (and as one class). Servicing assets and liabilities at December
        31,
        2005 were accounted for at the lower of amortized cost or market value basis.
        As
        a result of adopting SFAS 156, Opteum recognized a $2.6 million after-tax
        increase ($4.1 million pre-tax) to opening retained earnings as of January
        1,
        2006, representing the effect of re-measuring all servicing assets and
        liabilities that existed at December 31, 2005 from a lower of amortized cost
        or
        market basis to a fair value basis.
 
 Prior
        to
        the election by OFS to adopt a new MSR valuation model, an independent third
        party was hired to perform the valuation. In conjunction with the early adoption
        of SFAS 156, the Company intends to actively hedge the MSR position. In order
        to
        hedge this position effectively, management believed utilizing the same model
        to
        value the MSRs and perform sensitivity analysis would ensure the best hedging
        results. Accordingly, management has elected to utilize an internal model
        for
        valuation purposes. The new model employs somewhat more conservative assumptions
        than that of the independent third party model, resulting in a downward fair
        value adjustment of approximately $1.1 million.
  Fair
        value is estimated based on expected cash flows considering market prepayment
        estimates, historical prepayment rates, portfolio characteristics, interest
        rates, and other economic factors.
  **Derivative
        Assets and Derivative Liabilities**
 
 OFS’s
        mortgage committed pipeline includes interest rate lock commitments (“IRLCs”)
        that have been extended to borrowers who have applied for loan funding and
        meet
        certain defined credit and underwriting criteria. Effective with the adoption
        of
        SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        as
        amended, OFS classifies and accounts for the IRLCs as freestanding derivatives.
        Accordingly, IRLCs are recorded at their fair value with changes in fair
        value
        recorded to current earnings. OFS uses other derivative instruments to
        economically hedge the IRLCs, which are also classified and accounted for
        as
        freestanding derivatives.
  OFS’s
        risk management objective for its mortgage loans held for sale includes use
        of
        mortgage forward delivery contracts designed as fair value derivative
        instruments to protect earnings from an unexpected change due to a decline
        in
        value. Effective with the adoption of SFAS No. 133, OFS’s mortgage forward
        delivery contracts are recorded at their fair value with changes in fair
        value
        recorded to current earnings.
  IRLCs
        and
        derivative assets or liabilities arising from OFS’s derivative activities are
        included in either receivables or accounts payable and accrued liabilities
        in
        the accompanying consolidated financial statements. OFS also evaluates its
        contractual arrangements, assets and liabilities for the existence of embedded
        derivatives.
 
 **Income
        Recognition**
 
 Interest
        income and interest expense are recognized as earned. Loans are placed on
        a
        nonaccrual status when concern exists as to the ultimate collectibility of
        principal or interest. Loans return to accrual status when principal and
        interest become current and are anticipated to be fully
        collectible.
  **Gains
        on Sales of Mortgage Assets**
 
 OFS
        recognizes gain (or loss) on the sale of loans.  Gains or losses on such
        sales are recognized at the time legal title transfers to the investor based
        upon the difference between the sales proceeds from the final investor and
        the
        allocated basis of the loan sold, adjusted for net deferred loan fees and
        certain direct costs and selling costs. OFS defers net loan origination costs
        and fees as a component of the loan balance on the balance sheet. Such costs
        are
        not amortized and are recognized into income as a component of the gain or
        loss
        upon sale.
  **Servicing
        Fee Income**
 
 Servicing
        fee income is generally a fee based on a percentage of the outstanding principal
        balances of the mortgage loans serviced by OFS (or by a subservicer where
        OFS is
        the master servicer) and is recorded as income as the installment payments
        on
        the mortgages are received by OFS or the subservicer.
 
 **Loan
        Origination Fees and Costs**
  Loan
        fees, discount points, and certain direct origination costs are recorded
        as an
        adjustment of the cost of the loan and are included in gain on sales of loans
        when the loan is sold. Accordingly, salaries, commissions, benefits and other
        operating expenses have been reduced by $16.0 **** million
        during the period ended March 31, 2006, due to direct loan origination costs,
        including commission costs. Loan fees related to the origination and funding
        of
        mortgage loans held for sale were $1.6 **** million
        during the period ended March 31, 2006.
  **Accounting
        for Stock-Based Compensation**
 
 Stock-based
        compensation is accounted for using the fair value based method prescribed
        by
        SFAS No. 123(R), *Share-Based
        Payments* .
        For
        stock and stock-based awards issued to employees, a compensation charge is
        recorded against earnings based on the fair value of the award. For transactions
        with non-employees in which services are performed in exchange for Opteum's
        common stock or other equity instruments, the transactions are recorded on
        the
        basis of the fair value of the service received or the fair value of the
        equity
        instruments issued, whichever is more readily measurable at the date of
        issuance.
 
 **Income
        Taxes**
 
 Opteum
        has elected to be taxed as a REIT under the Code. As further described below,
        the Company’s TRS is a taxpaying entity for income tax purposes, and is taxed
        separately from Opteum. Opteum will generally not be subject to federal income
        tax on its net taxable income to the extent that Opteum distributes its net
        taxable income to its stockholders and satisfies the ongoing REIT requirements
        including meeting certain asset, income and stock ownership tests. A REIT
        must
        generally distribute at least 90% of its net taxable income to its stockholders
        of which 85% must be distributed within the taxable year in order to avoid
        the
        imposition of an excise tax. The remaining balance may be distributed up
        to the
        timely filing date of the REIT’s tax return in the subsequent taxable year,
        provided the rEIT elects to treat such amount as a prior year distribution
        and
        meets certain other requirements.
 
 OFS
        is
        the Company’s TRS, and its activities are subject to corporate income taxes, and
        the applicable provisions of SFAS No. 109, *Accounting
        for Income Taxes* .
        Deferred tax assets and liabilities are recognized for the future tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax
        base. 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.
  **Financial
        Condition**
 
 All
        of
        Opteum’s assets at March 31, 2006 were acquired with the proceeds of
        private placements and public offerings of Class A Common Stock, private
        placements of junior subordinated debt (trust preferred securities) and the
        use
        of leverage. Opteum received net proceeds after offering costs of approximately
        $141.7 million in the private placements, which closed on December 19,
        2003, January 30, 2004 and February 17, 2004. Opteum received net
        proceeds of approximately $66.1 million in the initial public offering,
        which closed on September 21, 2004. On September 24, 2004 Opteum
        received an additional $9.8 million of net proceeds pursuant to the
        underwriters' exercise of their over-allotment option. Opteum received net
        proceeds of approximately $66.7 million (including the underwriters’
exercise of their over-allotment option) in a secondary public offering of
        Class A Common Stock which closed on December 21, 2004. Opteum
        received total net proceeds of approximately $48.5 million from the privately
        placed issuance of trust preferred securities of Bimini Capital Trust I on
        May
        17, 2005. Opteum received total net proceeds of approximately $48.5 million
        from
        the privately placed issuance of trust preferred securities of Bimini Capital
        Trust II in October 2005, the proceeds of which were used to fund the loan
        to
        OFS.
  **Mortgage
        Related Securities**
 
 At
        March 31, 2006, Opteum held $3.5 billion of agency or government
        mortgage related securities at fair value in Opteum’s portfolio. Opteum’s
        portfolio of mortgage related securities will typically be comprised of
        adjustable-rate mortgage backed securities, fixed-rate mortgage backed
        securities, hybrid adjustable-rate mortgage backed securities and balloon
        maturity mortgage backed securities. Opteum seeks to acquire low duration
        assets
        that offer high levels of protection from mortgage prepayments. Although
        the
        duration of an individual asset can change as a result of changes in interest
        rates, Opteum plans to maintain a portfolio with an effective duration of
        less
        than 2.0. The stated contractual final maturity of the mortgage loans underlying
        Opteum’s portfolio of mortgage related securities generally ranges up to
        30 years. However, the effect of prepayments of the underlying mortgage
        loans tends to shorten the resulting cash flows from Opteum’s investments
        substantially. Prepayments occur for various reasons, including refinancings
        of
        underlying mortgages and payoffs associated with sales of the underlying
        homes
        as people move. At March 31, 2006, Opteum’s TRS, OFS, owned $721.6 million of
        mortgage loans which were classified as mortgage loans held for sale. In
        addition, OFS owned approximately $105.2 million of residual interests in
        asset
        backed securities and $ 93.3
        million of originated mortgage servicing rights. On going, it will be the
        intention of OFS to either sell the loans held for sale to a third party
        investor or issue asset backed securities with the mortgages on the OPMAC
        shelf.
        The period of time between issuing securities on the OPMAC shelf will typically
        be one full quarter, although market conditions may cause management to vary
        its
        issuance timing. In addition to general market conditions, prepayments,
        delinquencies, or defaults on these mortgage loans held for sale may affect
        the
        value of these loans in the future.
 
 For
        the
        three months ended March 31, 2006, Opteum had consolidated interest income
        of $ 60.7 million
        and consolidated interest expense of $ 56.2 million.
        As of March 31, 2006, Opteum’s portfolio of MBS had a weighted average
        yield on assets of 4.44% and a net weighted average borrowing cost of 4.54%.
        Prepayments on the loans underlying Opteum’s mortgage related
        securities can alter the timing of the cash flows from the underlying loans
        to
        the Company. As a result, Opteum gauges the interest rate sensitivity of
        Opteum’s assets by measuring their effective duration. While modified duration
        measures the price sensitivity of a bond to movements in interest rates,
        effective duration captures both the movement in interest rates and the fact
        that cash flows to a mortgage related security are altered when interest
        rates
        move. Accordingly, when the contract interest rate on a mortgage loan is
        substantially above prevailing interest rates in the market, the effective
        duration of securities collateralized by such loans can be quite low because of
        expected prepayments. Although some of the fixed-rate mortgage backed securities
        in Opteum’s portfolio are collateralized by loans with a lower propensity to
        prepay when the contract rate is above prevailing rates, their price movements
        track securities with like contract rates and therefore exhibit similar
        effective duration. The value of Opteum’s portfolio will change as interest
        rates rise or fall. See "Qualitative and Quantitative Disclosures about Market
        Risk—Interest Rate Risk—Effect on Fair Value."
 
 The
        following tables summarize Opteum’s agency and government mortgage related
        securities as of March 31, 2006:
 
 **Asset
                  Category**
              
              **Market
                  Value**
              **Percentage
                  of**
                **Entire**
                **Portfolio**
              **Weighted**
                **Average**
                **Coupon**
              **Weighted**
                **Average**
                **Maturity
                  in**
                **Months**
              **Longest**
                **Maturity**
              **Weighted**
                **Average
                  Coupon**
                **Reset
                  in Months**
              **Weighted**
                **Average**
                **Lifetime
                  Cap**
              **Weighted**
                **Average**
                **Periodic
                  Cap**Adjustable-Rate
                  Mortgage backed securities
              $
              2,005,867,897
              56.7%
              4.70%
              331
              1-Apr-44
              3.92
              10.43%
              1.79%Fixed-Rate
                  Mortgage backed securities
              $
              715,618,090
              20.2%
              6.91%
              277
              1-Apr-36
              n/a
              n/a
              n/aHybrid
                  Adjustable-Rate Mortgage backed securities
              $
              770,860,599
              21.8%
              4.33%
              336
              1-Nov-35
              17.43
              9.89%
              1.75%Balloon
                  Maturity Mortgage backed securities
              $
              46,207,624
              1.3%
              4.05%
              45
              1-Feb-11
              n/a
              n/a
              n/aTotal
                  Portfolio
              **$**
              **3,538,554,210**
              **100.0%**
              **4.96%**
              **312**
              **1-Apr-44**
              **7.67**
              **10.28%**
              **1.78%**
 
 **Agency**
              
              **Market
                  Value**
              **Percentage
                  of**
                **Entire
                  Portfolio**Fannie
                  Mae
              $
              2,285,690,961
              64.59%Freddie
                  Mac
              
              676,176,953
              19.11%Ginnie
                  Mae
              
              576,686,296
              16.30%**Total
                  Portfolio**
              $
              3,538,554,210
              100.00%
 
 **Entire
                  Portfolio**Effective
                  Duration (1)
              
              1.59Weighted
                  Average Purchase Price
              $
              102.49Weighted
                  Average Current Price
              $
              100.67
 
 (1)  Effective
        duration of 1.59 indicates that an interest rate increase of 1% would be
        expected to cause a 1.59% decline in the value of the securities in the
        portfolio.
 
 As
        of
        March 31, 2006, approximately 49.5% of the portfolio of 15 year
        fixed-rate coupon mortgage securities, and 44.0% of the 30 year fixed-rate
        coupon mortgage securities, contain only loans with principal balances of
        $85,000 or less. Because of the low loan balance on these mortgages, Opteum
        believes borrowers have a lower economic incentive to refinance and have
        historically prepaid more slowly than comparable securities.
 
 OFS
        held
        residual interests in twelve securitizations which contain loans originated or purchased by OFS prior
        to
        securitization. The total fair market value of these interests was approximately
        $105.2 million as of March 31, 2006. Prior to the acquisition of OFS, Opteum
        owned no residual interests in mortgage securitizations. It is expected that
        OFS
        will continue to hold residual interests in securitizations in the
        future.
 
 OFS
        held
        originated mortgage servicing rights on approximately $8.4 billion
        in mortgages with a fair market value as of March 31, 2006 of approximately $93.3 million.
        Prior to the acquisition of OFS, Opteum owned no mortgage servicing rights.
        It
        is expected that OFS will continue to hold mortgage servicing rights in the
        future.
 
 The
        table
        below shows the principal balance of Opteum’s investment securities, the net
        un-amortized premium, amortized cost of securities held, average cost expressed
        as a price, the fair market value of investments and the fair market value
        expressed as a price for the current quarter and each of the previous eight quarters
        for the portfolio of MBS securities only.  The data in the table below does
        not include information pertaining to OFS.
  **Quarter
                  Ended**
              
              **Principal**
                **Balance
                  of**
                **Investment**
                **Securities
                  Held**
              
              **Unamortized**
                **Premium
                  (Net)**
              
              **Amortized
                  Cost of**
                **Securities
                  Held**
              **Amortized**
                **Cost/Principal**
                **Balance
                  Held**
              
              **Fair
                  Market**
                **Value
                  of**
                **Investment**
                **Securities
                  Held**
              **Fair
                  Market**
                **Value/Principal**
                **Balance
                  Held**At
                  March 31,2006
              $
              3,515,112,798
              $
              111,754,082
              $
              3,626,866,880
              103.179
              $
              3,538,554,210
              100.667At
                  December 31, 2005
              $
              3,457,891,363
              $
              112,635,825
              $
              3,570,527,188
              103.257
              $
              3,494,029,359
              101.045At
                  September 30, 2005
              $
              3,797,400,645
              $
              113,392,661
              $
              3,910,793,306
              102.986
              $
              3,858,319,701
              101.604At
                  June 30, 2005
              $
              3,784,668,467
              $
              114,672,670
              $
              3,899,341,137
              103.030
              $
              3,876,205,996
              102.419At
                  March 31, 2005
              $
              3,212,516,823
              $
              109,389,703
              $
              3,321,906,527
              103.405
              $
              3,299,051,561
              102.694At
                  December 31, 2004
              $
              2,876,319,085
              $
              97,753,097
              $
              2,974,072,182
              103.399
              $
              2,973,232,897
              103.369At
                  September 30, 2004
              $
              1,589,828,988
              $
              48,498,955
              $
              1,638,327,943
              103.051
              $
              1,638,264,065
              103.047At
                  June 30, 2004
              $
              1,479,500,209
              $
              38,033,673
              $
              1,517,533,882
              102.571
              $
              1,508,421,270
              101.955At
                  March 31, 2004
              $
              1,473,583,661
              $
              39,535,014
              $
              1,513,118,676
              102.683
              $
              1,516,539,744
              102.915
 
 The
        Company had approximately $90.9 million of cash and cash equivalents as of
        March 31, 2006.
 
 **Liabilities**
 
 In
        May 2005, Opteum issued $51.5 million of trust preferred securities of
        Bimini Capital Trust I (“BCTI”). The interest rate on the BCTI trust preferred
        securities is fixed for the first five years at 7.61% and then floats at
        a
        spread of 3.30% over three-month LIBOR for the remaining 25 years. However,
        the
        trust preferred securities are redeemable at Opteum’s option at the end of the
        first five year period and at any subsequent date that Opteum chooses. In
        addition, in October 2005, Opteum issued an additional $51.5 million of trust
        preferred securities of Bimini Capital Trust II (“BCTII”). The interest rate on
        the BCTII trust preferred securities is fixed for the first five years at
        7.8575% and then floats at a spread of 3.50% over three-month LIBOR for the
        remaining 25 years. However, the trust preferred securities are redeemable
        at
        Opteum’s option at the end of the first five year period and at any subsequent
        date that Opteum chooses. Opteum believes that the income generated from
        available investment opportunities, when the use of leverage is employed
        for the
        purchase of assets, will exceed the cost of the debt. However, the issuance
        of
        debt at a fixed rate for any long-term period, considering the use of leverage,
        could create an interest rate mismatch if Opteum is not able to invest at
        yields
        that exceed the cost of the trust preferred securities.
 
 Opteum
        has entered into repurchase agreements to finance acquisitions of primarily
        agency and government mortgage related securities. None of the counter-parties
        to these agreements are affiliates of Opteum. These agreements are secured
        by
        the mortgage related securities and bear interest rates that are based on
        a
        spread to LIBOR. As of March 31, 2006, Opteum had 19 master repurchase
        agreements with various investment banking firms and other lenders and had
        outstanding balances under 15 of these agreements.
 
 At
        March 31, 2006, Opteum had approximately $3.4 billion outstanding
        under repurchase agreements with a net weighted average borrowing cost of
        4.54%,
        $1,644.3 million of which matures between two and 30 days,
        $1,142.5 million of which matures between 31 and 90 days, and
        $627.1 million of which matures in more than 90 days. It is Opteum’s
        present intention to seek to renew these repurchase agreements as they mature
        under the then-applicable borrowing terms of the counter-parties to our
        repurchase agreements. At March 31, 2006, the repurchase agreements were
        secured by mortgage related securities with an estimated fair value of $3.5
        billion and a weighted average maturity of 312 months.
 
 At
        March 31, 2006, Opteum’s repurchase agreements had the following
        counter-parties, amounts outstanding, amounts at risk and weighted average
        remaining maturities:
 
 **Repurchase
                  Agreement Counter-parties**
              
              **Amount**
                **Outstanding**
                **($000)**
              
              **Amount**
                **at
                  Risk(1)**
                **($000)**
              **Weighted
                  Average**
                **Maturity
                  of**
                **Repurchase**
                **Agreements**
                **in
                  Days**
              **Percent**
                **of
                  Total**
                **Amount**
                **Outstanding**Deutsche
                  Bank Securities, Inc.
              $
              963,877
              $
              11,941
              66
              28.23
              %Nomura
                  Securities International, Inc.
              
              430,521
              
              16,862
              85
              12.61Washington
                  Mutual
              
              410,994
              
              12,625
              9
              12.04Bear
                  Stearns & Co. Inc.
              
              299,764
              
              7,788
              44
              8.78UBS
                  Investment Bank, LLC
              
              246,670
              
              8,448
              54
              7.23Cantor
                  Fitzgerald
              
              209,148
              
              10,256
              24
              6.13Goldman
                  Sachs
              
              170,567
              
              4,645
              50
              5.00Morgan
                  Stanley
              
              165,555
              
              5,053
              41
              4.85JP
                  Morgan Securities
              
              149,603
              
              4,665
              78
              4.38Merrill
                  Lynch
              
              112,255
              
              4,129
              55
              3.29RBS
                  Greenwich Capital
              
              94,053
              
              2,631
              55
              2.75BNP
                  Paribas
              
              67,430
              
              1,993
              8
              1.98Lehman
                  Brothers
              
              56,782
              
              1,499
              89
              1.66Daiwa
                  Securities America Inc.
              
              19,732
              
              884
              98
              0.57Countrywide
                  Securities Corp
              
              17,004
              
              491
              24
              0.50**Total**
              **$**
              **3,413,955**
              **$**
              **93,910**
              
              **100.00**
              **%**
 
 (1)  Equal
        to
        the fair value of securities sold, plus accrued interest income, minus the
        sum
        of repurchase agreement liabilities, plus accrued interest expense.
 
 As
        of
        March 31, 2006, OFS had warehouse lines and aggregation lines of credit,
        used
        for the origination or purchase of mortgage loans, outstanding of approximately
        $679.2 million. At any given point in time, the dollar amount of loans held
        by
        OFS can be a high multiple of the amount of equity allocated to OFS. The
        warehouse lines and aggregation lines of credit enable OFS to originate or
        purchase loans and finance loans until they are sold in a timely and capital
        efficient manner. These borrowings leverage the equity capital at OFS.
        Functionally, OFS issues drafts or wires at loan settlement in order to
        facilitate the closing of mortgage loans held for sale. Drafts payable represent
        mortgage loans on which a closing has occurred prior to quarter end but the
        related drafts have not cleared the respective bank. Upon clearing the bank,
        the
        drafts are funded by the appropriate warehouse line of credit. Warehouse
        and
        aggregation lines of credit and loans sale agreements accounted for as financing
        consisted of the following at March 31, 2006:
  **Warehouse
                  and aggregation lines of credit:**
              
              **March
                  31, 2006**A
                  committed warehouse line of credit for $100.0 million between the
                  Company
                  and Residential Funding Corporation ("RFC").
              $
              7,095,775A
                  committed warehouse line of credit for $284.5 million between the
                  Company
                  and Colonial Bank.
              
              199,050,231A
                  committed warehouse line of credit for $150.0 million between the
                  Company
                  and JP Morgan Chase.
              
              90,881,688An
                  Aggregation facility for $1.0 billion between the Company and Citigroup
                  Global Markets Realty Inc. to aggregate loans pending securitization.
              
              273,213,144A
                  $750.0 million purchase and security agreement among OFS and UBS
                  Warburg
                  Real Estate Securities, Inc. (“UBS Warburg”)
              
              108,955,338$
              679,196,176
 
  OFS
        had
        other secured borrowings totaling $105.5 million that were collateralized
        by
        residual interests in securitizations and originated mortgage servicing rights.
        These borrowings are short-term and mature within 364 days. The outstanding
        balances on these lines of credit were as follows as of March 31,
        2006:
 
 **March
                  31, 2006**A
                  committed working capital line of credit for $82.5 million between
                  OFS and
                  Colonial Bank
              $
              63,355,607A
                  committed warehouse line of credit for $150.0 million between OFS
                  and JP
                  Morgan Chase
              
              7,710,000Citigroup
                  Global Realty Inc., working capital line of credit secured by the
                  retained
                  interests in securitizations through OPMAC 2005-4
              
              34,386,512$
              105,452,119
 
 
 Opteum
        has lent to OFS $65.0 million (long term) and $8.8 million (short term) for
        a
        total of $73.8 million to use for general operating purposes. OFS pays Opteum
        interest at an annual rate of 11.0%, payable semi-annually, on the long term
        loan, which matures on November 1, 2015 and 11.0% on the short term loans.
        The
        amounts under this arrangement were eliminated in preparation of the
        consolidated financial statements.
 
 **Equity**
  Accumulated
        other comprehensive loss, as reflected in stockholders’ equity, increased
        approximately $11.8 million
        from December 31, 2005 to March 31, 2006.  This is reflective of
        an overall decline in the fair value of Opteum’s portfolio as compared to the
        original aggregate purchase price of the investments.  Changes in interest
        rates over time are the primary market factor for this value decline; generally,
        as interest rates rise, the value of long-term interest rate sensitive
        securities decline. The value of the majority of Opteum’s assets is driven by
        movements in short-term rates—rates typically inside two years and these rates
        increased substantially over the period. Additionally, as longer term rates
        decreased, prepayment expectations increased resulting in a widening in the
        spreads at which Opteum’s assets are priced.
  The
        Company has negative retained earnings (titled “accumulated deficit” in the
        stockholders’ equity section) at March 31, 2006 partially because of the
        consequences of Opteum’s tax qualification as a REIT. The negative retained
        earnings was entirely a result of Opteum’s REIT qualification as of December 31,
        2004 and 2003. As is more fully described in the section titled “Future
        Taxable Income Distributions,” Opteum’s dividends are based on its net taxable
        income, as determined for federal income tax purposes, and not on its net
        income
        computed in accordance with GAAP (as reported in the accompanying financial
        statements).  Therefore, to the extent that Opteum’s cumulative net taxable
        income is greater than cumulative financial statement income and Opteum
        continues to pay out as dividends all of its net taxable income, the Company
        will report negative retained earnings on its balance sheet.
 
 The
        table
        below shows Opteum’s average investments held, total interest income, yield on
        average earning assets, average repurchase balances outstanding, interest
        expense, average cost of funds, net interest income and net interest spread
        for
        the quarter ended March 31, 2006 and the eight previous quarters for
        Opteum’s portfolio of MBS securities only.  The data in the table below
        does not include information pertaining to OFS’s results of operations. Opteum
        commenced operations on December 19, 2003 and quarterly results for the
        period ended December 31, 2003 are not meaningful.
 
 RATIOS
        FOR THE QUARTERS HAVE BEEN ANNUALIZED
 
 **Quarter
                  Ended**
              
              **Average**
                **Investment**
                **Securities
                  Held**
              
              **Total
                  Interest Income**
              **Yield
                  on**
                **Average
                  Interest**
                **Earning
                  Assets**
              
              **Average**
                **Balance
                  of**
                **Repurchase**
                **Agreements**
                **Outstanding**
              
              **Interest**
                **Expense**
              **Average**
                **Cost
                  of**
                **Funds**
              
              **Net**
                **Interest**
                **Income**
              **Net**
                **Interest**
                **Spread**March
                  31, 2006
              $
              3,516,291,784
              $
              42,219,327
              4.803%
              $
              3,375,776,594
              $
              37,660,857
              4.462%
              $
              4,558,470
              0.340%December
                  31, 2005
              $
              3,676,174,530
              $
              43,139,911
              4.694
                  %
              $
              3,533,486,002
              $
              35,912,966
              4.065
                  %
              $
              7,226,945
              0.629
                  %September
                  30, 2005
              $
              3,867,262,849
              $
              43,574,308
              4.507
                  %
              $
              3,723,603,116
              $
              33,101,847
              3.556
                  %
              $
              10,472,461
              0.951
                  %June 30,
                  2005
              $
              3,587,628,779
              $
              36,748,640
              4.097
                  %
              $
              3,449,743,973
              $
              26,703,422
              3.096
                  %
              $
              10,045,218
              1.001
                  %March 31,
                  2005
              $
              3,136,142,229
              $
              31,069,934
              3.963
                  %
              $
              2,976,409,157
              $
              19,841,710
              2.667
                  %
              $
              11,228,224
              1.296
                  %December 31,
                  2004
              $
              2,305,748,481
              $
              20,463,071
              3.550
                  %
              $
              2,159,890,886
              $
              10,824,164
              2.005
                  %
              $
              9,638,907
              1.545
                  %September 30,
                  2004
              $
              1,573,342,668
              $
              11,017,346
              2.801
                  %
              $
              1,504,919,407
              $
              4,253,337
              1.131
                  %
              $
              6,764,009
              1.670
                  %June 30,
                  2004
              $
              1,512,480,507
              $
              10,959,098
              2.898
                  %
              $
              1,452,004,000
              $
              4,344,012
              1.197
                  %
              $
              6,615,086
              1.702
                  %March 31,
                  2004
              $
              871,140,453
              $
              7,194,033
              3.303
                  %
              $
              815,814,500
              $
              2,736,434
              1.342
                  %
              $
              4,457,599
              1.962
                  %
 
 Actions
        by the Federal Reserve and the resulting impact on various market interest
        rates
        have adversely impacted the net interest spread earned on Opteum’s portfolio of
        MBS securities over Opteum’s repurchase agreement funding.  Management has
        taken steps to mitigate the continued impact of further interest rate movements
        initiated by the Federal Reserve. Opteum’s portfolio of MBS securities has
        been adjusted and now contains a greater proportion of adjustable rate
        securities whose coupons reset in 12 months or less.  However, while the
        coupons on these securities reset frequently and their coupons are tied to
        the
        same market interest rates impacted by Federal Reserve actions; they do so
        with
        a lag and there is no assurance that net interest spread will not be compressed
        further.
 
 **Results
        of Operations**
 
 The
        quarter ended March 31, 2006 as compared with the quarter ended
        March 31, 2005 differed substantially because Opteum’s asset base changed
        significantly during the year and because Opteum acquired OFS. Other factors
        making the first quarter of 2006 difficult to compare with prior periods
        include
        the following: Opteum had limited operations in 2003, the Company concluded
        four
        separate equity raises during 2004, and the Company issued $103.1 million
        of
        junior subordinated debt during 2005. During the first quarter of 2006, the
        Company issued no shares of any class of its stock other than for Board or
        employee compensation. In addition, the Company purchased 527,300 shares
        of its
        Class A Common Stock in the open market place during the first quarter of
        2006
        for an aggregate of $4.5 million, at an average price of $8.38. The Company
        issued no junior subordinated debt in the first quarter of 2006.
 
 Consolidated
        net loss for the quarter ended March 31, 2006 was ($5.1) **** million,
        compared to $ 10.9
        million of net income for the quarter ended March 31, 2005. Consolidated
        net
        loss per diluted Class A Common Share was ( $0.21) **** in
        the
        quarter ended March 31, 2006 compared to $0.52 of per
        share income for the same period in 2005.
 
 Opteum
        expected the acquisition of OFS in the fourth quarter of 2005 to result in
        the
        addition of substantial ongoing operating expenses for the Company because
        the
        mortgage origination business is very labor intensive. For the quarter ended
        March 31, 2006 consolidated general and administrative costs at the Company
        were $ 20.1
        million. Operating expenses, which incorporate trading costs, commissions
        and
        other direct costs, were $
        0.3 million
        for the quarter. OFS had approximately 1,000 employees as of March 31, 2006.
 
 The
        Company earned $ 4.5 million
        of consolidated net interest income for the quarter ended March 31, 2006,
        and $ 11.2 million
        of net interest income for the quarter ended March 31, 2005. As measured
        against invested assets during each period, these net interest earnings
        represented an annualized net yield of approximately 0.13% for the quarter
        ended
        March 31, 2006 and 1.29% for the quarter ended March 31, 2005. These
        earnings are not representative of what can be expected for future periods,
        as
        Opteum only began to acquire investments in late December 2003, and the
        funds received during the year ended December 2004 from the private
        placements and public offerings were not fully invested for the entire
        twelve-month period. Borrowing rates increased during
        2005 and during the first quarter of 2006 faster than the yields on Opteum’s
        current portfolio. The substantial decrease in the spread between the yields
        on
        assets and the costs to finance those assets will inevitably cause a decrease
        in
        net interest spread and net earnings. In 2005, Opteum issued $103.1 million
        of
        trust preferred securities, approximately half of which were used by Opteum
        to
        purchase mortgage related securities. The addition of these notes will make
        comparing Opteum’s first quarter 2006 results to past periods more difficult.
        The acquisition of OFS will create potential opportunities for earnings but
        will
        also add substantial expenses making the comparison of Opteum’s results to
        past reporting periods difficult.
 
 During
        the three months ended March 31, 2006, the Company, through its TRS, sold
        approximately $1.4 billion of originated and purchased mortgage loans held
        for
        sale. OFS
        serviced approximately $8.2 billion of originated mortgage servicing rights
        as
        of March 31, 2006. It is OFS’s intention to continue to hold originated mortgage
        servicing rights. Opteum did not sell any mortgage related securities from
        the
        investment portfolio during the quarter ended March 31, 2006. Although Opteum
        generally intends to hold its portfolio investment securities to maturity,
        Opteum may determine at some time before they mature that it is in its interest
        to sell them and purchase securities with other characteristics. In that
        event,
        Opteum’s earnings will be affected by realized gains or losses.
 
 For
        the
        quarters ended March 31, 2006 and 2005 comprehensive income (loss) was ($16.9)
        million including the net unrealized loss on the available for sale securities
        of ($11.8) million and $(13.8) million including the net unrealized loss
        on
        available for sale securities of ($22.7) million respectively. The factors
        resulting in the unrealized loss on available for sale securities are described
        above.
  
 **Gains
        on Sales of Mortgage Assets and Losses on Derivative Instruments**
 (in
        thousands)
 
 **For
                  the Period Ending March 31, 2006**
              **For
                  the Period Ending March 31, 2005**Fair
                  Value adjustment of residuals interests, trading
              $
              (4,226)
              N/AGain
                  on Sales
              
              20,829
              N/AFees
                  on brokered loans
              
              1,549
              N/AGain
                  on derivatives
              
              3,402
              N/ADirect
                  loan origination expenses, deferred
              
              1,238
              N/AFees
                  earned, brokering servicing
              
              771
              N/AWrite
                  off purchased pipeline(Purchase Accounting Adjustment)
              
              (534)
              N/A23,029
              N/ADirect
                  loan origination expenses, reclassified
              
              (15,952)
              N/ANet
                  gain on sale of mortgage loans
              $
              7,077
              N/A
 
 
 **Taxable
        Net Income**
 
 Taxable
        net income, as generated by Opteum’s qualifying REIT activities, is computed
        differently from Opteum’s financial statement net income from REIT activities as
        computed in accordance with GAAP. Depending on the number and size of the
        various items or transactions being accounted for differently, the differences
        between Opteum’s taxable net income and Opteum’s financial statement net income
        from REIT activities can be substantial, and each item can affect several
        years.
        Opteum's most significant items and transactions currently being accounted
        for
        differently from REIT activities include restricted stock awards, depreciation
        of property and equipment, and the accounting for debt issuance costs.
 
 For
        the
        three months ended March 31, 2006, Opteum's taxable net income was approximately
        $0.4 million greater than Opteum's financial statement net income from REIT
        activities. Substantially all of this amount is attributable to the phantom
        stock awards, and the future deduction of this amount against taxable net
        income
        is uncertain both as to the year (as the timing of the tax impact of each
        restricted stock award is up to each employee who has received a grant) and
        as
        to the amount (the amount of the tax impact is measured at the fair value
        of the
        shares as of a future date, and this amount may be greater than or less than
        the
        financial statement deduction already taken by Opteum). Since inception through
        March 31, 2006, Opteum's net taxable income is approximately $3.3 million
        greater than Opteum's financial statement net income from REIT activities
        as
        reported in its financial statements.
 
 **Future
        Taxable Income Distributions**
 
 In
        future
        periods, Opteum’s net taxable income may grow to be even greater than
        consolidated GAAP net income as the interest on the $65.0 million loan Opteum
        made to OFS could generate annual net taxable income of $7.2 million. This
        interest is not reported on the Company’s consolidated financial statements as
        it is eliminated in consolidation.
 
 In
        order
        to maintain Opteum’s qualification as a REIT, Opteum is required (among other
        provisions) to distribute dividends to stockholders in an amount at least
        equal
        to, generally, 90% of its net taxable income. Net taxable income is a term
        that
        describes operating results following taxation rules and regulations governed
        by
        various provisions of the Code. Net taxable income is computed differently
        from
        net income as computed in accordance with GAAP ("GAAP net income"), which
        is
        included in the Company’s consolidated financial statements. Depending on the
        number and size of the various items or transactions being accounted for
        differently, the differences between net taxable income and GAAP net income
        can
        be substantial and each item can affect several reporting periods. Generally,
        these items are timing or temporary differences between years; for example,
        an
        item that may be a deduction for GAAP net income in the current year is not
        a
        deduction for net taxable income until a later year. As
        a
        REIT, Opteum may be subject to a federal excise tax. An excise tax is incurred
        if Opteum distributes less than 85 percent of its net taxable income by the
        end
        of the calendar year.  Opteum's
        most significant item currently being accounted for differently are the
        restricted stock awards.
 
 OFS is
        treated as a TRS of Opteum. OFS is subject to corporate income taxes and
        files
        stand-alone federal and state income tax returns. OFS had IRLCs along with
        other
        instruments that are hedges for both these IRLCs and mortgage loans held
        for
        sale and both are considered freestanding derivatives. The changes to the
        fair
        value of these freestanding derivatives from inception to the period end
        are
        recorded at their fair value with the resulting gain or loss reflected in
        current period earnings. The result of the changes in the fair value of these
        freestanding derivatives was a gain of approximately $3.5 million as of March
        31, 2006. OFS can recognize a gain in the value of mortgages held for sale
        only
        when the loans are sold.
 
 **Liquidity
        and Capital Resources**
 
 Opteum’s
        primary source of funds as of March 31, 2006 consisted of repurchase
        agreements totaling $3.4 billion, with a net weighted average borrowing cost
        of
        4.54%. Opteum expects to continue to borrow funds in the form of repurchase
        agreements. At March 31, 2006, Opteum had master repurchase agreements in
        place with 19 **** counter-parties
        and had outstanding balances under 15 of these agreements. These master
        repurchase agreements have no stated expiration but can be terminated at
        any
        time at Opteum’s option or at the option of the counter-party. However, once a
        definitive repurchase agreement under a master repurchase agreement has been
        entered into, it generally may not be terminated by either party. As of
        March 31, 2006, all of the existing repurchase agreements matured in less
        than one year. Increases in short-term interest rates could negatively impact
        the valuation of Opteum’s mortgage related securities, which could limit
        Opteum’s borrowing ability or cause Opteum’s lenders to initiate margin calls.
 
 During
        2005, Opteum entered into contracts and paid commitment fees to three lenders
        providing for an aggregate of $1.85 billion in committed repurchase lines
        at
        pre-determined borrowing rates and haircuts for a 364 day period following
        the
        commencement date of each contract. Opteum has no obligation to utilize these
        repurchase lines. Each one of these lines will be eligible for renewal at
        some
        point during 2006. It is the Company’s intention to renew these lines. However,
        market conditions could change making the renewal of these contractual
        arrangements more expensive or unattainable.
 
 In
        addition, in order to facilitate the origination of mortgage loans, OFS had
        warehouse lines and aggregation lines of credit outstanding of approximately
        $697.9 million at March 31, 2006. OFS also had approximately $105.5 million
        outstanding on other lines of credit that are secured by the residual interests
        and the originated mortgage servicing rights with various lenders. The rates
        on
        these borrowings generally are based on a spread to LIBOR.
 
 For
        liquidity, Opteum will also rely on cash flow from operations, primarily
        monthly
        principal and interest payments to be received on the mortgage related
        securities, as well as any primary securities offerings authorized by the
        Company’s Board of Directors. OFS may generate cash flow from residual interest
        in mortgage securitizations as well as receive funds from originated mortgage
        servicing rights and originated loan fees.
 
 Opteum
        believes that equity and junior subordinated debt capital, combined with the
        cash flow from operations and the utilization of borrowings, will be sufficient
        to enable Opteum to meet anticipated liquidity requirements. Various changes
        in
        market conditions could adversely affect liquidity, including increases in
        interest rates, increases in prepayment rates substantially above expectations,
        or the reduction of fee income generated through mortgage originations at
        OFS.
        If cash resources are at any time insufficient to satisfy the liquidity
        requirements, Opteum may be required to pledge additional assets to meet
        margin
        calls, liquidate mortgage related securities or sell debt or additional equity
        securities. If required, the sale of mortgage related securities or originated
        mortgage loans held for sale (by OFS) at prices lower than the carrying value
        of
        such assets would result in losses and reduced income.
 
 Opteum
        may in the future increase capital resources by making additional offerings
        of
        equity and debt securities, including classes of preferred stock, common
        stock,
        commercial paper, medium-term notes, collateralized mortgage obligations
        and
        senior or subordinated notes. All debt securities, other borrowings, and
        classes
        of preferred stock will be senior to the Class A Common Stock in a
        liquidation of the company. Additional equity offerings may be dilutive to
        stockholders' equity or reduce the market price of the Class A Common
        Stock, or both. Opteum is unable to estimate the amount, timing or nature
        of any
        additional offerings as they will depend upon market conditions and other
        factors.
 
 **Off-Balance
        Sheet Arrangements**
 
 As
        discussed previously, OFS pools the loans they originate and purchase and
        securitizes them to obtain long-term financing for the assets. The loans
        are
        transferred to a trust where they serve as collateral for asset-backed bonds,
        which the trust issues to the public. During the first quarter of
        2006 OFS
        executed one securitization collateralized by $ 934.4
        million of loans. In addition, OFS held approximately $105.2 million of retained
        interests from securitizations as of March 31, 2006. OFS’s
        ability to use the securitization capital market is critical to the operations
        and overall profitability of the business.
 
 External
        factors that are reasonably likely to affect OFS’s ability to continue to use
        these markets would be those factors that could disrupt the securitization
        capital market. A disruption in the market could prevent OFS from being able
        to
        sell the securities at a favorable price, or at all. Factors that could disrupt
        the securitization market include an international liquidity crisis such
        as
        occurred in the fall of 1998, a terrorist attack, outbreak of war or other
        significant event risk, or market specific events such as a default of a
        comparable type of securitization. If OFS were unable to access the
        securitization market, OFS may still be able to finance the mortgage operations
        by selling the loans to investors in the whole loan market but at lower than
        anticipated margins.
 
 Specific
        items that may affect OFS’s ability to use the securitizations to finance their
        loans relate primarily to the performance of the loans that have been
        securitized. Extremely poor loan performance may lead to poor bond performance
        and investor unwillingness to buy bonds supported by OFS’s collateral. OFS’s
        financial condition could also have an adverse impact on their ability to
        access
        the securitization market if there was the perception that their financial
        condition had deteriorated to the point where investors would question OFS’s
        ability to stand behind their representations and warranties made in connection
        with their securitizations (Opteum has guaranteed the performance of OFS’s
        representation and warranties). The financial performance and condition of
        the
        past securitizations of OFS are too early to evaluate the impact of the
        underlying collateral’s performance. Additionally, past economic conditions that
        may have contributed to a favorable performance may not be an indication
        of
        future performance should economic conditions change unfavorably.
  OFS
        has
        commitments to borrowers to fund residential mortgage loans as well as
        commitments to purchase and sell mortgage loans to third parties. As of March
        31, 2006, OFS had outstanding commitments to originate loans of approximately
        $ 368.2 million.
        As of March 31, 2006, OFS had outstanding commitments to sell loans of
        approximately $ 213.0 million.
        The commitments to originate and purchase loans do not necessarily represent
        future cash requirements, as some portion of the commitments are likely to
        expire without being drawn upon or may be subsequently declined for credit
        or
        other reasons.
 
 **Inflation**
 
 Virtually
        all of the Company’s assets and liabilities are financial in nature. As a
        result, interest rates and other factors influence the Company’s performance far
        more so than does inflation. Changes in interest rates do not necessarily
        correlate with inflation rates or changes in inflation rates. The Company’s
        financial statements are prepared in accordance with GAAP and the Company’s
        distributions are determined by the Company’s Board of Directors based primarily
        on the Company’s net taxable income as calculated for federal income tax
        purposes; in each case, the Company’s activities and balance sheet are measured
        with reference to historical cost and or fair market value without considering
        inflation.
 
 **Credit
        Risk**
 
 At
        March 31, 2006, Opteum had limited its exposure to credit losses on its
        portfolio of securities by purchasing primarily securities from federal agencies
        or federally chartered entities, such as, but not limited to, Fannie Mae,
        Freddie Mac, and Ginnie Mae. The portfolio is diversified to avoid undue
        loan
        origination, geographic and other types of concentrations. Opteum manages
        the
        risk of prepayments of the underlying mortgages by creating a diversified
        portfolio with a variety of prepayment characteristics.
 
 Opteum
        is
        engaged in various trading and brokerage activities in which counter-parties
        primarily include broker-dealers, banks, and other financial institutions.
        In
        the event counter-parties do not fulfill their obligations, Opteum may be
        exposed to risk of loss. The risk of default depends on the creditworthiness
        of
        the counter-party and/or issuer of the instrument. It is Opteum’s policy to
        review, as necessary, the credit standing for each counter-party.
 
 OFS
        has
        credit exposure to representation and warranties with respect to loans OFS
        sells
        to the whole loan market and loans OFS sells to securitization entities.
        When
        OFS sells loans to the whole loan market, OFS has exposure for loans that
        default within certain timeframes. In these cases, OFS may be obligated to
        repurchase the loans.  In addition, the credit performance of the loans
        originated or acquired by OFS will ultimately impact the performance of their
        retained interests in securitizations or the value of the originated mortgage
        servicing rights.  The valuation of both retained interests in
        securitizations and mortgage servicing rights is a function of both the credit
        performance of the underlying loans as well as the prepayment speeds
        realized.
 
 **Interest
        Rate Risk**
 
 Movements
        in interest rates can pose risks to Opteum either in a rising or declining
        interest rate environment. Opteum depends on substantial borrowings to conduct
        Opteum’s business. These borrowings are most typically done at variable interest
        rate terms which will increase as short-term interest rates rise. (Note that
        the
        interest rates on Opteum’s junior subordinated notes are fixed for the first
        five years.) Additionally, when interest rates rise, the prices of securities
        in
        Opteum’s portfolio, loans held for sale and any loan applications in process
        with locked-in rates at OFS decrease in value. To preserve the value of such
        loans or applications in process with locked-in rates, agreements may be
        executed for mandatory loan sales to be settled at future dates with fixed
        prices. These sales can take the form of forward sales of mortgage backed
        securities.
 
 When
        interest rates decline, prepayments on Opteum’s portfolio may exceed its
        expectations. Opteum may reinvest the proceeds from the prepayments at lower
        yields than the original investments. Additionally, fallout in the originated
        mortgage loan pipeline may occur as a result of customers withdrawing their
        applications. In those instances, OFS may be required to purchase loans at
        current market prices to fulfill existing mandatory loan sale agreements,
        thereby incurring losses upon sale.
 
 Movements
        in interest rates also impact the value of mortgage servicing rights. When
        interest rates decline, the loans underlying the mortgage servicing rights
        are
        generally expected to prepay faster, which reduces the market value of the
        mortgage servicing rights. OFS considers the expected increase in loan
        origination volumes and the resulting additional origination related income
        as a
        natural hedge against the expected change in the value of mortgage servicing
        rights.
 
 **Risk
        Management**
  **Mortgage
        Pipeline**
  OFS’s
        mortgage committed pipeline includes IRLCs that have been extended to borrowers
        who have applied for loan funding and meet certain defined credit and
        underwriting criteria. Effective with the adoption of SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* ,
        as
        amended, OFS classifies and accounts for the IRLCs as freestanding derivatives.
        Accordingly, IRLCs are recorded at their fair value with changes in fair
        value
        recorded to current earnings. OFS uses other derivative instruments to
        economically hedge the IRLCs, which are also classified and accounted for
        as
        freestanding derivatives.
  **Mortgage
        Loans Held for Sale**
  OFS’s
        risk management objective for its mortgage loans held for sale includes use
        of
        mortgage forward delivery contracts designed as fair value derivative
        instruments to protect earnings from an unexpected change due to a decline
        in
        value. Effective with the adoption of SFAS No. 133, OFS’s mortgage forward
        delivery contracts are recorded at their fair value with changes in fair
        value
        recorded to current earnings. Gains (losses) on mortgage forward delivery
        contracts represent the change in value from contract inception to funding
        date.
  IRLCs
        and
        derivative assets or liabilities arising from OFS’s derivative activities are
        included in mortgage loans held for sale in the accompanying consolidated
        financial statements. OFS also evaluates its contractual arrangements, assets
        and liabilities for the existence of embedded derivatives.
  **Swap
        Agreements**
 
 OFS
        enters into interest rate swap agreements ("Swap Agreements") to manage its
        interest rate exposure on IRLCs and mortgage loans held for sale that will
        be
        securitized. When OFS enters into a Swap Agreement, it generally agrees to
        pay a
        fixed rate of interest and to receive a variable interest rate, generally
        based
        on LIBOR.
  The
        following tables summarize OFS's interest rate sensitive instruments as of
        March
        31, 2006:
 
 **Notional**
                **Amount**
              
              **Carrying**
                **Amount**
              
              **Estimated**
                **Fair
                  Value**March
                  31, 2006Assets:Mortgage
                  loans held for sale
              $
              
              $
              707,095,613
              $
              709,910,926Mortgage
                  servicing rights
              $
              
              $
              93,337,355
              $
              93,337,355Commitments
                  and contingencies:Mortgage
                  loans held for sale related positions:Interest
                  Rate Lock Commitments
              $
              368,156,694
              $
              1,150,707
              $
              1,150,707Interest
                  Rate SWAP Agreements
              $
              533,700,000
              $
              1,494,429
              $
              1,494,429Forward
                  delivery commitments
              $
              213,000,000
              $
              876,966
              $
              876,966
 
 **Contractual
        Obligations and Commitments**
 
 The
        following table provides information with respect to the Company’s contractual
        obligations at March 31, 2006 (dollars in thousands):
 
 Payments
                  Due by PeriodContractual
                  Obligations
              
              Total
              
              Less
                  than 1 year
              
              1-3
                  years
              
              3-5
                  years
              
              More
                  than 5 yearsRepurchase
                  agreements
              $
              3,413,954
              $
              3,413,954
              $
              -
              $
              -
              $
              -Warehouse
                  lines of credit
              
              679,196
              
              679,196
              
              -
              
              -
              
              -Drafts
                  payable
              
              18,665
              
              18,665
              
              -
              
              -
              
              -Other
                  secured borrowings
              
              105,452
              
              105,452Junior
                  subordinated notes
              
              103,097
              
              -
              
              -
              
              103,097
              
              -Operating
                  leases
              
              18,419
              
              5,914
              
              8,725
              
              2,770
              
              1,010Total
              $
              4,338,783
              $
              4,223,181
              $
              8,725
              $
              105,867
              $
              1,010
 
 
 **ITEM
        3. Quantitative and Qualitative Disclosures About Market Risk.**
 
 **Opteum**
 
 Opteum
        believes the primary risk inherent in its investments is the effect of movements
        in interest rates. This arises because the changes in interest rates on Opteum's
        borrowings will not be perfectly coordinated with the effects of interest
        rate
        changes on the income from, or value of, its investments. Opteum therefore
        follows an interest rate risk management program designed to offset the
        potential adverse effects resulting from the rate adjustment limitations
        on its
        mortgage related securities. Opteum seeks to minimize differences between
        the
        interest rate indices and interest rate adjustment periods of its
        adjustable-rate mortgage backed securities and those of its related borrowings.
 
 Opteum's
        interest rate risk management program encompasses a number of procedures,
        including the following:
 
 §
              monitoring
                  and adjusting, if necessary, the interest rate sensitivity of its
                  mortgage
                  related securities compared with the interest rate sensitivities
                  of its
                  borrowings;
 
 §
              attempting
                  to structure its repurchase agreements that fund its purchases
                  of
                  adjustable-rate mortgage backed securities to have a range of different
                  maturities and interest rate adjustment periods. Opteum attempts
                  to
                  structure these repurchase agreements to match the reset dates
                  on its
                  adjustable-rate mortgage backed securities. At March 31, 2006, the
                  weighted average months to reset of Opteum's adjustable-rate mortgage
                  backed securities was 3.9 months and the weighted average reset on
                  the corresponding repurchase agreements was 1.6 months; and
 
 §
              actively
                  managing, on an aggregate basis, the interest rate indices and
                  interest
                  rate adjustment periods of its mortgage related securities compared
                  to the
                  interest rate indices and adjustment periods of its borrowings.
                  Opteum's
                  liabilities under its repurchase agreements are all LIBOR-based,
                  and
                  Opteum, among other considerations, selects its adjustable-rate
                  mortgage
                  backed securities to favor LIBOR indexes. As of March 31, 2006, over
                  31.6% of its adjustable-rate mortgage backed securities were LIBOR-based.
 
 As
        a
        result, Opteum expects to be able to adjust the average maturities and reset
        periods of its borrowings on an ongoing basis by changing the mix of maturities
        and interest rate adjustment periods as borrowings mature or are renewed.
        Through the use of these procedures, Opteum attempts to reduce the risk of
        differences between interest rate adjustment periods of its adjustable-rate
        mortgage backed securities and those of its related borrowings.
 
 Because
        Opteum attempts to match its assets and liabilities from an interest rate
        perspective and hold its assets to maturity, it expects to have limited exposure
        to changes in interest rates. However, Opteum will be exposed to changes
        in
        interest rates either (i) upon refinancing borrowings that expire before
        the related assets are repaid or (ii) upon reinvesting (and refinancing)
        proceeds following the maturity of current investments, if interest rates
        were
        to rise substantially.
 
 As
        a
        further means of protecting its portfolio against the effects of major interest
        rate changes Opteum may employ a limited hedging strategy under which it
        purchases interest rate cap contracts (under which it would generally be
        entitled to payment if interest rate indices exceed the agreed rates).
 
 **Interest
        Rate Risk**
 
 Opteum
        is
        subject to interest rate risk in connection with its investments in mortgage
        related securities and its related debt obligations, which are generally
        repurchase agreements of limited duration that are periodically refinanced
        at
        current market rates.
 
 **Effect
        on Net Interest Income**
 
 Opteum
        funds its investments in long-term fixed-rate and hybrid adjustable-rate
        mortgage backed securities with short-term borrowings under repurchase
        agreements. During periods of rising interest rates, the borrowing costs
        associated with those fixed-rate and hybrid adjustable-rate mortgage backed
        securities tend to increase while the income earned on such fixed-rate mortgage
        backed securities and hybrid adjustable-rate mortgage backed securities (during
        the fixed-rate component of such securities) may remain substantially unchanged.
        This results in a narrowing of the net interest spread between the related
        assets and borrowings and may even result in losses. Opteum may enter into
        interest rate cap contracts or forward funding agreements seeking to mitigate
        the negative impact of a rising interest rate environment. Hedging techniques
        will be based, in part, on assumed levels of prepayments of Opteum's fixed-rate
        and hybrid adjustable-rate mortgage backed securities. If prepayments are
        slower
        or faster than assumed, the life of the mortgage related securities will
        be
        longer or shorter, which would reduce the effectiveness of any hedging
        techniques Opteum may utilize and may result in losses on such transactions.
        Hedging techniques involving the use of derivative securities are highly
        complex
        and may produce volatile returns. Opteum's hedging activity will also be
        limited
        by the asset and sources-of-income requirements applicable to it as a REIT.
 
 **Extension
        Risk**
 
 Opteum
        invests in fixed-rate and hybrid adjustable-rate mortgage backed securities.
        Hybrid adjustable-rate mortgage backed securities have interest rates that
        are
        fixed for the first few years of the loan—typically three, five, seven or
        10 years—and thereafter their interest rates reset periodically on the same
        basis as adjustable-rate mortgage backed securities. As of March 31, 2006,
        approximately 21.8% of Opteum's investment portfolio was comprised of hybrid
        adjustable-rate mortgage backed securities. Opteum computes the projected
        weighted average life of its fixed-rate and hybrid adjustable-rate mortgage
        backed securities based on the market's assumptions regarding the rate at
        which
        the borrowers will prepay the underlying mortgages. In general, when a
        fixed-rate or hybrid adjustable-rate mortgage backed security is acquired
        with
        borrowings, Opteum may, but is not required to, enter into interest rate
        cap
        contracts or forward funding agreements that effectively cap or fix its
        borrowing costs for a period close to the anticipated average life of the
        fixed-rate portion of the related mortgage backed security. This strategy
        is
        designed to protect Opteum from rising interest rates because the borrowing
        costs are fixed for the duration of the fixed-rate portion of the related
        mortgage backed security. However, if prepayment rates decrease in a rising
        interest rate environment, the life of the fixed-rate portion of the related
        mortgage backed security could extend beyond the term of the swap agreement
        or
        other hedging instrument. This situation could negatively impact Opteum as
        borrowing costs would no longer be fixed after the end of the hedging
        instrument, while the income earned on the fixed-rate or hybrid adjustable-rate
        mortgage backed security would remain fixed. This situation may also cause
        the
        market value of Opteum's fixed-rate and hybrid adjustable-rate mortgage backed
        securities to decline with little or no offsetting gain from the related
        hedging
        transactions. In extreme situations, Opteum may be forced to sell assets
        and
        incur losses to maintain adequate liquidity.
 
 **Adjustable-Rate
        and Hybrid Adjustable-Rate Mortgage Backed Security Interest Rate Cap
        Risk**
 
 Opteum
        also invests in adjustable-rate and hybrid adjustable-rate mortgage backed
        securities, which are based on mortgages that are typically subject to periodic
        and lifetime interest rate caps and floors, which limit the amount by which
        an
        adjustable-rate or hybrid adjustable-rate mortgage backed security's interest
        yield may change during any given period. However, Opteum's borrowing costs
        pursuant to its repurchase agreements will not be subject to similar
        restrictions. Hence, in a period of increasing interest rates, interest rate
        costs on Opteum's borrowings could increase without limitation by caps, while
        the interest-rate yields on Opteum's adjustable-rate and hybrid adjustable-rate
        mortgage backed securities would effectively be limited by caps. This problem
        will be magnified to the extent Opteum acquires adjustable-rate and hybrid
        adjustable-rate mortgage backed securities that are not based on mortgages
        which
        are fully indexed. Further, the underlying mortgages may be subject to periodic
        payment caps that result in some portion of the interest being deferred and
        added to the principal outstanding. This could result in Opteum's receipt
        of
        less cash income on its adjustable-rate and hybrid adjustable-rate mortgage
        backed securities than it needs in order to pay the interest cost on its
        related
        borrowings. These factors could lower Opteum's net interest income or cause
        a
        net loss during periods of rising interest rates, which would negatively
        impact
        Opteum's financial condition, cash flows and results of operations.
 
 **Interest
        Rate Mismatch Risk**
 
 Opteum
        intends to fund a substantial portion of its acquisitions of adjustable-rate
        and
        hybrid adjustable-rate mortgage backed securities with borrowings that have
        interest rates based on indices and repricing terms similar to, but of somewhat
        shorter maturities than, the interest rate indices and repricing terms of
        the
        mortgage related securities it is financing. Thus, Opteum anticipates that
        in
        most cases the interest rate indices and repricing terms of its mortgage
        related
        securities and its funding sources will not be identical, thereby creating
        an
        interest rate mismatch between assets and liabilities. Therefore, Opteum's
        cost
        of funds would likely rise or fall more quickly than would its earnings rate
        on
        assets. During periods of changing interest rates, such interest rate mismatches
        could negatively impact Opteum's financial condition, cash flows and results
        of
        operations.
 
 **Prepayment
        Risk**
 
 Prepayment
        rates for existing mortgage related securities generally increase when
        prevailing interest rates fall below the market rate existing when the
        underlying mortgages were originated. In addition, prepayment rates on
        adjustable-rate and hybrid adjustable-rate mortgage backed securities generally
        increase when the difference between long-term and short-term interest rates
        declines or becomes negative. Prepayments of mortgage related securities
        could
        harm Opteum's results of operations in several ways. Some adjustable-rate
        mortgages underlying Opteum's adjustable-rate mortgage backed securities
        may
        bear initial "teaser" interest rates that are lower than their "fully-indexed"
        rates, which refer to the applicable index rates plus a margin. In the event
        that such an adjustable-rate mortgage is prepaid prior to or soon after the
        time
        of adjustment to a fully-indexed rate, the holder of the related mortgage
        backed
        security would have held such security while it was less profitable and lost
        the
        opportunity to receive interest at the fully-indexed rate over the expected
        life
        of the adjustable-rate mortgage backed security. Opteum currently owns mortgage
        related securities that were purchased at a premium. The prepayment of such
        mortgage related securities at a rate faster than anticipated would result
        in a
        write-off of any remaining capitalized premium amount and a consequent reduction
        of Opteum's net interest income by such amount. Finally, in the event that
        Opteum is unable to acquire new mortgage related securities to replace the
        prepaid mortgage related securities, its financial condition, cash flow and
        results of operations could be harmed.
 
 **Effect
        on Fair Value**
 
 Another
        component of interest rate risk is the effect changes in interest rates will
        have on the market value of Opteum's assets. Opteum faces the risk that the
        market value of its assets will increase or decrease at different rates than
        that of its liabilities, including its hedging instruments.
 
 Opteum
        primarily assesses its interest rate risk by estimating the duration of its
        assets and the duration of its liabilities. Duration essentially measures
        the
        market price volatility of financial instruments as interest rates change.
        Opteum generally calculates duration using various financial models and
        empirical data, and different models and methodologies can produce different
        duration numbers for the same securities.
 
 The
        following sensitivity analysis table shows the estimated impact on the fair
        value of Opteum's interest rate-sensitive investments at March 31, 2006,
        assuming rates instantaneously fall 100 basis points, rise 100 basis points
        and
        rise 200 basis points:
 
 **Interest
                  Rates Fall**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **200
                  Basis Points****Adjustable-Rate
                  Mortgage backed securities**(Fair
                  Value$2,005,867,897)Change
                  in fair value
              $
              16,166,632
              $
              (16,166,632)
              $
              (32,333,265)Change
                  as a percent of fair value
              
              0.81%
              
              (0.81)%
              
              (1.61)%**Fixed-Rate
                  Mortgage backed securities**(Fair
                  Value$715,618,090)Change
                  in fair value
              $
              20,237,576
              $
              (20,237,576)
              $
              (40,475,152)Change
                  as a percent of fair value
              
              2.83%
              
              (2.83)%
              
              (5.66)%**Hybrid
                  Adjustable-Rate Mortgage backed securities**(Fair
                  Value $770,860,599)Change
                  in fair value
              $
              18,999,423
              $
              (18,999,423)
              $
              (37,998,847)Change
                  as a percent of fair value
              
              2.46%
              
              (2.46)%
              
              (4.93)%**Balloon
                  Maturity Mortgage backed securities**(Fair
                  Value $46,207,624)Change
                  in fair value
              $
              1,014,616
              $
              (1,014,616)
              $
              (2,029,231)Change
                  as a percent of fair value
              
              2.20%
              
              (2.20)%
              
              (4.39)%**Cash**(Fair
                  Value $90,872,039)**Portfolio
                  Total**(Fair
                  Value $3,538,554,210)Change
                  in fair value
              $
              56,418,247
              $
              (56,418,247)
              $
              (112,836,495)Change
                  as a percent of fair value
              
              1.59%
              
              (1.59)%
              
              (3.19)%
  The
        table
        below reflects the same analysis presented above but with the figures in
        the
        columns that indicate the estimated impact of a 100 basis point fall or rise
        adjusted to reflect the impact of convexity.
 
 **Interest
                  Rates Fall**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **100
                  Basis Points**
              
              **Interest
                  Rates Rise**
                **200
                  Basis Points****Adjustable-Rate
                  Mortgage backed securities**(Fair
                  Value $2,005,867,897)Change
                  in fair value
              $
              11,147,725
              $
              (20,442,648)
              $
              (48,982,325)Change
                  as a percent of fair value
              
              0.56%
              
              (1.02)%
              
              (2.44)%**Fixed-Rate
                  Mortgage backed securities**(Fair
                  Value $715,618,090)Change
                  in fair value
              $
              15,462,859
              $
              (23,956,489)
              $
              (50,974,089)Change
                  as a percent of fair value
              
              2.16%
              
              (3.35%)
              
              (7.12)%**Hybrid
                  Adjustable-Rate Mortgage backed securities**(Fair
                  Value $770,860,599)Change
                  in fair value
              $
              16,355,201
              $
              (21,085,397)
              $
              (45,187,504)Change
                  as a percent of fair value
              
              2.12%
              
              (2.74)%
              
              (5.86)%**Balloon
                  Maturity Mortgage backed securities**(Fair
                  Value $46,207,624)Change
                  in fair value
              $
              959,434
              $
              (1,033,681)
              $
              (2,067,301)Change
                  as a percent of fair value
              
              2.08%
              
              (2.24%)
              
              (4.47%)**Cash**(Fair
                  Value $90,872,039)**Portfolio
                  Total**(Fair
                  Value $3,538,554,210)Change
                  in fair value
              $
              43,925,219
              $
              (66,518,215)
              $
              (147,211,219)Change
                  as a percent of fair value
              
              1.24%
              
              (1.88)%
              
              (4.16)%
 
 In
        addition to changes in interest rates, other factors impact the fair value
        of
        Opteum's interest rate-sensitive investments and hedging instruments, such
        as
        the shape of the yield curve, market expectations as to future interest rate
        changes and other market conditions. Accordingly, in the event of changes
        in
        actual interest rates, the change in the fair value of Opteum's assets would
        likely differ from that shown above and such difference might be material
        and
        adverse to Opteum's stockholders.
 
 Opteum's
        liabilities, consisting primarily of repurchase agreements, are also affected
        by
        changes in interest rates. As rates rise, the value of the underlying asset,
        or
        the collateral, declines. In certain circumstances, Opteum could be required
        to
        post additional collateral in order to maintain the repurchase agreement
        position. Opteum maintains a substantial cash position, as well as unpledged
        assets, to cover these types of situations. As an example, if interest rates
        increased 200 basis points, as shown on the prior table, Opteum's collateral
        as
        of March 31, 2006 would decline in value by approximately
        $147.2 million.
 
 **Opteum
        Financial Services**
 
 Risks
        associated with OFS’s mortgage origination business:
 
 OFS
        may
        face loss exposure due to fraudulent and negligent acts on the part of loan
        applicants, employees, mortgage brokers and other third parties. When OFS
        originates or purchases mortgage loans, OFS relies heavily upon information
        provided to them by third parties, including information relating to the
        loan
        application, property appraisal, title information and employment and income
        documentation. If any of this information is fraudulently or negligently
        misrepresented to OFS and such misrepresentation is not detected by OFS prior
        to
        loan funding, the value of the loan may be significantly lower than OFS
        expected. Whether a misrepresentation is made by the loan applicant, the
        loan
        broker, one of OFS’s employees, or any other third party, OFS will generally
        bear the risk of loss associated with it.
  OFS’s
        failure to comply with federal, state or local regulation of, or licensing
        requirements with respect to, mortgage lending, loan servicing, broker
        compensation programs, local branch operations or other aspects of OFS’s
        business could harm OFS’s operations and profitability. As a mortgage lender,
        loan servicer and broker, OFS is subject to an extensive body of both state
        and
        federal law. The volume of new or modified laws and regulations has increased
        in
        recent years and, in addition, some individual municipalities have begun
        to
        enact laws that restrict loan origination and servicing activities. As a
        result,
        it may be more difficult to comprehensively identify and accurately interpret
        all of these laws and regulations and to properly program OFS’s technology
        systems and effectively train OFS’s associates, thereby potentially increasing
        OFS’s exposure to the risks of noncompliance with these laws and
        regulations.
 
 OFS’s
        failure to comply with these laws can lead to:
  §
            civil
                and criminal liability; 
 §
            loss
                of licensure; 
 §
            damage
                to reputation in the industry; 
 §
            inability
                to sell or securitize loans; 
 §
            demands
                for indemnification or loan repurchases from purchasers of OFS’s
                loans; 
 §
            fines
                and penalties and litigation, including class action lawsuits;
                or 
 §
            administrative
                enforcement actions. 
 
 OFS’s
        business could be adversely affected if OFS experienced an interruption in
        or
        breach of its communication or information systems or if OFS were unable
        to
        safeguard the security and privacy of the personal financial information
        OFS
        receives. OFS relies heavily upon communications and information systems
        to
        conduct it business. Any material interruption or breach in security of OFS’s
        communication or information systems or the third-party systems on which
        OFS
        relies could cause delays in rendering an underwriting decision or other
        delays
        and could result in fewer loan applications being received, applications
        not
        closing, slower processing of applications and reduced efficiency in loan
        servicing. Additionally, in connection with OFS’s loan file due diligence
        reviews, OFS has access to the personal financial information of the borrowers
        which is highly sensitive and confidential, and subject to significant federal
        and state regulation. If a third party were to misappropriate this information,
        OFS potentially could be subject to both private and public legal actions.
        Although OFS has policies and procedures designed to safeguard confidential
        information, OFS can provide no assurance that these policies and safeguards
        are
        sufficient to prevent the misappropriation of confidential information, that
        the
        policies and safeguards will be deemed compliant with any existing federal
        or
        state laws or regulations governing privacy, or with those laws or regulations
        that may be adopted in the future. Also, in selling its loans OFS must ship
        these files containing borrower’s confidential information. While in transit,
        the files may be out of the control of OFS’s safeguarding measures. OFS can
        still be held liable for access to this information while in
        transit.
  Failure
        to renew or obtain adequate funding under warehouse repurchase agreements
        may
        harm OFS’s lending operations. OFS is currently dependent upon a number of
        credit facilities for funding of its mortgage loan originations and
        acquisitions. Any failure to renew or obtain adequate funding under these
        financing arrangements for any reason, including OFS’s inability to meet the
        covenants contained in such arrangements, could harm its lending operations
        and
        its overall performance.
  OFS
        has
        credit exposure to representation and warranties with respect to loans OFS
        sells
        to the whole loan market. OFS has potential credit and liquidity exposure
        for
        loans that are the subject of fraud, irregularities in their loan files or
        process, or that result in OFS’s breaching the representations and warranties in
        the contract of sale. In addition, when OFS sells loans to the whole loan
        market
        OFS has exposure for loans that default, within certain timeframes. In these
        cases, OFS may be obligated to repurchase loans at principal value plus accrued
        interest and a pro-rata amount on any premium paid and any servicing released
        premium along with any escrow shortage and out of pockets that the buyer
        may
        have incurred, which could result in a significant decline in OFS’s available
        cash. When OFS purchases loans from a third party, through OFS’s Conduit
        division, that OFS sells into the whole loan market or to a securitization
        trust, OFS obtains representations and warranties from the counter-parties
        that
        sold the loans to OFS that generally parallel the representations and warranties
        OFS provides to OFS’s purchasers. As a result, OFS believes they have the
        potential for recourse against the seller of the loans. However, if the
        representations and warranties are not parallel, or if the original seller
        is
        not in a financial position to be able to repurchase the loan, OFS may have
        to
        use cash resources to repurchase loans which could adversely affect OFS’s
        liquidity.
 
 **Risks
        associated with movements in interest rates:**
  Changes
        in interest rates may harm OFS’s results of operations. OFS’s results of
        operations are likely to be harmed during any period of unexpected or rapid
        changes in interest rates. Interest rate changes could affect OFS in the
        following ways:
  §
            a
                substantial or sustained increase in interest rates could harm OFS’s
                ability to originate or acquire mortgage loans in expected volumes,
                which
                could result in a decrease in OFS’s cash flow and in OFS’s ability to
                support OFS’s fixed overhead expense
                levels; 
 §
            interest
                rate fluctuations may harm OFS’s earnings as a result of potential changes
                in the spread between the interest rates on OFS’s borrowings and the
                interest rates on OFS’s mortgage assets; 
 §
            mortgage
                prepayment rates vary depending on such factors as mortgage interest
                rates
                and market conditions, and changes in anticipated prepayment rates
                may
                harm OFS’s earnings; and 
 §
            when
                OFS securitizes loans, the value of the residual interests OFS retains
                and
                the income OFS receives from them are based primarily on LIBOR, and
                an
                increase in LIBOR reduces the net income OFS receives from, and the
                value
                of, these residual interests.  Hedging
        against interest rate exposure may adversely affect OFS’s earnings, which could
        adversely affect cash available for distribution to Opteum’s stockholders. OFS
        may enter into interest rate swap agreements or pursue other interest rate
        hedging strategies.
  OFS’s
        hedging activity will vary in scope based on interest rates, the type of
        mortgage assets held, and other changing market conditions. Interest rate
        hedging may fail to protect or could adversely affect OFS because, among
        other
        things:
  §
            interest
                rate hedging can be expensive, particularly during periods of rising
                and
                volatile interest rates; 
 §
            hedging
                instruments involve risk because they often are not traded on regulated
                exchanges, guaranteed by an exchange or its clearing house, or regulated
                by any U.S. or foreign governmental authorities; consequently, there
                are
                no requirements with respect to record keeping, financial responsibility
                or segregation of customer funds and positions, and the enforceability
                of
                agreements underlying derivative transactions may depend on compliance
                with applicable statutory, commodity and other regulatory
                requirements; 
 §
            available
                interest rate hedging may not correspond directly with the interest
                rate
                risk for which protection is sought; 
 §
            the
                duration of the hedge may not match the duration of the related liability
                or asset; 
 §
            the
                credit quality of the party owing money on the hedge may be downgraded
                to
                such an extent that it impairs OFS’s ability to sell or assign OFS’s side
                of the hedging transaction; 
 §
            the
                party owing money in the hedging transaction may default on its obligation
                to pay, and a default by a party with whom OFS enters into a hedging
                transaction may result in the loss of unrealized profits;
                and 
 §
            OFS
                may not be able to dispose of or close out a hedging position without
                the
                consent of the hedging counter-party, and OFS may not be able to
                enter
                into an offsetting contract in order to cover OFS’s
                risks.  When
        interest rates rise, loans held for sale and any applications in process
        with
        locked-in rates decrease in value. To preserve the value of such fixed-rate
        loans or applications in process with locked-in rates, agreements are executed
        for mandatory loan sales to be settled at future dates with fixed prices.
        These
        sales take the form of forward sales of mortgage backed securities.
 
 When
        interest rates decline, fallout may occur as a result of customers withdrawing
        their applications. In such instances, OFS may be required to purchase back
        these mandatory delivery agreements at current market prices, possibly incurring
        losses upon settlement. OFS uses an interest rate hedging program to manage
        these risks. Through this program, mortgage backed securities are purchased
        and
        sold forward or options are acquired on treasury futures contracts.
 
 Movements
        in interest rates also impact the value of MSRs. When interest rates decline,
        the loans underlying the MSRs are generally expected to prepay faster, which
        reduces the market value of the MSRs. OFS considers the expected increase
        in
        loan origination volumes and the resulting additional origination related
        income
        as a natural hedge against the expected change in the value of MSRs. Lower
        mortgage rates generally reduce the fair value of the MSRs, as increased
        prepayment speeds are highly correlated with lower levels of mortgage interest
        rates.
 
 **Risks
        associated with OFS’s securitization strategy:**
 
 An
        interruption or reduction in the securitization market or change in terms
        offered by this market would hurt OFS’s financial position. OFS is dependent on
        the securitization market for the sale of OFS’s loans and the securitization
        market is dependent upon a number of factors, including general economic
        conditions, conditions in the securities market generally and in the
        asset-backed securities market specifically. Similarly, poor performance
        of
        OFS’s previously securitized loans could harm OFS’s access to the securitization
        market.
 
 Competition
        in the securitization market may negatively affect OFS’s net income. Competition
        in the business of sponsoring securitizations of the type OFS focuses on
        is
        increasing as Wall Street broker-dealers, other mortgage REITs, investment
        management companies, and other financial institutions expand their activities
        or enter this field. Increased competition could reduce OFS’s securitization
        margins if OFS has to pay a higher price for the long-term funding of these
        assets. To the extent that OFS’s securitization margins erode, OFS’s results of
        operations will be negatively impacted.
 
 **Risks
        associated with OFS’s retained interests in residuals and mortgage servicing
        rights:**
 
 Geographic
        concentration of mortgage loans OFS originates or purchases increases OFS’s
        exposure to risks in those areas, especially in California, Georgia and Florida.
        Over-concentration of loans OFS originates or purchases in any one geographic
        area increases OFS’s exposure to the economic and natural hazard risks
        associated with that area.
  A
        prolonged economic slowdown or a decline in the real estate market could
        harm
        OFS’s results of operations. A substantial portion of OFS’s mortgage assets
        consist of single-family mortgage loans or mortgage
        securities—available-for-sale evidencing interests in single-family mortgage
        loans. Any sustained period of increased delinquencies, foreclosures or losses
        could harm OFS’s ability to sell loans, the prices OFS receives for OFS’s loans,
        the values of OFS’s mortgage loans held for sale or OFS’s residual interests in
        securitizations.
  Current
        loan performance data may not be indicative of future results. When valuing
        OFS’s retained interests in securitizations or mortgage servicing rights OFS
        uses projections, estimates and assumptions based on OFS’s experience with
        mortgage loans. Actual results and the timing of certain events could differ
        materially in adverse ways from those projected, due to factors including
        changes in general economic conditions, fluctuations in interest rates,
        fluctuations in mortgage loan prepayment rates and fluctuations in losses
        due to
        defaults on mortgage loans.
 
 The
        value
        of the retained interests in residuals and mortgage servicing rights are
        both
        sensitive to movements in interest rates, prepayment rates, the credit
        performance of the underlying loans, and market conventions regarding discount
        rates used to value such assets. The tables below provide results of sensitivity
        analysis performed on the valuation of retained interests in residuals and
        mortgage servicing rights. In each case, the underlying assumptions used
        by OFS
        to value these assets have been stressed to gauge the impact on carrying
        value.
 
 At
        March
        31, 2006 and December 31, 2005 key economic assumptions and the sensitivity
        of
        the current fair value of residual cash flows to the immediate 10% and 20%
        adverse change in those assumptions are as follows:
 
 At
                  March 31, 2006
              At
                  December 31, 2005Balance
                  Sheet Carrying value of retained interests - fair value
              $
              105,196,205
              98,010,592Weighted
                  average life (in years)
              
              3.81
              2.62Prepayment
                  assumption (annual rate)
              
              36.99%
              32.53%Impact
                  on fair value of 10% adverse change
              $
              (10,788,268)
              (7,817,000)Impact
                  on fair value of 20% adverse change
              $
              (19,670,422)
              (16,089,000)Expected
                  Credit losses (annual rate)
              
              0.545%
              0.607%Impact
                  on fair value of 10% adverse change
              $
              (3,859,312)
              (3,247,000)Impact
                  on fair value of 20% adverse change
              $
              (7,078,785)
              (6,419,000)Residual
                  Cash-Flow Discount Rate
              
              13.99%
              13.96%Impact
                  on fair value of 10% adverse change
              $
              (5,761,154)
              (3,804,000)Impact
                  on fair value of 20% adverse change
              $
              (11,014,808)
              (7,392,000)Interest
                  rates on variable and adjustable loans and bonds
              
              Forward
                  LIBOR Yield Curve
              Forward
                  LIBOR Yield CurveImpact
                  on fair value of 10% adverse change
              $
              (31,560,231)
              (21,265,000)Impact
                  on fair value of 20% adverse change
              $
              (58,145,201)
              (34,365,000)
 
 Key
        economic assumptions used in measuring the fair value of retained interests
        at
        the date of securitization resulting from securitizations completed during
        2005
        and 2006 are listed below. Subsequent to the acquisition of OFS management
        has
        assessed all assumptions used in the valuation of retained interests. As
        part of
        our effort to hedge our retained interest positions, certain of these
        assumptions have been adjusted to make them consistent with the assumptions
        underlying our hedging strategies.
 
 **2006**
              **2005**Prepayment
                  speeds (CPR)
              39.63%
              28.65%Weighted-average-life
              4.810
              2.830Expected
                  credit losses
              0.640%
              1.069%Discount
                  rates
              16.710%
              14.896%Interest
                  rates
              Forward
                  LIBOR Yield curve
              Forward
                  LIBOR Yield curve
 
 
 **ITEM
        4.**  **Controls
        And Procedures.**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 The
        Company maintains disclosure controls and procedures that are designed to
        ensure
        that information required to be disclosed in the Company’s Exchange Act reports
        is recorded, processed, summarized and reported within the time periods
        specified in the SEC’s rules and forms, and that such information is
        accumulated and communicated to the Company’s management, including its Chief
        Executive Officer and Chief Financial Officer, as appropriate, to allow timely
        decisions regarding required disclosure based closely on the definition of
        “disclosure controls and procedures” in Rule 13a-15(e). In designing and
        evaluating the disclosure controls and procedures, management recognized
        that
        any controls and procedures, no matter how well designed and operated, can
        provide only reasonable assurance of achieving the desired control objectives,
        and management necessarily was required to apply its judgment in evaluating
        the
        cost-benefit relationship of possible controls and procedures.
 
 As
        of the
        end of the period covered by this report, the Company carried out an evaluation,
        under the supervision and with the participation of the Company’s management,
        including the Company’s Chief Executive Officer and the Company’s Chief
        Financial Officer, of the effectiveness of the design and operation of the
        Company’s disclosure controls and procedures. Based on the foregoing, the
        Company’s Chief Executive Officer and Chief Financial Officer concluded that the
        Company’s disclosure controls and procedures were effective.
 
 **Changes
        in Internal Controls over Financial Reporting**
 
 There
        have been no changes in the Company’s internal controls over financial reporting
        identified in connection with the calculation of such internal controls that
        occurred during the Company’s last fiscal year or in other factors that could
        have materially affected, or are reasonably likely to materially affect the
        Company’s internal controls subsequent to the date the Company completed its
        evaluation.
  **PART
        II.**
 
 **OTHER
        INFORMATION.**
 
 **ITEM
        1. Legal Proceedings.**
 
 OFS
        is
        involved in ordinary routine litigation incidental to the business. Although
        the
        amount of any ultimate liability arising from these matters cannot presently
        be
        determined, OFS does not anticipate that any such liability will have a material
        effect on the Company’s consolidated financial position or results of
        operations.
 
 Opteum
        is
        not involved in any legal proceedings.
 
 **ITEM
        1A. RISK FACTORS.**
 
 None.
 
 **ITEM
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds.**
 
 **ISSUER
        PURCHASES OF EQUITY SECURITIES**
 **Period**
              **(a)
                  Total Number of Shares (or Units) Purchased**
              **(b)
                  Average Price Paid per Share (or Unit)**
              **(c)
                  Total Number of Shares (or Units) Purchased as Part of Publicly
                  Announced
                  Plans or Programs**
              **(d)
                  Maximum Number (or Approximate Dollar Value) of Shares (or Units)
                  that May
                  Yet Be Purchased Under the Plans or Programs**Month#1
                (1/1/06-1/31/06)
              -
              -
              -
              1,238,200Month#2
                (2/01/06-2-28-06)
              138,500
              8.85
              700,300
              1,099,700Month#3
                  (3/01/06-3/31/06)
              388,800
              8.21
              1,089,100
              710,900Total
              527,300
              8.38
  
 Notes:
 ·
            The
                intention to acquire shares of its Class A common stock in the open
                market
                was authorized by the Company’s Board of Directors and announced October
                7, 2005. ·
            The
                share by-back program authorizes management to acquire up to 1,800,000
                shares of the Company’s Class A Common Stock and will be in effect for a
                period of one year.  **ITEM
        3. Defaults Upon Senior Securities.**
 
 None.
 
 **ITEM
        4. Submission of Matters to a Vote of Security Holders.**
 
 The
        Annual Meeting of Shareholders of the Company was held on April 28,
        2006.
 
 1. *Election
        of Directors.* At
        the meeting, Jason Kaplan was elected for the term expiring in 2007, Peter
        R. Norden was elected for the term expiring in 2008, and Maureen A.
        Hendricks and Jeffrey J.  Zimmer were re-elected for terms expiring in
        2009. For each nominee, the number of votes cast for and withheld were as
        follows:
 
 **NOMINEE**
              
              **FOR**
              
              **WITHHELD**Jason
                  Kaplan
              
              20,397,082
              
              1,903,185Peter
                  R. Norden
              
              20,370,492
              
              1,903,185Maureen
                  A. Hendricks
              
              20,387,997
              
              1,912,270Jeffrey
                  J. Zimmer
              
              20,363,840
              
              1,936,427
  The
        following directors continued in office after the meeting:
  Kevin
        L.
        Bespolka, W. Christopher Mortenson, Robert E. Cauley and Buford H.
        Ortale.
  2. *Ratification of Appointment of Independent Auditors* . 
        At the meeting, the selection of Ernst & Young LLP as the Company’s
        independent auditors for the year ending December 31, 2006 was ratified. 
The number of votes cast for and against the selection of the auditors and
        the
        number of abstentions were as follows:
 
 **FOR**
              
              **AGAINST**
              
              **ABSTAIN**21,677,556
              
              519,370
              
              103,341
 
 3. *Conversion
        Proposals* .
        At the
        meeting, (a) the conversion of 1,223,208 shares of the Company's Class A
        Redeemable Preferred Stock into shares of Class A Common Stock on a
        one-for-one basis and (b) the issuance of shares of Class A Common Stock in
        lieu of any shares of Class B Redeemable Preferred Stock which may be
        issuable by the Company under the terms of its agreement relating to the
        acquisition of OFS was authorized. The number of votes cast for and against
        the
        conversion proposals and the number of abstentions were as follows.
 
 **FOR**
              
              **AGAINST**
              
              **ABSTAIN**(a)
              15,269,107
              
              664,225
              
              205,807(b)
              11,442,580
              
              4,489,762
              
              206,797
 
 
 **ITEM
        5.**  **Other
        Information.**
 
 None.
  **ITEM
        6.**  **Exhibits.**
 
 2.1
              Agreement
                  of Plan of Merger,incorporated
                  by reference to the Company’s Form 8-K, dated September 29, 2005, filed
                  with the SEC on September 30, 20053.1
              Articles
                  of Amendment and Restatement, incorporated by reference to the
                  Company’s
                  Form S-11/A, filed with the SEC on April 29, 20043.2
              Articles
                  Supplementary, incorporated by reference to the Company’s Form 8-K, dated
                  November 3, 2005, filed with the SEC on November 8,
                  20053.3
              Articles
                  of Amendment, incorporated by reference to the Company’s Form 8-K, dated
                  February 10, 2006, filed with the SEC on February 15,
                  20063.4
              Amended
                  and Restated Bylaws, incorporated by reference to the Company’s Form
                  S-11/A, filed with the SEC on April 29, 20044.1
              Specimen
                  Common Stock Certificate filed herewith10.1
              2003
                  Long-Term Incentive Compensation Plan, incorporated by reference
                  to the
                  Company’s Form S-11/A, effective as of March 31, 2004, filed with the SEC
                  on May 26, 200410.2
              Employment
                  Agreement between Bimini Mortgage Management, Inc. and Jeffrey J.
                  Zimmer, incorporated by reference to the Company’s Form S-11/A, dated
                  April 12, 2004, filed with the SEC on April 29, 200410.3
              Employment
                  Agreement between Bimini Mortgage Management, Inc. and Robert E.
                  Cauley, incorporated by reference to the Company’s Form S-11/A, dated
                  April 12, 2004, filed with the SEC on April 29, 200410.4
              Employment
                  Agreement between Opteum Financial Services, LLC and Peter R.
                  Norden,
                  incorporated by reference to the Company’s Form 10-K, dated September 29,
                  2005, filed with the SEC on March 10, 200610.5
              Letter
                  Agreement, dated November 4, 2003 from AVM, L.P. to Bimini Mortgage
                  Management, Inc. with respect to consulting services to be provided
                  by AVM, L.P. and Letter Agreement, dated February 10, 2004 from AVM,
                  L.P. to Bimini Mortgage Management with respect to assignment of
                  AVM,
                  L.P.'s rights, interest and responsibilities to III Associates,
                  incorporated by reference to the Company’s Form S-11/A,filed
                  with the SEC on May 26, 200410.6
              Agency
                  Agreement, dated November 20, 2003 between AVM, L.P. and Bimini
                  Mortgage Management, Inc., incorporated by reference to the Company’s
                  Form S-11/A, dated November 20, 2003, filed with the SEC on May
                  26,
                  200410.7
              2004
                  Performance Bonus Plan, incorporated by reference to the Company’s Form
                  S-11/A, dated August 13, 2004, filed with the SEC on August 25,
                  200410.8
              Phantom
                  Share Award Agreement between Bimini Mortgage Management, Inc. and
                  Jeffrey J. Zimmer, incorporated by reference to the Company’s Form S-11/A,
                  dated August 13, 2004, filed with the SEC on August 25,
                  200410.9
              Phantom
                  Share Award Agreement between Bimini Mortgage Management, Inc. and
                  Robert E. Cauley, incorporated by reference to the Company’s Form S-11/A,
                  dated August 13, 2004, filed with the SEC on August 25,
                  200410.10
              Voting
                  Agreement, among certain stockholders of Bimini Mortgage Management,
                  Inc.,
                  Jeffrey J. Zimmer, Robert E. Cauley, Amber K. Luedke, George H.
                  Haas, IV,
                  Kevin L. Bespolka, Maureen A. Hendricks, W. Christopher Mortenson,
                  Buford
                  H. Ortale, Peter Norden, certain of Mr. Norden’s affiliates, Jason Kaplan,
                  certain of Mr. Kaplan’s affiliates and other former owners of Opteum
                  Financial Services, LLC, incorporated by reference to the Company’s
                  Schedule 13D, dated November 3, 2005, filed with the SEC on November
                  14,
                  200531.1
              Certification
                  of the Chief Executive Officer , pursuant to 18 U.S.C. Section 1350,
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                  filed herewith31.2
              Certification
                  of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
                  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                  filed herewith32.1
              Certification
                  of the Chief Executive Officer and Chief Financial Officer, pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002, filed
                  herewith
 
  
  
 **Signatures**
 
 Pursuant
        to the requirements of Section 13 or 15(d) the Securities Exchange Act of
        1934, as amended, the registrant has duly caused this report to be signed
        on its
        behalf by the undersigned, thereunto duly authorized.
 
 OPTEUM INC.Date:
                  May 8, 2006
              By:
              /s/
                  Robert E. Cauley
                Robert
                  E. Cauley
                Chief
                  Financial Officer, Chief Investment Office and
                  Secretary