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UNITEDSTATES SECURITIES AND EXCHANGECOMMISSION

Washington, D.C. 20549

FORM10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterlyperiod ended: June 30, 2005

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the transition periodfrom                  to                 

Commission File Number: 001-32213

MORTGAGEITHOLDINGS, INC.

(Exact name of registrant asspecified in itscharter)

|                                                             |  |                                    |  |  |  |  |
|-------------------------------------------------------------|--|------------------------------------|--|--|--|--|
| Maryland                                                    |  | 20-0404134                         |
| (Stateor other jurisdiction ofincorporation ororganization) |  | (IRS EmployerIdentificationNumber) |
|                                                        |  |                               |
| 33Maiden LaneNew York, NewYork                              |  | 10038                              |
| (Address of principal executiveoffices)                     |  | (ZipCode)                          |
|                                                             |

Registrant's telephone number,including area code:    **(212) 651-7700**

(Formername, former address and former fiscal year, if changed since lastreport)**Not applicable**

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports, and (2) has been subject to such filingrequirements for the past 90 days.

|     |
|-----|
|     |  |  |  |  |  |  |
| Yes |  | No |
|     |

Indicateby check mark whether the Registrant is an accelerated filer (asdefined in rule 12b-2 of the Securities Exchange Act of 1934)

|     |
|-----|
|     |  |  |  |  |  |  |
| Yes |  | No |
|     |

Indicatethe number of shares outstanding of each of the issuer's classesof common stock, as of the latest practicable date:

COMMONSTOCK, $0.01 PAR VALUE PER SHARE: 28,723,326 SHARES OUTSTANDING AS OFJULY  31, 2005.

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TABLE OFCONTENTS

|                           |  |                                                                                     |    |        |    |        |  |  |  |  |
|---------------------------|--|-------------------------------------------------------------------------------------|----|--------|----|--------|--|--|--|--|
| Forward-LookingStatements |  |                                                                                | 3  |   |
| PartI.                    |  | FinancialInformation                                                                |    |   | 5  |   |
| Item1.                    |  | FinancialStatements                                                                 |    |   | 5  |   |
|                      |  | ConsolidatedBalanceSheets                                                           |    |   | 5  |   |
|                      |  | ConsolidatedStatements of Operations(Unaudited)                                     |    |   | 6  |   |
|                      |  | ConsolidatedStatements of Comprehensive (Loss) Income(Unaudited)                    |    |   | 7  |   |
|                      |  | ConsolidatedStatements of Changes in Stockholders' Equity(Unaudited)                |    |   | 8  |   |
|                      |  | ConsolidatedStatements of Cash Flows(Unaudited)                                     |    |   | 9  |   |
|                      |  | Notesto Consolidated FinancialStatements                                            |    |   | 10 |   |
| Item2.                    |  | Management's Discussion and Analysis of FinancialCondition and Results ofOperations |    |   | 30 |   |
| Item3.                    |  | Quantitative and Qualitative Disclosures About MarketRisk                           |    |   | 50 |   |
| Item4.                    |  | Controls AndProcedures                                                              |    |   | 55 |   |
| PartII.                   |  | OtherInformation                                                                    |    |   | 56 |   |
| Item1.                    |  | LegalProceedings                                                                    |    |   | 56 |   |
| Item2.                    |  | Unregistered Sales of Equity Securities and Use ofProceeds                          |    |   | 56 |   |
| Item3.                    |  | Defaults Upon SeniorSecurities                                                      |    |   | 56 |   |
| Item4.                    |  | Submission of Matters to a Vote of SecurityHolders                                  |    |   | 56 |   |
| Item5.                    |  | OtherInformation                                                                    |    |   | 56 |   |
| Item6.                    |  | Exhibits                                                                            |    |   | 57 |   |
| Signatures                |  |                                                                                | 58 |   |
|                           |

2

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FORWARD-LOOKINGSTATEMENTS

The information contained in this quarterly reporton Form 10-Q is not a complete description of our business or the risksassociated with an investment in our Company. We urge you to carefullyreview and consider the various disclosures made by us in this reportand in our other filings with the Securities and Exchange Commission("SEC"), including our annual report on Form10-K, which discuss our business in greater detail.

This reportcontains certain "forward-looking statements"within the meaning of Section 27A of the Securities Act of 1933 andSection 21E of the Securities Exchange Act of 1934. Suchforward-looking statements relate to, among other things, the operatingperformance of our investments and financing needs. Forward-lookingstatements are generally identifiable by use of forward-lookingterminology such as "may,""will," "should,""potential,""intend," "expect,""endeavor," "seek,""anticipate,""estimate,""overestimate,""underestimate,""believe," "could,""should,""project,""predict,""continue," "aim,""strive," "likely,""seek" or other similar words or expressions.Forward-looking statements are based on certain assumptions, discussfuture expectations, describe future plans and strategies, containprojections of results of operations or of financial condition or stateother forward-looking information. Our ability to predict results orthe actual effect of future plans or strategies is inherentlyuncertain. Although we believe that the expectations reflected in suchforward-looking statements are based on reasonable assumptions, ouractual results and performance in the future could differ materiallyfrom forecasted results. Factors that could have a material adverseeffect on our financial condition or results of operations include, butare not limited to:

|              |                                                                                            |
|--------------|--------------------------------------------------------------------------------------------|
| •  | changes in economic conditionsgenerally and the real estate and bond markets specifically; |

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | our ability to originate a portfolio of high qualityprime adjustable-rate mortgage ("ARM") andhybrid ARM loans; |

|              |                                                                                                                            |
|--------------|----------------------------------------------------------------------------------------------------------------------------|
| •  | changes in interest rates and/orcredit spreads, as well as the success of our hedging strategy inrelation to such changes; |

|              |                                                                                             |
|--------------|---------------------------------------------------------------------------------------------|
| •  | the quality and size ofthe investment pipeline and the rate at which we can invest ourcash; |

|              |                                                      |
|--------------|------------------------------------------------------|
| •  | adverse federal and state legislation andregulation; |

|              |                                               |
|--------------|-----------------------------------------------|
| •  | our ability to consummate pendinginvestments; |

|              |                                                                                                                                            |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| •  | our need for a significant amount ofcapital to consummate future investments and the availability and costof capital for such investments; |

|              |                                                                                  |
|--------------|----------------------------------------------------------------------------------|
| •  | our ability tocompete effectively within the finance and real estate industries; |

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | our primary reliance, as a holding company, ondividends from our subsidiaries to meet debt service obligations; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | changes in our critical accounting policies; |

|              |                                                                            |
|--------------|----------------------------------------------------------------------------|
| •  | adverse results or resolutions of litigation,arbitration or investigation; |

|              |                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------|
| •  | our ability tomaintain an effective system of internal control over financialreporting and disclosure controls and procedures; |

|              |                                                                                                            |
|--------------|------------------------------------------------------------------------------------------------------------|
| •  | our use of information provided by customers andcounterparties, which may be incomplete or inaccurate; and |

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | other risks detailed from time to time in our SECreports. |

Readers are cautioned not to place unduereliance on any of these forward-looking statements, which reflect ourmanagement's views as of the date of this report. The factorsnoted above could cause our actual results to differ significantly fromthose contained in any forward-looking statement. For a discussion ofthe critical accounting policies that we currently believe areimportant to our business, see "Management'sDiscussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Policies andEstimates."

3

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Although we believe that the expectationsreflected in the forward-looking statements are reasonable, we cannotguarantee future results, levels of activity, performance orachievements. We are under no duty to update any of the forward-lookingstatements after the date of this report to conform these statements toactual results.

4

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

MortgageIT Holdings,Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS(Dollars inthousands)

|                                                                                                             |  |             |           |                 |  |        |           |         |  |  |
|-------------------------------------------------------------------------------------------------------------|--|-------------|-----------|-----------------|--|--------|-----------|---------|--|--|
|                                                                                                        |  | June30,2005 |           | December31,2004 |
|                                                                                                        |  | (Unaudited) |           |            |
| **ASSETS**                                                                                                  |  |        |      |            |  |   |      |    |
| Cashand cashequivalents                                                                                     |  | $           | 27,153    |            |  | $      | 70,224    |    |
| Restrictedcash                                                                                              |  |        | 2,336     |            |  |   | 1,679     |    |
| Marketablesecurities held tomaturity                                                                        |  |        | 3,686     |            |  |   | 7,546     |    |
| Portfolio ARMLoans                                                                                          |  |        |      |            |  |   |      |    |
| ARM loanscollateralizing debt obligations,net                                                               |  |        | 3,634,194 |            |  |   | 1,432,692 |    |
| ARMloans held for securitization,net                                                                        |  |        | 171,409   |            |  |   | 1,166,961 |    |
| TotalPortfolio ARMLoans                                                                                     |  |        | 3,805,603 |            |  |   | 2,599,653 |    |
| Mortgageloans held forsale                                                                                  |  |        | 2,385,430 |            |  |   | 784,592   |    |
| Hedginginstruments                                                                                          |  |        | 35,186    |            |  |   | 19,526    |    |
| Due fromunderwriters                                                                                        |  |        | 126,169   |            |  |   | —   |    |
| Accountsreceivable, net ofallowance                                                                         |  |        | 51,322    |            |  |   | 28,731    |    |
| Prepaids andotherassets                                                                                     |  |        | 8,765     |            |  |   | 7,803     |    |
| Goodwill                                                                                                    |  |        | 11,639    |            |  |   | 11,639    |    |
| Propertyand equipment,net                                                                                   |  |        | 6,303     |            |  |   | 5,567     |    |
| **Totalassets**                                                                                             |  | $           | 6,463,592 |            |  | $      | 3,536,960 |    |
| **LIABILITIESAND STOCKHOLDERS'EQUITY**                                                                      |  |        |      |            |  |   |      |    |
| Liabilities:                                                                                                |  |        |      |            |  |   |      |    |
| Collateralizeddebt obligations,net                                                                          |  | $           | 3,451,002 |            |  | $      | 1,328,096 |    |
| Warehouselinespayable                                                                                       |  |        | 2,428,044 |            |  |   | 1,869,385 |    |
| Repurchaseagreements                                                                                        |  |        | 82,149    |            |  |   | 67,674    |    |
| Hedginginstruments                                                                                          |  |        | 2,837     |            |  |   | 1,145     |    |
| Juniorsubordinateddebentures                                                                                |  |        | 77,324    |            |  |   | —   |    |
| Notespayable and otherdebt                                                                                  |  |        | 15,000    |            |  |   | 15,000    |    |
| Accounts payable,accrued expenses and otherliabilities                                                      |  |        | 93,361    |            |  |   | 63,993    |    |
| **Totalliabilities**                                                                                        |  |        | 6,149,717 |            |  |   | 3,345,293 |    |
| **STOCKHOLDERS'EQUITY:**                                                                                    |  |        |      |            |  |   |      |    |
| Common stock, $.01 parvalue: 125,000,000 shares authorized; 27,300,680 and 19,405,473 issuedand outstanding |  |        | 273       |            |  |   | 194       |    |
| Additionalpaid-incapital                                                                                    |  |        | 366,406   |            |  |   | 238,405   |    |
| Unearnedcompensation — restrictedstock                                                                |  |        | (7,213    | )          |  |   | (6,196    | )  |
| Accumulatedother comprehensiveloss                                                                          |  |        | (10,760   | )          |  |   | (387      | )  |
| Accumulateddeficit                                                                                          |  |        | (34,831   | )          |  |   | (40,349   | )  |
| **Totalstockholders'equity**                                                                                |  |        | 313,875   |            |  |   | 191,667   |    |
| **Totalliabilities and stockholders'equity**                                                                |  | $           | 6,463,592 |            |  | $      | 3,536,960 |    |
|                                                                                                             |

Theaccompanying notes are an integral part of the consolidated financialstatements.

5

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) (Dollars and shares in thousands, except per sharedata)

|                                                         |  |                           |         |                         |  |        |         |              |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------|--|---------------------------|---------|-------------------------|--|--------|---------|--------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                    |  | Threemonths endedJune 30, |         | Six months endedJune30, |
|                                                    |  | 2005                      |         | 2004                    |  | 2005   |         | 2004         |
|                                                    |  |                      |         | (Asrestated)            |  |   |         | (Asrestated) |
| **Revenues:**                                           |  |                      |    |                    |  |   |    |         |  |   |    |    |  |   |    |    |
| Gainon sale of mortgageloans                            |  | $                         | 46,985  |                    |  | $      | 20,875  |         |  | $      | 79,092  |    |  | $      | 35,229  |    |
| Brokeragerevenues                                       |  |                      | 6,275   |                    |  |   | 11,844  |         |  |   | 12,673  |    |  |   | 20,589  |    |
| Interestincome                                          |  |                      | 67,900  |                    |  |   | 6,291   |         |  |   | 121,652 |    |  |   | 11,608  |    |
| Interestexpense                                         |  |                      | (49,255 | )                  |  |   | (2,455  | )       |  |   | (80,741 | )  |  |   | (5,001  | )  |
| Netinterestincome                                       |  |                      | 18,645  |                    |  |   | 3,836   |         |  |   | 40,911  |    |  |   | 6,607   |    |
| Realizedand unrealized gain on hedginginstruments       |  |                      | 820     |                    |  |   | — |         |  |   | 9,742   |    |  |   | — |    |
| Other                                                   |  |                      | 243     |                    |  |   | 17      |         |  |   | 506     |    |  |   | 24      |    |
| **Totalrevenues**                                       |  |                      | 72,968  |                    |  |   | 36,572  |         |  |   | 142,924 |    |  |   | 62,449  |    |
| **Operatingexpenses:**                                  |  |                      |    |                    |  |   |    |         |  |   |    |    |  |   |    |    |
| Compensationand employeebenefits                        |  |                      | 32,225  |                    |  |   | 19,899  |         |  |   | 60,014  |    |  |   | 36,430  |    |
| Processingexpenses                                      |  |                      | 13,687  |                    |  |   | 6,341   |         |  |   | 24,050  |    |  |   | 9,787   |    |
| Generaland administrativeexpenses                       |  |                      | 6,187   |                    |  |   | 2,486   |         |  |   | 13,005  |    |  |   | 4,803   |    |
| Rent                                                    |  |                      | 2,282   |                    |  |   | 1,858   |         |  |   | 4,557   |    |  |   | 3,672   |    |
| Marketing,loan acquisition and businessdevelopment      |  |                      | 1,025   |                    |  |   | 1,175   |         |  |   | 1,920   |    |  |   | 2,225   |    |
| Professionalfees                                        |  |                      | 2,517   |                    |  |   | 472     |         |  |   | 4,827   |    |  |   | 1,059   |    |
| Depreciationandamortization                             |  |                      | 841     |                    |  |   | 644     |         |  |   | 1,637   |    |  |   | 1,270   |    |
| Totaloperatingexpenses                                  |  |                      | 58,764  |                    |  |   | 32,875  |         |  |   | 110,010 |    |  |   | 59,246  |    |
| **Incomebefore incometaxes**                            |  |                      | 14,204  |                    |  |   | 3,697   |         |  |   | 32,914  |    |  |   | 3,203   |    |
| **Incometaxes**                                         |  |                      | 5,784   |                    |  |   | 1,669   |         |  |   | 8,766   |    |  |   | 1,446   |    |
| **Netincome**                                           |  |                      | 8,420   |                    |  |   | 2,028   |         |  |   | 24,148  |    |  |   | 1,757   |    |
| **Dividendson convertible redeemable preferredstock**   |  |                      | — |                    |  |   | 1,699   |         |  |   | — |    |  |   | 3,360   |    |
| **Netincome (loss) attributable to commonstockholders** |  | $                         | 8,420   |                    |  | $      | 329     |         |  | $      | 24,148  |    |  | $      | (1,603  | )  |
| **Persharedata:**                                       |  |                      |    |                    |  |   |    |         |  |   |    |    |  |   |    |    |
| Basic                                                   |  | $                         | 0.43    |                    |  | $      | 0.64    |         |  | $      | 1.24    |    |  | $      | (3.09   | )  |
| Diluted                                                 |  | $                         | 0.42    |                    |  | $      | 0.41    |         |  | $      | 1.21    |    |  | $      | (3.09   | )  |
| Weightedaverage number of shares — basic(1)       |  |                      | 19,486  |                    |  |   | 518     |         |  |   | 19,446  |    |  |   | 518     |    |
| Weightedaverage number of shares — diluted(1)     |  |                      | 19,905  |                    |  |   | 4,917   |         |  |   | 19,900  |    |  |   | 518     |    |
|                                                         |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Reflects,on a retroactive basis, for all periods presented, the exchange ofapproximately 12.80 shares of MortgageIT, Inc. common stock for eachshare of MortgageIT Holdings, Inc. common stock and the retention andretirement of common shares pursuant to the reorganization ofMortgageIT, Inc. on August 4, 2004. |

The accompanyingnotes are an integral part of the consolidated financialstatements.

6

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MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATEDSTATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) (Dollars inthousands)

|                                                                |  |                           |         |                        |  |        |         |        |  |        |         |         |  |        |         |        |  |  |
|----------------------------------------------------------------|--|---------------------------|---------|------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                                           |  | Threemonthsended June 30, |         | Six monthsended June30 |
|                                                           |  | 2005                      |         | 2004                   |  | 2005   |         | 2004   |
| Netincome                                                      |  | $                         | 8,420   |                   |  | $      | 2,028   |   |  | $      | 24,148  |    |  | $      | 1,757   |   |
| Othercomprehensiveloss:                                        |  |                      |    |                   |  |   |    |   |  |   |    |    |  |   |    |   |
| Unrealizedloss on hedging instruments arising during theperiod |  |                      | (25,691 | )                 |  |   | — |   |  |   | (11,246 | )  |  |   | — |   |
| Reclassificationof losses included inincome                    |  |                      | 873     |                   |  |   | — |   |  |   | 873     |    |  |   | — |   |
| Netunrealized losses during theperiod                          |  |                      | (24,818 | )                 |  |   | — |   |  |   | (10,373 | )  |  |   | — |   |
| Comprehensive(loss)income                                      |  | $                         | (16,398 | )                 |  | $      | 2,028   |   |  | $      | 13,775  |    |  | $      | 1,757   |   |
|                                                                |

Theaccompanying notes are an integral part of the consolidated financialstatements.

7

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY (Unaudited)Six months ended June 30,2005 (Dollars and shares inthousands)

|                                                                   |  |              |         |                          |  |                    |         |                                  |  |                                   |         |                                   |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|-------------------------------------------------------------------|--|--------------|---------|--------------------------|--|--------------------|---------|----------------------------------|--|-----------------------------------|---------|-----------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                              |  | CapitalStock |         |                     |  |               |         |                             |  |                              |         |                              |
|                                                              |  | Common       |         | AdditionalPaid-InCapital |  | AccumulatedDeficit |         | UnamortizedCostofRestrictedStock |  | AccumulatedOtherComprehensiveLoss |         | TotalStockholders'Equity(Deficit) |
|                                                              |  | Shares       |         | Amount                   |  |
| Balanceat December  31,2004                                       |  |         | 19,405  |                     |  | $                  | 194     |                             |  | $                                 | 238,405 |                              |  | $      | (40,349 | )  |  | $      | (6,196  | )  |  | $      | (387    | )  |  | $      | 191,667 |    |
| Issuanceof common stock in connection with a public offering,net  |  |         | 7,289   |                     |  |               | 73      |                             |  |                              | 125,321 |                              |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 125,394 |    |
| Issuanceof commonstock                                            |  |         | — |                     |  |               | — |                             |  |                              | 4       |                              |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 4       |    |
| Restrictedstockgrant                                              |  |         | — |                     |  |               | — |                             |  |                              | 2,682   |                              |  |   | — |    |  |   | (2,682  | )  |  |   | — |    |  |   | — |    |
| Amortizationof the cost of restrictedstock                        |  |         | — |                     |  |               | — |                             |  |                              | — |                              |  |   | — |    |  |   | 1,665   |    |  |   | — |    |  |   | 1,665   |    |
| Issuanceof common stock in connection with restricted stockgrants |  |         | 606     |                     |  |               | 6       |                             |  |                              | (6      | )                            |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Othercomprehensiveloss                                            |  |         | — |                     |  |               | — |                             |  |                              | — |                              |  |   | — |    |  |   | — |    |  |   | (10,373 | )  |  |   | (10,373 | )  |
| Dividendsdeclaredon                                               |  |         |    |                     |  |               |    |                             |  |                              |    |                              |  |   |    |    |  |   |    |    |  |   |    |    |  |
| commonstock—                                                |  |         |    |                     |  |               |    |                             |  |                              |    |                              |  |   |    |    |  |   |    |    |  |   |    |    |  |
| $0.96pershare                                                     |  |         | — |                     |  |               | — |                             |  |                              | — |                              |  |   | (18,630 | )  |  |   | — |    |  |   | — |    |  |   | (18,630 | )  |
| Netincome                                                         |  |         | — |                     |  |               | — |                             |  |                              | — |                              |  |   | 24,148  |    |  |   | — |    |  |   | — |    |  |   | 24,148  |    |
| Balanceat June 30,2005                                            |  |         | 27,300  |                     |  | $                  | 273     |                             |  | $                                 | 366,406 |                              |  | $      | (34,831 | )  |  | $      | (7,213  | )  |  | $      | (10,760 | )  |  | $      | 313,875 |    |
|                                                                   |

Theaccompanying notes are an integral part of the consolidated financialstatements.

8

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(Dollars inthousands)

|                                                                               |  |                         |            |              |  |        |          |         |  |  |
|-------------------------------------------------------------------------------|--|-------------------------|------------|--------------|--|--------|----------|---------|--|--|
|                                                                          |  | Sixmonths ended June30, |
|                                                                          |  | 2005                    |            | 2004         |
|                                                                          |  |                    |            | (Asrestated) |
| **Cash flows from operatingactivities:**                                      |  |                    |       |         |  |   |     |    |
| Netincome                                                                     |  | $                       | 24,148     |         |  | $      | 1,757    |    |
| Adjustments toreconcile net income to net cash used in operatingactivities:   |  |                    |       |         |  |   |     |    |
| Depreciation andamortization                                                  |  |                    | 3,272      |         |  |   | 1,270    |    |
| Amortizationof restricted stockcosts                                          |  |                    | 1,665      |         |  |   | —  |    |
| Realized andunrealized gain on hedginginstruments                             |  |                    | (6,889     | )       |  |   | (2,439   | )  |
| Changesin operating assets:                                                   |  |                    |       |         |  |   |     |    |
| (Increase)decrease in restrictedcash                                          |  |                    | (656       | )       |  |   | 224      |    |
| Increase in mortgageloans held forsale                                        |  |                    | (1,600,838 | )       |  |   | (747,993 | )  |
| Increasein accountsreceivable                                                 |  |                    | (22,591    | )       |  |   | (8,292   | )  |
| Decrease(increase) in prepaids and otherassets                                |  |                    | 2,885      |         |  |   | (1,434   | )  |
| Changes inoperating liabilities:                                              |  |                    |       |         |  |   |     |    |
| Increase(decrease) in accounts payable, accrued expenses and otherliabilities |  |                    | 28,591     |         |  |   | (2,519   | )  |
| **Netcash used in operatingactivities**                                       |  |                    | (1,570,413 | )       |  |   | (759,426 | )  |
| **Cashflows from investingactivities:**                                       |  |                    |       |         |  |   |     |    |
| Increase inPortfolio ARMloans                                                 |  |                    | (1,205,950 | )       |  |   | —  |    |
| Purchasesof property andequipment                                             |  |                    | (2,373     | )       |  |   | (874     | )  |
| Proceedsfrom maturities of marketablesecurities                               |  |                    | 14,192     |         |  |   | 4,260    |    |
| Purchases ofmarketablesecurities                                              |  |                    | (10,332    | )       |  |   | (4,260   | )  |
| **Netcash used in investingactivities**                                       |  |                    | (1,204,463 | )       |  |   | (874     | )  |
| **Cashflows from financingactivities:**                                       |  |                    |       |         |  |   |     |    |
| Proceeds fromissuance of commonstock                                          |  |                    | 4          |         |  |   | —  |    |
| Net proceeds fromissuance of junior subordinateddebentures                    |  |                    | 72,618     |         |  |   | —  |    |
| Netproceeds from collateralized debtobligations                               |  |                    | 2,122,906  |         |  |   | —  |    |
| Netborrowings from repurchaseagreements                                       |  |                    | 14,475     |         |  |   | —  |    |
| Purchaseof interest rate cap and swapagreements                               |  |                    | (13,927    | )       |  |   | —  |    |
| Netpayments made on Eurodollarcontracts                                       |  |                    | (5,078     | )       |  |   | —  |    |
| Dividendand distributionpaid                                                  |  |                    | (17,852    | )       |  |   | —  |    |
| Proceeds fromnotes payable and otherdebt                                      |  |                    | —    |         |  |   | 15,000   |    |
| Repayment ofnotes payable and otherdebt                                       |  |                    | —    |         |  |   | (1,125   | )  |
| Net proceedsfrom warehouse linespayable                                       |  |                    | 558,659    |         |  |   | 730,515  |    |
| **Netcash provided by financingactivities**                                   |  |                    | 2,731,805  |         |  |   | 744,390  |    |
| **Netdecrease in cash and cashequivalents**                                   |  |                    | (43,071    | )       |  |   | (15,910  | )  |
| **Cashand cash equivalents at beginning ofperiod**                            |  |                    | 70,224     |         |  |   | 22,261   |    |
| **Cashand cash equivalents at end ofperiod**                                  |  | $                       | 27,153     |         |  | $      | 6,351    |    |
|                                                                               |

Theaccompanying notes are an integral part of the consolidated financialstatements.

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NOTESTO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—ORGANIZATIONAND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanyingunaudited consolidated financial statements have been prepared inaccordance with generally accepted accounting principles for interimfinancial information.

In the opinion of management, allmaterial adjustments, consisting of normal recurring adjustments,considered necessary for a fair presentation have been included. Theoperating results for the three and six months ended June 30, 2005 arenot necessarily indicative of the results that may be expected for theyear ending December 31, 2005. The interim financial information shouldbe read in conjunction with MortgageIT Holdings, Inc.'s 2004Annual Report on Form 10-K.

Basis of Presentation

MortgageIT Holdings, Inc. ("Holdings" orthe "Company") is a residential mortgagelender that was formed in March 2004 to continue and expand thebusiness of MortgageIT, Inc. ("MortgageIT" orthe "TRS"). Holdings is organized andconducts its operations to qualify as a REIT for federal income taxpurposes and is focused on earning net interest income from mortgageloans originated by its subsidiary, MortgageIT. Holdings' taxableREIT subsidiary, MortgageIT, was incorporated in New York on February1, 1999 and began marketing mortgage loan services on May 4, 1999.MortgageIT originates, sells and brokers residential mortgage loans in50 states and the District of Columbia, and is an approved U.S.Department of Housing and Urban Development("HUD") Title II Nonsupervised DelegatedMortgagee.

As discussed further in Note 10, the Company operatesits business in two primary segments, mortgage investment operationsand mortgage banking operations. Mortgage investment operations aredriven by the net interest income generated on our investment loanportfolio. Mortgage banking operations include loan origination,underwriting, funding, secondary marketing and loan brokerageactivities.

All shares of common stock and common stockequivalents have been retroactively restated, for all periodspresented, to reflect the exchange of approximately 12.80 shares ofMortgageIT common stock for each share of Holdings common stock and theretention and retirement of common stock pursuant to the reorganizationof MortgageIT on August 4, 2004.

The consolidated financialstatements included herein contain results for Holdings and its whollyowned subsidiary, MortgageIT and its wholly owned subsidiaries, IPISkyscraper Mortgage Corporation ("IPI") andHome Closer LLC ("Home Closer"), for theperiod from August 4, 2004 (the date REIT operations commenced) toDecember 31, 2004, and exclusively for MortgageIT and its wholly ownedsubsidiaries, IPI and Home Closer for the preceding periods. IPI, whichprovides residential mortgage banking and brokerage services in the NewYork, New Jersey and Connecticut tri-state area, was a wholly ownedsubsidiary of MortgageIT until it was merged with and into MortgageITeffective December 31, 2004. Home Closer provides title, settlement andother mortgage related services to the Company and its customers. Allmaterial intercompany account balances and transactions have beeneliminated in consolidation.

During the second quarter, theCompany formed two new subsidiaries, MHL Funding Corp., a qualifiedREIT subsidiary ("QRS"), which primarily willoriginate or acquire prime ARM loans, and Next at Bat Lending, Inc.("NB Lending"), which primarily willoriginate subprime mortgage loans. The QRS was formed to directlyoriginate or acquire prime ARM loans, thereby eliminating taxable gainson intercompany loan sales. In anticipation of receiving the necessarylicenses in the states in which the QRS intends to do business, it isexpected that the QRS will commence operations in the fourth quarter ofthis year. NB Lending was formed to consolidate the Company'ssubprime lending activities. In anticipation of receiving the necessarylicenses in the states in which NB Lending intends to do business, itis expected that NB Lending will commence operations in the firstquarter of 2006.

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Use of Estimates

The preparationof financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in thefinancial statements and the accompanying notes. Management bases itsestimates on certain assumptions, which it believes are reasonableunder the circumstances, and does not believe that any change in thoseassumptions would have a significant effect on the financial positionor results of operations of the Company. Actual results could differmaterially from those estimates.

Adjustable Rate Mortgage("ARM") Loan Investment Portfolio

TheCompany's ARM loan investment portfolio is comprised of ARM loanscollateralizing debt obligations and ARM loans held for securitization(collectively referred to as "Portfolio ARMLoans" or "ARM Loans"). All ofthe Company's Portfolio ARM Loans are either traditional ARMLoans, meaning they have interest rates that reprice in one year orless ("Traditional ARMs" or"Traditional ARM loans"), or hybrid ARM Loansthat have a fixed interest rate for an initial period of not more thanfive years and then convert to Traditional ARMs for their remainingterms to maturity ("Hybrid ARMs" or"Hybrid ARM loans").

Portfolio ARMLoans are designated as held to maturity because the Company has theintent and ability to hold them for the foreseeable future, and untilmaturity or payoff. Portfolio ARM Loans are carried at cost, whichincludes unpaid principal balances, net of unamortized loan originationcosts, fees and the allowance for loan losses.

ARM loanscollateralizing debt obligations are mortgage loans the Company hassecuritized into rated classes with the lower rated classes providingcredit support for higher rated certificates issued to third partyinvestors or retained by the Company in structured financingarrangements.

ARM loans held for securitization are mortgageloans the Company has originated and intends to securitize andretain.

The Company does not intend to sell any of thesecurities created from its securitizations to generate gain on saleincome. The loan securitization process benefits the Company bycreating highly liquid securitized assets that can be readily financedin the capital markets.

Mortgage Loans Held for Sale

Unallocated Mortgage Loans Held For Sale

Unallocatedmortgage loans held for sale represent hedged loans that have not yetbeen allocated to a forward sales contract. At June 30, 2005 andDecember 31, 2004, unallocated mortgage loans held for sale are carriedat market value. Determining market value requires judgment bymanagement in determining how the market would value a particularmortgage loan based on characteristics of the loan and available marketinformation.

Allocated Mortgage Loans Held For Sale

Allocated mortgage loans held for sale represent hedged loans thathave been allocated to a forward sales commitment. For the six monthsended June 30, 2005, the Company qualified and elected to applyFinancial Accounting Standards No. 133 "Accounting forDerivative Instruments and Hedging Activities"("SFAS No. 133") fair value hedge accountingfor allocated loans held for sale. At June 30, 2005, allocated mortgageloans held for sale are carried at market value. Determining marketvalue requires judgment by management in determining how the marketwould value a particular mortgage loan based on characteristics of theloan and available market information. At December 31, 2004, allocatedmortgage loans held for sale were carried at the lower of adjusted costor market value. Adjusted cost includes the loan principal amountoutstanding, net of deferred direct origination costs and fees.

Loan Securitizations

The Company securitizes mortgage loansby transferring them to independent trusts that issue securitiescollateralized by the transferred mortgage loans. The Company generallyretains interests in 

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all or some of the securities issued by thetrusts. Certain of the securitization agreements may require theCompany to repurchase loans that are found to have legal deficiencies,after the date of transfer. The accounting treatment for transfers ofassets upon securitization depends on whether or not the Company hasretained control over the transferred assets. The Company'saccounting policy for ARM loan securitizations complies with theprovisions of Statement of Financial Accounting Standards No.140 ("SFAS No. 140"),"Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities." Depending onthe structure of the securitization, the accounting for securitizationsis treated as either a sale or secured financing for financialstatement purposes. The securitization transactions in theCompany's mortgage investment operations segment are treated assecured financings under SFAS No. 140 as the Company has retainedcontrol over the transferred assets.

Derivative Instruments andHedging Activities

The Company manages its interest rate riskexposure through the use of derivatives, including interest rate swaps,Eurodollar futures, forwards and interest rate caps. In accordance withSFAS No. 133, all derivative instruments are recorded on the balancesheet at fair value.

If certain conditions are met, the Companymay designate a derivative as a fair value hedge (the hedge of theexposure to changes in the fair value of a recognized asset, liabilityor commitment), or a cash flow hedge (a hedge of the exposure tovariability in the cash flows related to a forecasted or recognizedliability).

Certain derivatives used in conjunction withinterest rate risk management activities qualify for hedge accountingunder SFAS No. 133. For derivative hedging activities to qualify forhedge accounting, the Company formally documents, at the inception ofeach hedge, the hedging relationship and its risk-management objectiveand strategy for undertaking the hedge, the hedging instrument, theitem or, the nature of the risk being hedged, how the hedginginstrument's effectiveness in offsetting the hedged risk will beassessed, and a description of the method of measuring ineffectiveness.The Company also formally assesses, both at the hedge's inceptionand on an ongoing basis, whether the derivatives that are used inhedging transactions are highly effective in offsetting changes in fairvalues or cash flows of hedged items.

The Company's fairvalue hedges are primarily for mortgage loans held for sale. Changes inthe fair value of a derivative that is highly effective and that isdesignated and qualifies as a fair value hedge, along with the changein fair value of the hedged asset, are recorded in earnings.Derivatives that are utilized as fair value hedges and that qualify forhedge accounting are carried at fair value with changes in valueincluded in gain on sale of mortgage loans in the accompanyingconsolidated statements of operations.

The Company's cashflow hedges, which are used for LIBOR based borrowings, have the effectof fixing the interest rate on LIBOR based liabilities in the eventthat LIBOR based funding costs change. Changes in the fair value of aderivative that is highly effective and that is designated andqualifies as a cash flow hedge are recorded in other comprehensive lossto the extent that the derivative is effective as a hedge, untilearnings are affected by the variability in cash flows of thedesignated hedged item. The ineffective portion of the change in fairvalue of a derivative instrument that qualifies as either a fair valuehedge or a cash flow hedge, and the change in value of a derivativeinstrument that does not qualify for hedge accounting, are reported inearnings.

The Company employs a number of risk managementmonitoring procedures that are designed to ensure that its hedgingarrangements are demonstrating, and are expected to continue todemonstrate, a high level of effectiveness. Hedge accounting isdiscontinued on a prospective basis if it is determined that thehedging relationship is no longer highly effective or expected to behighly effective in offsetting changes in fair value or cash flows ofthe hedged item. Additionally, the Company may elect, pursuant to SFASNo. 133, to re-designate a hedge relationship during an interim periodand re-designate upon the rebalancing of a hedge relationship.

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Interest Rate Lock Commitments

The Company's mortgage committed pipeline includes interestrate lock commitments ("IRLCs") that havebeen extended to borrowers who have applied for loan funding and meetcertain defined credit and underwriting criteria. The Companyclassifies and accounts for the IRLCs associated with loans expected tobe sold as free-standing derivatives. Accordingly, such IRLCs arerecorded at fair value with changes in fair value recorded to currentearnings.

Repurchase Agreements

Repurchase agreementsrepresent legal sales of the Company's mortgage assets and anagreement to repurchase the assets at a future date. Repurchaseagreements are accounted for as collateralized financing transactionssince the Company still has control of the transferred assets and isboth entitled and obligated to repurchase the transferred assets priorto maturity. They are carried at the amount at which the assets will berepurchased, including accrued interest.

Other ComprehensiveIncome

The Financial Accounting Standard Board's("FASB") SFAS No. 130,"Reporting Comprehensive Income," dividescomprehensive income into net income and other comprehensive income(loss), which includes unrealized gains and losses on derivativefinancial instruments that qualify for cash flow hedge accounting underSFAS No. 133.

Revenue Recognition

Mortgage InvestmentOperations

Interest income is accrued based on the outstandingprincipal amount and contractual terms of the loans. Direct loanorigination costs and fees associated with the loans are amortized intointerest income over the lives of the loans using the effective yieldmethod, adjusted for the effects of estimated prepayments. Estimatingprepayments and estimating the remaining lives of the loans requiresjudgment by management, which involves consideration of possible futureinterest rate environments. The actual lives could be more or less thanthe amount estimated by management.

Mortgage BankingOperations

Gain on sale of loans represents the differencebetween the net sales proceeds and the carrying values of the mortgageloans sold, and are recognized at the time of sale. Direct loanorigination costs and fees associated with the loans are initiallyrecorded as an adjustment of the cost of the loans held for sale andare recognized in earnings when the loans are sold.

Brokeragefees represent revenues earned for the brokering of mortgage loans tothird party lenders and are earned and recognized at the time the loanis closed by the third party lender. Revenues are primarily comprisedof borrower application and/or administrative fees and brokerage feespaid to the Company by third party lenders.

Interest income isaccrued as earned. Interest on mortgage loans held for sale accrues onloans from the date of funding through the date of sale. Interest onloans is computed based on the contractual loan rate.

Generally,the Company is not exposed to significant credit risk on its loans soldto investors. In the normal course of business, the Company isobligated to repurchase loans from investors consistent with the termsof its investor contracts. At the time of loan sale, the Companyrecords a repurchase reserve for potential future losses applicable toloans sold. The repurchase reserve is included in accrued expenses onour balance sheet.

Loan Loss Reserves

The Companymaintains an allowance for loan losses based on management'sestimate of credit losses inherent in the Company's Portfolio ARMLoans. The estimation of the allowance is based on a 

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variety of factors including, but not limitedto, industry statistics, current economic conditions, loan portfoliocomposition, delinquency trends, credit losses to date on underlyingloans and remaining credit protection. If the credit performance of theCompany's Portfolio ARM Loans is different than expected, theCompany adjusts the allowance for loan losses to a level deemedappropriate by management to provide for estimated losses inherent inthe Company's ARM loan portfolio. Two critical assumptions usedin estimating the loan loss reserves are an assumed rate of default,which is the expected rate at which loans go into foreclosure over thelife of the loans, and an assumed rate of loss severity, whichrepresents the expected rate of realized loss upon disposition of theproperties that have gone into foreclosure. In addition, once a loan is90 days or more delinquent or a borrower declares bankruptcy, theCompany adjusts the value of its accrued interest receivable to what itbelieves to be collectible and stops accruing interest on thatloan.

Stock Compensation

As of June 30, 2005, theCompany had in effect, the 2004 Long-Term Incentive Plan (the"2004 Plan"), and the Amended Long-TermIncentive Plan (the "Amended Plan"), whichare described more fully in Note 7. MortgageIT previously adopted the2001 Stock Option Plan, which was terminated on August 4, 2004,pursuant to the reorganization of MortgageIT. The Company accounts forall transactions under which employees receive shares of stock or otherequity instruments in the Company based on the price of its stock inaccordance with the provisions of Accounting Principles Board OpinionNo. 25, "Accounting for Stock Issued toEmployees." Pursuant to these accounting standards, theCompany records deferred compensation for stock awards at the date ofgrant based on the estimated values of the shares on that date. Thereis no stock option-based employee compensation cost reflected in netincome because all options granted had an exercise price equal to themarket value of the underlying common stock on the date of grant. Thefollowing table illustrates the effect on net income (loss) if theCompany had applied the fair value recognition provisions of SFAS No.123, "Accounting for Stock-Based Compensation-Transitionand Disclosure" ("SFAS No.123")(Dollars in thousands, except per sharedata):

|                                                                                                           |  |                           |        |                         |  |        |         |              |  |        |        |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------------------------------------|--|---------------------------|--------|-------------------------|--|--------|---------|--------------|--|--------|--------|---------|--|--------|---------|---------|--|--|
|                                                                                                      |  |                      |        |                    |  |   |         |         |
|                                                                                                      |  | Threemonths endedJune 30, |        | Six months endedJune30, |
|                                                                                                      |  | 2005                      |        | 2004                    |  | 2005   |         | 2004         |
|                                                                                                      |  |                      |        | (Asrestated             |  |   |         | (Asrestated) |
| Netincome (loss) attributable to commonstockholders                                                       |  | $                         | 8,420  |                    |  | $      | 329     |         |  | $      | 24,148 |    |  | $      | (1,603  | )  |
| Amortizationof restricted stock, including forfeitures, net of related taxeffects                         |  |                      | 595    |                    |  |   | — |         |  |   | 1,149  |    |  |   | — |    |
| Stock-basedemployee compensation expense determined under the fair value method,net of related taxeffects |  |                      | (649   | )                  |  |   | (114    | )       |  |   | (1,259 | )  |  |   | (229    | )  |
| Proforma net income(loss)                                                                                 |  | $                         | 8,366  |                    |  | $      | 215     |         |  | $      | 24,038 |    |  | $      | (1,832  | )  |
| Netincome (loss) per share attributable to commonstock:                                                   |  |                      |   |                    |  |   |    |         |  |   |   |    |  |   |    |    |
| Basic—Asreported                                                                                    |  | $                         | 0.43   |                    |  | $      | 0.64    |         |  | $      | 1.24   |    |  | $      | (3.09   | )  |
| Basic—Proforma                                                                                      |  | $                         | 0.43   |                    |  | $      | 0.42    |         |  | $      | 1.24   |    |  | $      | (3.54   | )  |
| Netincome (loss) per share for diluted earnings pershare:                                                 |  |                      |   |                    |  |   |    |         |  |   |   |    |  |   |    |    |
| Diluted—Asreported                                                                                  |  | $                         | 0.42   |                    |  | $      | 0.41    |         |  | $      | 1.21   |    |  | $      | (3.09   | )  |
| Diluted—Proforma                                                                                    |  | $                         | 0.42   |                    |  | $      | 0.39    |         |  | $      | 1.21   |    |  | $      | (3.54   | )  |
|                                                                                                           |

Underthe 2001 Stock Option Plan, which was terminated pursuant to thereorganization of MortgageIT, the fair value for each option grantedwas estimated at the date of grant using the minimum value,option-pricing model, an allowable valuation method under SFAS No.123with the following assumptions: risk-free interest rate of4.25%, expected option lives of eight years, and nodividends.

Under the 2004 Plan and the Amended Plan, the fairvalue for each option granted was estimated at the date of grant usingthe Black-Scholes option-pricing model, an allowable valuation methodunder 

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SFAS No.123 with the following assumptions:risk-free interest rate of 3.75%, expected option lives of fiveyears, 26% volatility and 9% dividend rate.

Restricted stock awards granted to employees under the 2004 Plan andthe Amended Plan are subject to certain sale and transfer restrictions.Unvested awards are also subject to forfeiture if employment terminatesprior to the end of the prescribed restriction period. The value ofrestricted stock awards is expensed over the vesting period, generallythree years.

Income Taxes

Income taxes are determinedusing the liability method under SFAS No. 109, "Accountingfor Income Taxes." Under this method, deferred incometaxes reflect the net tax effect of temporary differences between thecarrying amounts of assets and liabilities for financial reportingpurposes and the amounts reported for federal and state income taxpurposes.

The Company will elect to be taxed as a REIT andbelieves it complies with the provisions of the Internal Revenue Codeof 1986, as amended (the "Code"), withrespect thereto. Accordingly, the Company will not be subject tofederal income tax on that portion of its income that is distributed tostockholders, as long as certain asset, income and stock ownershiptests are met. To maintain our REIT status, the Company is required todistribute a minimum of 90% of its annual taxable income to itsstockholders.

MortgageIT made the election to be treated as ataxable REIT subsidiary and, therefore, is subject to both federal andstate corporate income taxes. Accordingly, the Company records a taxprovision based primarily on the taxable income of the TRS.

Fair Value of Financial Instruments

Cash and cashequivalents, marketable securities and accounts receivable are carriedat amounts approximating fair value. Unallocated mortgage loans heldfor sale are carried at market value. Allocated mortgage loans held forsale are carried at market value at June 30, 2005 and at the lower ofadjusted cost or market value at December 31, 2004.

Derivativeinstruments related to the hedging of our financing costs, includinginterest rate swap agreements, Eurodollar futures or options contractsand interest rate cap agreements (collectively "HybridHedging Instruments") are carried at fair value and areclassified as hedging instruments on the balance sheet.

Derivative instruments including IRLCs and those related to thehedging of our locked pipeline loans and mortgage loans held for sale,including to be announced ("TBA") securities,options, Eurodollar futures, and forward sales contracts are carried atfair value and are classified as hedging instruments on the balancesheets.

Liabilities, including warehouse lines payable,collateralized debt obligations, notes payable and other debt, arecarried at their contractual notional amounts which approximate fairvalue. Portfolio ARM Loans are carried at cost, as more fully describedin Note 2.

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The following table presents informationas to the carrying amount and estimated fair value of certain of ourmarket risk sensitive assets, liabilities and hedging instruments atJune 30, 2005 and December 31,2004:

|                                               |  |                       |           |                    |  |        |           |        |  |  |
|-----------------------------------------------|--|-----------------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                                          |  | June30,2005           |
|                                          |  | CarryingAmount        |           | EstimatedFairValue |
|                                          |  | (Dollars inthousands) |
|                                          |  | (unaudited)           |
| Assets:                                       |  |                  |      |               |  |   |      |   |
| Mortgageloans held forsale                    |  | $                     | 2,384,928 |               |  | $      | 2,384,928 |   |
| Forwarddeliverycommitments                    |  |                  | 502       |               |  |   | 502       |   |
| Mortgageloans held for sale,net               |  |                  | 2,385,430 |               |  |   | 2,385,430 |   |
|                                          |  |                  |      |               |  |   |      |   |
| ARMloans held for securitization,net          |  |                  | 171,409   |               |  |   | 172,389   |   |
| ARM loanscollateralizing debt obligations,net |  |                  | 3,634,194 |               |  |   | 3,368,062 |   |
| Hedginginstruments                            |  |                  | 35,186    |               |  |   | 35,186    |   |
|                                          |  |                  |      |               |  |   |      |   |
| Liabilities:                                  |  |                  |      |               |  |   |      |   |
| Warehouselinespayable                         |  | $                     | 2,428,044 |               |  | $      | 2,428,044 |   |
| Collateralizeddebt obligations,net            |  |                  | 3,451,002 |               |  |   | 3,460,709 |   |
| Repurchaseagreements                          |  |                  | 82,149    |               |  |   | 82,149    |   |
| Juniorsubordinateddebentures                  |  |                  | 77,324    |               |  |   | 77,324    |   |
| Hedginginstruments                            |  |                  | 2,837     |               |  |   | 2,837     |   |
|                                               |

|                                               |  |                       |           |                    |  |        |           |        |  |  |
|-----------------------------------------------|--|-----------------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                                          |  | December31,2004       |
|                                          |  | CarryingAmount        |           | EstimatedFairValue |
|                                          |  | (Dollars inthousands) |
| Assets:                                       |  |                  |      |               |  |   |      |   |
| Mortgageloans held forsale                    |  | $                     | 784,592   |               |  | $      | 787,234   |   |
| ARM loansheld for securitization,net          |  |                  | 1,166,961 |               |  |   | 1,167,824 |   |
| ARM loanscollateralizing debt obligations,net |  |                  | 1,432,692 |               |  |   | 1,434,534 |   |
| Hedginginstruments                            |  |                  | 19,526    |               |  |   | 19,526    |   |
|                                          |  |                  |      |               |  |   |      |   |
| Liabilities:                                  |  |                  |      |               |  |   |      |   |
| Warehouselinespayable                         |  | $                     | 1,869,385 |               |  | $      | 1,869,385 |   |
| Collateralizeddebt obligations,net            |  |                  | 1,328,096 |               |  |   | 1,331,986 |   |
| Repurchaseagreements                          |  |                  | 67,674    |               |  |   | 67,674    |   |
| Hedginginstruments                            |  |                  | 1,145     |               |  |   | 1,145     |   |
|                                               |

Accountingfor stock based compensation

Historically the Company hasaccounted for stock based compensation in accordance with theprovisions of Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees."The Company has not reflected stock option-based employee compensationcost in net income because all options granted had an exercise priceequal to the market value of the underlying common stock on the date ofthe grant.

Under the provisions of SFAS No. 123R"Accounting for Stock-Based Compensation"("SFAS No. 123R"), effective in the periodending March 31, 2006, the Company will be required to measure the costof employee services received in exchange for an award of equityinstruments based on the grant date fair value of the award. That costwill be recognized over the vesting period during which an employee isrequired to provide service in exchange for the award.

The grantdate fair value of employee stock options will be measured using the anappropriate option pricing model. See "StockCompensation" of this Note 1 to the consolidated financialstatements for 

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an illustration of the effects on net income(loss) had the Company applied the fair value recognition provisions ofSFAS No. 123R as of January 1, 2004. The Company will adopt thisstatement when effective and is currently evaluating the impact.

1A—Restatement of Consolidated Financial Statements

The Company has determined that it could not support the use ofhedge accounting for derivative contracts entered into prior toNovember 24, 2004. As a result, the Company's consolidatedstatements of operations for the three and six months ended June 30,2004 and consolidated statement of cash flows for the six months endedJune 30, 2004 have been restated.

Fair Value Hedge AccountingRestatement

The Company now believes that the documentation offair value hedge accounting relationships and the assessment of hedgeeffectiveness was inadequate as required by the applicable accountingstandards contained in SFAS No. 133. As such, the Company made thedetermination that it was not appropriate to apply hedge accounting forpurposes of the Company's financial statements for the three andsix months ended June 30 , 2004 and, as such, loans held for sale wererecorded at the lower of cost or market. The Company has corrected itsaccounting for mortgage loans held for sale and interest rate riskmanagement activities related to fair value hedging activities (a"fair value" hedge). Commencing with thequarter ended December 31, 2004, the Company qualified for and haselected to apply SFAS No. 133 fair value hedge accounting for loansheld for sale, exclusive of loans allocated to forward salescommitments. As of March 31, 2005, the Company qualified for and haselected to apply SFAS No. 133 fair value hedge accounting for loansallocated to forward sales commitments as well. For loans held for salethat are designated as allocated to a forward sales commitment, themark to market price is equivalent to the forward commitment price onthe date that the loans are allocated to a trade. Changes in the marketvalue of these loans and the market value of the related forwardcommitments can be expected to offset each other from allocation dateto date of settlement.

Cash Flow Hedge AccountingRestatement

The Company now believes that, prior to November24, 2004, the documentation of its cash flow hedge accountingrelationships and the assessment of hedge effectiveness was inadequateas required by the applicable accounting standards contained in SFASNo. 133. Any change in value associated with such cash flow hedgederivatives was previously recorded as an increase or decrease in othercomprehensive income ("OCI"). The Company hasmade the determination that it was not appropriate to apply cash flowhedge accounting prior to November 24, 2004. The Company has correctedits accounting for interest rate risk management activities related tothe variability in expected future cash flows associated with afinancing obligation or future liabilities (a "cashflow" hedge). Effective November 24, 2004, theCompany's documentation was deemed sufficient with respect tointerest rate cap and swap agreements and, effective April 1, 2005, theCompany's documentation was deemed sufficient with respect toEurodollar futures and, thus, the Company has elected to apply cashflow hedge accounting for these derivatives.

A summary of theimpact of the restatements on net income follows (Dollars inthousands):

|                                                                   |  |                   |       |                 |  |        |        |         |  |  |
|-------------------------------------------------------------------|--|-------------------|-------|-----------------|--|--------|--------|---------|--|--|
|                                                              |  | Threemonths ended |       | Six monthsended |
|                                                              |  | June 30,2004      |       | June 30, 2004   |
| Net income, as previouslyreported                                 |  | $                 | 2,842 |            |  | $      | 3,386  |    |
| Restatementfor derivative financial instruments, net of taxeffect |  |              | (814  | )          |  |   | (1,629 | )  |
| Net income, asrestated                                            |  | $                 | 2,028 |            |  | $      | 1,757  |    |
|                                                                   |

Theaforementioned restatement adjustments have been tax affected to theextent attributable to activities of the taxable REIT subsidiary. Note1- "ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES: Stock Compensation," and Note 8-"Earnings Per 

17

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Share," have been amended forthe impact of the aforementioned restatements. The following tablespresent the accounts on the consolidated statements of operations forthe three and six months ended June 30, 2004 and the consolidatedstatement of cash flows for the six months ended June 30, 2004 thatwere affected by the restatement. (Dollars in thousands, except persharedata):

|                                                     |  |                   |        |                 |  |            |        |            |  |        |        |         |  |        |        |        |  |  |
|-----------------------------------------------------|--|-------------------|--------|-----------------|--|------------|--------|------------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                                                |  | Threemonths ended |        | Six monthsended |
|                                                |  | June 30,2004      |        | June 30,2004    |
|                                                |  | Asrestated        |        | Asreported      |  | Asrestated |        | Asreported |
| **Consolidated Statement ofOperations**             |  |              |   |            |  |       |   |       |  |   |   |    |  |   |   |   |
| Gainon sale of mortgageloans                        |  | $                 | 20,875 |            |  | $          | 21,904 |       |  | $      | 35,229 |    |  | $      | 37,672 |   |
| Totalrevenues                                       |  |              | 36,572 |            |  |       | 37,601 |       |  |   | 62,449 |    |  |   | 64,893 |   |
| Income(loss) before incometaxes                     |  |              | 3,697  |            |  |       | 4,726  |       |  |   | 3,203  |    |  |   | 5,645  |   |
| Incometaxes                                         |  |              | 1,669  |            |  |       | 1,884  |       |  |   | 1,446  |    |  |   | 2,259  |   |
| Netincome                                           |  |              | 2,028  |            |  |       | 2,842  |       |  |   | 1,757  |    |  |   | 3,386  |   |
| Netincome (loss) attributable to commonstockholders |  |              | 329    |            |  |       | 1,143  |       |  |   | (1,603 | )  |  |   | 26     |   |
| Persharedata:                                       |  |              |   |            |  |       |   |       |  |   |   |    |  |   |   |   |
| Basic                                               |  |              | 0.64   |            |  |       | 2.21   |       |  |   | (3.09  | )  |  |   | 0.05   |   |
| Diluted                                             |  |              | 0.41   |            |  |       | .58    |       |  |   | (3.09  | )  |  |   | 0.05   |   |
|                                                     |

|                                                   |  |                |          |            |  |        |          |         |  |  |
|---------------------------------------------------|--|----------------|----------|------------|--|--------|----------|---------|--|--|
|                                              |  | Sixmonthsended |
|                                              |  | June 30,2004   |
|                                              |  | Asrestated     |          | Asreported |
| **Consolidated Statement of CashFlows**           |  |           |     |       |  |   |     |    |
| Netincome                                         |  | $              | 1,757    |       |  | $      | 3,386    |    |
| Realized andunrealized loss on hedginginstruments |  |           | (2,439   | )     |  |   | —  |    |
| Increasein mortgage loans held forsale            |  |           | (747,993 | )     |  |   | (752,875 | )  |
| Increase inprepaids and otherassets               |  |           | (1,434   | )     |  |   | (623     | )  |
|                                                   |

NOTE2—PORTFOLIO ARM LOANS

The following table presents theCompany's Portfolio ARM Loans as of June 30, 2005 and December31, 2004 (Dollars inthousands):

|                                               |  |                                         |           |                                 |  |        |         |         |  |        |           |         |  |  |
|-----------------------------------------------|--|-----------------------------------------|-----------|---------------------------------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
| June30, 2005 (unaudited)                      |  | ARM loanscollateralizingdebtobligations |           | ARM loans heldforsecuritization |  | Total  |
| Principalbalanceoutstanding                   |  | $                                       | 3,599,738 |                            |  | $      | 169,565 |    |  | $      | 3,769,303 |    |
| Netunamortized loan origination costs andfees |  |                                    | 36,204    |                            |  |   | 2,195   |    |  |   | 38,399    |    |
| Loanlossreserves                              |  |                                    | (1,748    | )                          |  |   | (351    | )  |  |   | (2,099    | )  |
| Amortizedcost,net                             |  |                                    | 3,634,194 |                            |  |   | 171,409 |    |  |   | 3,805,603 |    |
| Grossunrealizedgain                           |  |                                    | 3,868     |                            |  |   | 980     |    |  |   | 4,848     |    |
| Estimatedfairvalue                            |  | $                                       | 3,638,062 |                            |  | $      | 172,389 |    |  | $      | 3,810,451 |    |
| Carryingvalue                                 |  | $                                       | 3,634,194 |                            |  | $      | 171,409 |    |  | $      | 3,805,603 |    |
|                                               |

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|                                               |  |                                         |           |                                 |  |        |           |         |  |        |           |         |  |  |
|-----------------------------------------------|--|-----------------------------------------|-----------|---------------------------------|--|--------|-----------|---------|--|--------|-----------|---------|--|--|
| December31, 2004                              |  | ARM loanscollateralizingdebtobligations |           | ARM loans heldforsecuritization |  | Total  |
| Principalbalanceoutstanding                   |  | $                                       | 1,418,323 |                            |  | $      | 1,157,188 |    |  | $      | 2,575,511 |    |
| Netunamortized loan origination costs andfees |  |                                    | 14,866    |                            |  |   | 9,950     |    |  |   | 24,816    |    |
| Loanlossreserves                              |  |                                    | (497      | )                          |  |   | (177      | )  |  |   | (674      | )  |
| Amortizedcost,net                             |  |                                    | 1,432,692 |                            |  |   | 1,166,961 |    |  |   | 2,599,653 |    |
| Grossunrealizedgain                           |  |                                    | 1,842     |                            |  |   | 863       |    |  |   | 2,705     |    |
| Estimatedfairvalue                            |  | $                                       | 1,434,534 |                            |  | $      | 1,167,824 |    |  | $      | 2,602,358 |    |
| Carryingvalue                                 |  | $                                       | 1,432,692 |                            |  | $      | 1,166,961 |    |  | $      | 2,599,653 |    |
|                                               |

Sincethe completion of the Company's initial public offering, theprimary focus of its business has been to build a leveraged portfolioof single-family residential mortgage loans comprised largely of primeTraditional and Hybrid ARM loans. The Company's portfolio of ARMLoans is 100% self-originated through the loan productionchannels of the TRS. The loans that the Company retains in itsportfolio are serviced through a subservicing arrangement. The TRSsells all of its fixed rate loan production to third parties, as wellas any ARM loans that the Company does not retain in its portfolio.

The Company does not account for mortgage-backed securities placedwith third party investors as sales and, therefore, does not record anygain or loss in connection with securitization transactions. Instead,the Company accounts for the mortgage-backed securities it sells as along-term collateralized financing. As of June 30, 2005, the Companyheld approximately $3.6 billion of ARM loans that collateralize thesecurities resulting from its securitization activities, and areclassified on its balance sheet as ARM loans collateralizing debtobligations, net.

The Company has credit exposure on its ARMLoan investment portfolio. During the six months ended June 30, 2005,the Company recorded loan loss provisions totaling $1.4 million toreserve for estimated future credit losses on Portfolio ARM Loans, andthere were no credit losses charged against the allowance for lossesduring the period.

The following table summarizes Portfolio ARMLoan delinquency information as of June 30, 2005 and December 31, 2004(Dollars in thousands):

June 30, 2005(unaudited)

|                             |  |           |    |             |  |                             |        |                      |  |        |      |         |  |        |      |         |  |  |
|-----------------------------|--|-----------|----|-------------|--|-----------------------------|--------|----------------------|--|--------|------|---------|--|--------|------|---------|--|--|
| DelinquencyStatus           |  | LoanCount |    | LoanBalance |  | PercentofPortfolio ARMLoans |        | PercentofTotalAssets |
| 60 to 89days                |  |      | 13 |        |  | $                           | 4,165  |                 |  |   | 0.11 | %  |  |   | 0.07 |    |
| 90days ormore               |  |      | 1  |        |  |                        | 150    |                 |  |   | 0.00 |    |  |   | 0.00 |    |
| Inbankruptcy andforeclosure |  |      | 23 |        |  |                        | 6,394  |                 |  |   | 0.17 |    |  |   | 0.10 |    |
|                        |  |      | 37 |        |  | $                           | 10,709 |                 |  |   | 0.28 | %  |  |   | 0.17 | %  |
|                             |

December31,2004

|                             |  |           |         |             |  |                             |         |                      |  |        |         |         |  |        |         |         |  |  |
|-----------------------------|--|-----------|---------|-------------|--|-----------------------------|---------|----------------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
| DelinquencyStatus           |  | LoanCount |         | LoanBalance |  | PercentofPortfolio ARMLoans |         | PercentofTotalAssets |
| 60 to 89days                |  |      | 6       |        |  | $                           | 1,619   |                 |  |   | 0.06    | %  |  |   | 0.05    | %  |
| 90days ormore               |  |      | 1       |        |  |                        | 560     |                 |  |   | 0.02    |    |  |   | 0.01    |    |
| Inbankruptcy andforeclosure |  |      | — |        |  |                        | — |                 |  |   | — |    |  |   | — |    |
|                        |  |      | 7       |        |  | $                           | 2,179   |                 |  |   | 0.08    | %  |  |   | 0.06    | %  |
|                             |

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NOTE 3—MORTGAGE LOANS HELD FORSALE

Mortgage loans held for sale consist of the followingcomponents (Dollars inthousands):

|                                               |  |              |           |                  |  |        |         |        |  |  |
|-----------------------------------------------|--|--------------|-----------|------------------|--|--------|---------|--------|--|--|
|                                          |  | June30, 2005 |           | December 31,2004 |
|                                          |  | (unaudited)  |           |             |
| Mortgageloans held forsale                    |  | $            | 2,352,104 |             |  | $      | 774,656 |   |
| Deferredorigination costs andfees             |  |         | 33,326    |             |  |   | 9,936   |   |
| Carryingamount of mortgage loans held forsale |  | $            | 2,385,430 |             |  | $      | 784,592 |   |
|                                               |

Mortgageloans are residential mortgages on properties located throughout theUnited States having maturities of up to 30 years, and include ARMloans that are not Portfolio ARM Loans. Pursuant to the terms of themortgage loans, the borrowers have pledged the underlying real estateas collateral for the loans. It is the Company's practice to sellto third party investors any loans that do not constitute Portfolio ARMLoans shortly after they are funded, generally within 30 to 60days.

As of June 30, 2005 and December 31, 2004, the Company hadloan purchase commitments from third party investors for approximately$1.3 billion and $384.5 million, respectively. Substantially all loansheld for sale at June 30, 2005 and December 31, 2004 were subsequentlysold to third party investors. All mortgage loans held for sale arepledged as collateral for warehouse lines payable (See Note 5).

As of June 30, 2005 and December 31, 2004, the Company had aggregatelocked pipeline commitments to fund mortgage loans held for sale of$2.6 billion and $638.3 million, respectively.

NOTE4—DERIVATIVES AND HEDGING ACTIVITIES

The Company isexposed to interest rate risk in conjunction with the origination,funding, sale and investment in mortgage loan assets. The Companymanages the risk of interest rate changes primarily through the use ofderivative instruments as follows:

|              |                                                                                                                                         |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| •  | Fair valuehedges, which are intended to manage the risks associated withpotential changes in the fair value of loans held for sale; and |

|              |                                                                                                                            |
|--------------|----------------------------------------------------------------------------------------------------------------------------|
| •  | Cash flow hedges, which are intended to manage therisks associated with potential changes in the Company'sfinancing costs. |

In connection with its mortgage loanorigination activities, MortgageIT issues IRLCs to loan applicants andfinancial intermediaries. The IRLCs guarantee the loan terms, subjectto credit approval, for a specified period while the application is inprocess, typically between 15 and 60 days. MortgageIT's riskmanagement objective is to protect earnings from an unexpected changein the fair value of IRLCs by economically hedging the estimated closedloan volume from the IRLC pipeline. MortgageIT's pipeline hedgingstrategy primarily utilizes forward delivery contracts onmortgage-backed securities ("TBA Securities")to protect the value of its IRLCs. The TBA Securities, options on TBASecurities, forward sales commitments and IRLCs relating to mortgageloans held for sale, are free-standing derivative instruments and havebeen classified as such by the Company. Accordingly, these derivativeshave been recorded at fair value with changes in fair value reflectedin gain on sale of loans.

At June 30, 2005 and December 31,2004, the notional amount of the Company's IRLCs relating tomortgage loans held for sale, was approximately $1.77 billion and$414.9 million, respectively. The fair value of the IRLCs at June 30,2005 and December 31, 2004 reflected a gain of approximately $4.1million and a loss of approximately $384,000, respectively.

AtJune 30, 2005 and December 31, 2004 the notional amount of TBASecurities and options on TBA Securities outstanding was approximately$1.04 billion and $610.0 million with a fair value loss ofapproximately $1.9 million and $743,000, respectively.

At June30, 2005 and December 31, 2004, the notional amount of theCompany's forward sales commitments from third party investorswas approximately $1.8 billion and $399.4 million with a fair valuegain of approximately $177,000 and $236,000, respectively.

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Fair Value Hedges

The Company isexposed to interest rate risk in conjunction with the sale of mortgageloans. The Company manages the risk of interest rate changes associatedwith its loans held for sale through use of TBA Securities, options onTBA Securities, forward sale commitments and Eurodollar futures. Thesederivative instruments are designed to hedge potential changes in thevalue of loans held for sale. The Company's risk managementpolicy is to hedge 100% of its prime first mortgage loans heldfor sale.

The fair value adjustments for IRLCs, TBA Securities,options, forward sales commitments and Eurodollar futures are includedin gain on sale of mortgage loans.

Unallocated Loans

Unallocated loans represent hedged loans held for sale that have notyet been allocated to a forward sales contract. At June 30, 2005 andDecember 31, 2004, derivative instruments related to theCompany's unallocated loans held for sale were classified andaccounted for as fair value hedges. These derivatives, and the relatedhedged loans held for sale, are carried at fair value with the changesin fair value recorded in earnings.

Allocated Loans

Allocated loans represent hedged loans held for sale that have beenallocated to a forward sales contract. At June 30, 2005, the relatedallocated loans held for sale are carried at market value. At December31, 2004, the forward sales contracts related to the Company'sallocated loans held for sale, were classified and accounted for asfree-standing derivatives. These derivatives are carried at fair valuewith the changes in fair value recorded in earnings. The relatedallocated loans held for sale were carried at the lower of cost ormarket at December 31, 2004.

Cash Flow Hedges

TheCompany primarily utilizes Eurodollar futures, interest rate capagreements ("Cap Agreements") and interestrate swap agreements ("Swap Agreements") inorder to manage potential changes in future LIBOR-based financingcosts. The Company generally borrows funds based on short-termLIBOR-based interest rates to finance its Portfolio ARM Loans. However,its Portfolio ARM Loans have an initial fixed interest rate period upto five years. As a result, the Company's existing and forecastedborrowings reprice to a new rate more frequently than its Portfolio ARMLoans. Therefore, the purpose of these hedges is to better match theaverage repricing of the variable rate debt with the average repricingof the Portfolio ARM Loans.

All changes in the fair value of CapAgreements and Swap Agreements for the period and, effective April 1,2005, all changes in the fair value of Eurodollar futures, are recordedin OCI on the consolidated balance sheets and will be recognized asinterest expense when the forecasted financing transactions occur. Ifit becomes probable that the forecasted transaction, which is thefuture interest payments on the Company's collateralized debtobligations, will not occur as specified at the inception of thehedging relationship, then the related gain or loss in OCI would bereclassified out of OCI and recognized in interest expense. Thecarrying value of these derivative instruments is included in hedginginstruments on the accompanying consolidated balance sheets.

TheCompany purchases Cap Agreements by incurring a one-time fee orpremium. Pursuant to the terms of the Cap Agreements, the Company willreceive cash payments if the interest rate index specified in the CapAgreements increases above contractually specified levels. Therefore,such Cap Agreements have the effect of capping the interest rate on aportion of the Company's borrowings above a level specified bythe Cap Agreement. The notional balances of the caps generally declineover the life of these instruments approximating the declining balanceof the Company's collateralized debt obligations.

Underthe Company's existing Cap Agreements, the Company will receivecash payments should one-month LIBOR increase above the contract ratesof the caps, which range from 2.50% to 5.15%.

21

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The Cap Agreements had an average maturityof 1.6 years as of June 30, 2005 and will expire between August 2007and May 2010.

The Company enters into Swap Agreements to fix theinterest rate on a portion of the Company's borrowings asspecified in the Swap Agreement. When the Company enters into a SwapAgreement, it agrees to pay a fixed interest rate as specificed in theagreement, typically based on LIBOR. Swap Agreements have the effect ofconverting the Company's variable-rate debt into fixed-rate debtover the life of the Swap Agreements.

Both Cap and SwapAgreements represent a means to lengthen the average repricing periodof the Company's variable-rate collateralized debt obligationssuch that the average repricing duration of the borrowings more closelymatches the average repricing duration of the Company's PortfolioARM Loans.

The Company uses Eurodollar futures to hedge bothforecasted and recognized LIBOR-based borrowings. When LIBOR-basedinterest rates change, the change in the value of Eurodollar futurescan be expected to approximately offset the change in the value of thehedged LIBOR-based funding costs.

The following table presentsnotional amount, carrying amount and unrealized gains and (losses)recorded in OCI for the Company's cash flow hedges at June 30,2005 and December 31, 2004. The carrying amount of the cash flowderivative instruments is included in hedging instruments in theaccompanying balancesheets.

|                             |  |                         |           |                |  |                      |        |        |  |        |         |         |  |  |
|-----------------------------|--|-------------------------|-----------|----------------|--|----------------------|--------|--------|--|--------|---------|---------|--|--|
|                        |  | June30, 2005(unaudited) |
|                        |  | NotionalAmount          |           | CarryingAmount |  | UnrealizedGain(Loss) |
|                        |  | (Dollars inthousands)   |
| Eurodollar futurescontracts |  | $                       | 434,500   |           |  | $                    | 59     |   |  | $      | (9,655  | )  |
| Capagreements               |  |                    | 4,814,658 |           |  |                 | 26,241 |   |  |   | (5,287  | )  |
| Swapagreements              |  |                    | 644,545   |           |  |                 | 4,590  |   |  |   | 4,182   |    |
| Totalcash flowhedges        |  | $                       | 5,893,703 |           |  | $                    | 30,890 |   |  | $      | (10,760 | )  |
|                             |

|                             |  |                       |           |                |  |                      |        |        |  |        |                                                               |         |  |  |
|-----------------------------|--|-----------------------|-----------|----------------|--|----------------------|--------|--------|--|--------|---------------------------------------------------------------|---------|--|--|
|                        |  | December31,2004       |
|                        |  | NotionalAmount        |           | CarryingAmount |  | UnrealizedGain(Loss) |
|                        |  | (Dollars inthousands) |
| Eurodollar futurescontracts |  | $                     | 3,136,250 |           |  | $                    | 710    |   |  | $      |          — |    |
| Capagreements               |  |                  | 2,310,392 |           |  |                 | 18,280 |   |  |   | (574                                                          | )  |
| Swapagreements              |  |                  | 186,328   |           |  |                 | 283    |   |  |   | 187                                                           |    |
| Totalcash flowhedges        |  | $                     | 5,632,970 |           |  | $                    | 19,273 |   |  | $      | (387                                                          | )  |
|                             |

NOTE5—BORROWINGS

Collateralized Debt Obligations

Through June 30, 2005, the Company had issued AAA/AA-ratedfloating-rate pass-through certificates totaling $3.67 billion andA+/BBB+ subordinated floating rate securities totaling $36.7 million tothird party investors and retained $106.3 million of subordinatedcertificates, which provide credit support to the higher-ratedcertificates that were placed with third party investors. All of thesecurities retained by the Company were rated investment grade. Theinterest rates on the floating-rate pass-through certificates resetmonthly and are indexed to one-month LIBOR. In connection with theissuance of these mortgage-backed securities which are also referred toas collateralized debt obligations, the Company incurred costs of $11.2million through June 30, 2005. These costs are being amortized over theexpected life of the securities using the level yield method. Thesetransactions were accounted for as financings of loans and representpermanent financing that is not subject to margin calls. TheCompany's collateralized debt obligations are issued by trustsand are secured by 

22

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ARM loans deposited into the trust. Forfinancial reporting and tax purposes, the trusts' ARM loans heldas collateral are recorded as assets of the Company and the issuedmortgage-backed securities are recorded as collateralized debtobligations. As of June 30, 2005 and December 31, 2004, collateralizeddebt of $3.5 billion and $1.3 billion, respectively, net of debtissuance costs, is classified as collateralized debt obligations, neton the accompanying consolidated balancesheets.

As of June 30, 2005 andDecember 31, 2004, the mortgage-backed securities were collateralizedby ARM loans with a principal balance of $3.6 billion and $1.4 billion,respectively. The debt matures between 2033 and 2035 and is callable bythe Company at par anytime after the total balance of the loanscollateralizing the debt is amortized down to 20% of theoriginal unpaid balance. The balance of this debt is reduced as theunderlying loan collateral is paid down by borrowers and is expected tohave an average life of approximately four years.

RepurchaseAgreements

The Company had outstanding $82.1 million and $67.7million of repurchase agreements with a weighted average borrowing rateof approximately 2.9% and 2.2% and a weighted averageremaining maturity of 28 days and 144 days as of June 30, 2005 andDecember 31, 2004, respectively.

Junior SubordinatedDebentures

During April and May 2005, MortgageIT issued anaggregate of approximately $77.3 million of junior subordinateddebentures (the "Debentures"). The Debentureswere issued to a trust subsidiary of MortgageIT in order to fund thetrust's obligations with respect to an aggregate of $75 millionof trust preferred securities which were issued by such trustsubsidiary. The Debentures are floating rate and bear a variableinterest rate of 375 basis points above 3-month LIBOR, paid quarterly,and mature in 2035. They are redeemable at par after five years and ata premium to par in certain limited circumstances over the first fiveyears. In connection with the issuance of the Debentures, the Companyincurred costs of $2.4 million. These costs are being amortized overthe expected life of the Debentures using the interest method. As ofJune 30, 2005, the Company did not include in its consolidatedfinancial statements the assets, liabilities and operations of thetrust subsidiary pursuant to FIN 46R. As of June 30, 2005, the Companyrecorded its investment in the trust subsidiary, of approximately $2.3million, in prepaids and other assets in the accompanying consolidatedbalance sheet.

Warehouse Lines Payable

The Company hasvarious warehouse credit facilities with major lenders that are used tofund mortgage loans. During the six months ended June 30, 2005, theCompany negotiated two new credit facilities, which, when added to theCompany's three existing credit facilities, brings to five thetotal number of facilities it may draw upon.

In March 2005, theCompany entered into a warehouse credit facility with Credit SuisseFirst Boston Mortgage Capital LLC ("CFSB")for a partially committed credit limit of $400 million, which limit wasincreased to $500 million in July 2005. Under the line, outstandingadvances are secured by the specific mortgage loans funded, and bearinterest at LIBOR plus a spread based on the types of loans beingfunded. As of June 30, 2005, the Company had approximately $323.3million outstanding on this facility. This credit facility expires inFebruary 2006.

In February 2005, the Company entered into awarehouse credit facility with Greenwich Capital Financial ProductsInc. ("Greenwich") for a committed creditlimit of $250 million, which limit was increased to $500 million inAugust 2005. Under the line, outstanding advances are secured by thespecific mortgage loans funded, and bear interest at LIBOR plus aspread based on the types of loans being funded. As of June 30, 2005,the Company had approximately $218.4 million outstanding on thisfacility. This credit facility expires in February 2006.

TheCompany maintains a credit facility (the "UBS WarehouseFacility"), with UBS Real Estate Securities, Inc.("UBS"), which has an uncommitted creditlimit of $1.25 billion, which includes a mortgage loan sale conduitfacility. This credit facility may be terminated at the discretion ofthe 

23

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lender. The facility provides for temporaryincreases in the line amount on an as-requested basis. Under the line,outstanding advances are secured by the specific mortgage loans funded,and bear interest at LIBOR plus a spread based on the types of loansbeing funded. Interest is payable at the time the outstanding principalamount of the advance is due, generally within 30 days. As of June 30,2005 and December 31, 2004, the Company had outstanding on the line$487.8 million and $798.8 million, respectively. Under the conduitfacility, the Company sells mortgage loans to UBS at a price equal tothe committed purchase price from a third party investor, and recordsthe transaction as a sale in accordance with SFAS No. 140. UBS, inturn, sells the loan to a third party investor. The Company facilitatesthe sale to the third party investor on behalf of UBS and receives aperformance fee that varies depending on the time required by UBS tocomplete the transfer of the loans to the third party investor. Theperformance fee of $.9 million, $2.0 million, $4.0 million and $5.6million for the three and six months ended June 30, 2005 and 2004,respectively, is included in brokerage revenue on the statement ofoperations. Loans on the conduit line, which totaled approximately$354.2 million and $435.1 million at June 30, 2005 and December 31,2004, respectively, reduce availability under the facility until theyare transferred to the third party investor by UBS. The mortgage loanssold to UBS are subject to repurchase under certain limited conditions,primarily if UBS determines that a mortgage loan was not properlyunderwritten. This credit facility expires in August 2007.

InJune 2005, the Company entered into a new warehouse credit facilitywith Merrill Lynch Bank USA ("Merrill Lynch")to replace the warehouse credit facility expiring in August 2005. Thenew credit facility has a partially committed credit limit of $1.0billion collateralized by the specific mortgage loans funded, and bearsinterest at LIBOR plus a spread based on the types of loans beingfunded. During June 2005, the Company and Merrill Lynch agreed to atemporary increase in the facility of $150 million, which expired July7, 2005. As of June 30, 2005 and December 31, 2004, the Company hadapproximately $1.0 billion and $906.3 million, outstanding on the newand the old credit facilities, respectively. The new credit facilityexpires in June 2006.

The Company maintains a credit facilitywith Residential Funding Corporation ("RFC"),which has a committed credit limit of $400 million, which limit wasincreased to $650 million in August 2005, collateralized by thespecific mortgage loans funded, and bears interest at LIBOR plus aspread based on the types of loans being funded. As of June 30, 2005and December 31, 2004, the Company had outstanding approximately $393.0million and $164.3 million, respectively, on this facility. This creditfacility expires in June 2006.

The weighted average effectiverate of interest for borrowings under all warehouse lines of credit wasapproximately 3.5% and 2.6% for the six months ended June30, 2005 and the year ended December 31, 2004, respectively.

Allmortgage loans held for sale have been pledged as collateral under thewarehouse credit facilities described above. In addition, thefacilities contain various financial covenants and restrictions,including a requirement that the Company maintain specified leverageratios and net worth amounts. As of June 30, 2005, the Company was incompliance with the covenants contained in all of its warehouse creditfacilities. When the Company has violated covenants contained in itscredit facilities in the past, it has obtained waivers with respect tothose violations from its lenders. No assurance can be made that theCompany's lenders will waive future covenant violations, if theyoccur.

Maturities of borrowings are as follows at June 30, 2005(Dollars inthousands):

|                                       |  |                      |           |                |  |           |           |           |  |                 |         |        |  |        |         |        |  |        |           |        |  |  |
|---------------------------------------|--|----------------------|-----------|----------------|--|-----------|-----------|-----------|--|-----------------|---------|--------|--|--------|---------|--------|--|--------|-----------|--------|--|--|
|                                  |  | Paymentsdue byPeriod |
|                                  |  | (unaudited)          |
|                                  |  | Total                |           | Lessthan1 year |  | 1-3 years |           | 3-5 years |  | Morethan5 years |
| Collateralized debt obligations(1)(2) |  | $                    | 3,460,709 |           |  | $         | 63,727    |      |  | $               | 23,943  |   |  | $      | 36,451  |   |  | $      | 3,336,588 |   |
| Warehouselinespayable                 |  |                 | 2,428,044 |           |  |      | 2,428,044 |      |  |            | — |   |  |   | — |   |  |   | —   |   |
| Repurchaseagreements                  |  |                 | 82,149    |           |  |      | 82,149    |      |  |            | — |   |  |   | — |   |  |   | —   |   |
| Juniorsubordinated debentures         |  |                 | 77,324    |           |  |      | —   |      |  |            | — |   |  |   | — |   |  |   | 77,324    |   |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                               |
|-----|-------------------------------|
| (1) | Excludingdebt issuance costs. |

|     |                                                                                                                          |
|-----|--------------------------------------------------------------------------------------------------------------------------|
| (2) | Maturities ofour collateralized debt obligations are dependent upon cash flowsreceived from underlying loans receivable. |

24

----

|  |                                                                                                                                                                                                                      |
|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | Our estimate of their repayment is based onscheduled principal payments on the underlying loans receivable. Thisestimate will differ from actual amounts to the extent we experiencepre-payments and/or loan losses. |

Special-Purpose WarehouseFinance Subsidiary

The Company's UBS Warehouse Facility,described above under "—Warehouse LinesPayable," is administered by an agent on behalf of aninstitutionally managed medium term note conduit. Under the fundingagreements governing the UBS Warehouse Facility, the Company transfersfinance receivables to MortgageIT SPV I, a Delaware statutory trust(the "Trust") that has been established bythe Company as a special purpose warehouse finance subsidiary of theCompany. The Trust, in turn, issues notes (the"Notes") to the agent, collateralized by suchfinance receivables and cash. Through consolidation of the trust, thesetransactions are treated as secured financing arrangements forfinancial reporting purposes. The agent provides funding under theNotes to the Trust pursuant to an advance formula, and the Trustforwards the funds to the Company in consideration for the transfer offinance receivables. Advances under the funding agreements bearinterest at LIBOR plus specified fees depending upon the source offunds provided by the agent. The Company is required to hold certainfunds in restricted cash accounts to provide additional collateral forborrowings under the facility. Additionally, the funding agreementscontain various covenants requiring certain minimum financial ratios,asset quality, and portfolio performance ratios (cumulative net loss,delinquency and repossession ratios) as well as deferment levels.Failure to meet any of these covenants, financial ratios or financialtests could result in an event of default under these agreements. If anevent of default occurs under these agreements, the lenders could electto declare all amounts outstanding under these agreements to beimmediately due and payable, enforce their interests against collateralpledged under these agreements or restrict the Company's abilityto obtain additional borrowings under these agreements.

Inaddition, under the legal agreements that document the issuance andsale of the Notes:

|              |                                                                                                                |
|--------------|----------------------------------------------------------------------------------------------------------------|
| •  | all assets which are from timeto time owned by the Trust are legally owned by the Trust and not bythe Company; |

|              |                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------|
| •  | the Trust is a legal entity separateand distinct from the Company and all other affiliates of theCompany; |

|              |                                                                                                                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the assets of the Trust are legallyassets only of the Trust, and are not legally available to the Companyand all other affiliates of the Company or their respective creditors,for pledge to other creditors or to satisfy the claims of othercreditors; |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | none of the Company or any otheraffiliate of the Company is legally liable on the debts of the Trust,except for an amount limited to 10% of the greater of (i) thetotal principal amount of Notes then outstanding under the NotePurchase Agreement plus the aggregate outstanding principal of allMortgage Loans sold under the Loan Repurchase Agreement and the LoanSale Agreement and (ii) the Facility Limit; and |

|              |                                                                                |
|--------------|--------------------------------------------------------------------------------|
| •  | assets of the Company which result from the issuanceand sale of the Notes are: |

|          |                                                                                                                                                  |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| 1)  | anycash portion of the purchase price paid from time to time by the Trustin consideration of Mortgage Loans sold to the Trust by the Company;and |

|          |                                                               |
|----------|---------------------------------------------------------------|
| 2)  | the value of theCompany's net equity investment in the Trust. |

As of June30, 2005, the Trust had the following assets (in thousands):

|          |                            |
|----------|----------------------------|
| a)  | whole loans: $493,575; and |

|          |                                    |
|----------|------------------------------------|
| b)  | cash and cash equivalents:$13,860. |

As of June 30, 2005, the Trust had the followingliabilities and equity (in thousands):

|          |                                          |
|----------|------------------------------------------|
| a)  | short-term debt due to UBS:$487,842; and |

|          |                                       |
|----------|---------------------------------------|
| b)  | $19,593 inmembers' equity investment. |

As of June 30, 2005, theCompany included in its consolidated financial statements the assets,liabilities and operations of the Trust pursuant to FIN 46R.

25

----

NOTE 6—NOTES PAYABLE

Senior Secured Notes due 2007 with an aggregate principal amount of$15 million were issued in March 2004. The notes are secured by a firstpriority security interest in all of MortgageIT's assets with theexception of its mortgage loans held for sale and ARM loans held forsecuritization. The notes contain various restrictions and covenants.As of June 30, 2005, MortgageIT was in compliance with all of therestrictions and covenants contained in the Note Purchase Agreement,except the warehouse line ratio for which a waiver has been obtained.However, no assurance can be made that waivers will be granted in thefuture, to the extent such waivers are necessary. In November 2004,MortgageIT entered into an amendment that reduced the interest rate onthe outstanding principal balance of each note from 10% perannum to 71⁄2% per annum for the period beginning October1, 2004 and ending March 31, 2005. In addition, the amendmentprohibited MortgageIT from prepaying the notes prior to April 14,2005.

NOTE 7—STOCKHOLDERS EQUITY

Issuance ofCommon Stock

In June 2005, the Company conducted a secondarypublic offering of its common stock. The offering of 9,484,306 shares,at a price to the public of $18.25 per share, included the sale of7,289,428 by the Company and 2,194,878 shares by certain sellingstockholders. Net proceeds to the Company, on July 6, 2005, the closingdate, after deducting the underwriting discount and estimated offeringexpenses, approximated $125.4 million. The Company did not receive anyproceeds from the sale of shares by the selling stockholders.

InJuly 2005, the underwriters of the secondary public offering, describedabove, exercised, in full, their option to purchase an additional1,422,646 shares of common stock from the Company at the publicoffering price of $18.25 to cover over-allotments. Net proceeds to theCompany, after deducting the underwriting discount and estimatedoffering expenses, approximated an additional $24.6 million.

Stock Options

2001 Stock Option Plan

In2001, MortgageIT established the 2001 Stock Option Plan("2001 Plan"). The 2001 Plan provided for thegranting of stock options to employees, directors and consultants ofMortgageIT to purchase up to 776,000 shares of Class B Common Stock.The exercise price of the options was not to be less than the fairmarket value on the date of grant with a maximum term of ten years, orin the case of 10% stockholders, at 110% of the fairmarket value on the date of grant with a maximum term of five years.MortgageIT awarded options to purchase 241,000 shares during 2004, allof which had a ten-year life and vested at the rate of one-third eachyear on the first three anniversaries of the respective grant date. The2001 Plan terminated in August 2004.

In August 2004, options topurchase 45,000 shares of common stock were exercised at an exerciseprice of $4.96 per share. Proceeds to MortgageIT approximated $224,000.As a result of the reorganization of MortgageIT and Holdings'initial public offering, options to purchase 56,000 shares of commonstock were exchanged for approximately $390,000 and options to purchase535,000 shares were cancelled.

2004 and AmendedLong-Term Incentive Plans

In August 2004, the Company adoptedthe MortgageIT Holdings, Inc. 2004 Long-Term Incentive Plan (the"2004 Plan"). A total of 1,725,000 shares ofcommon stock have been reserved for issuance under the 2004 Plan, whichterminates in 2014.

In April 2005, the board of directorsadopted the Amended MortgageIT Holdings, Inc. Long-Term Incentive Plan(the "Amended Plan"), which was subsequentlyapproved by the Company's stockholders. Under the Amended Plan,an additional 1,000,000 shares of the Company's common stock werereserved for issuance; this addition of shares is the only materialdifference between the 2004 Plan and the Amended Plan. The Amended Planwill terminate in 2015.

26

----

Both the 2004 Plan and the Amended Planprovide for the grant of incentive stock options, non-qualified stockoptions, stock appreciation rights and restricted stock. During the sixmonths ended June 30, 2005, options to purchase 56,900 shares of commonstock at an average price of $11.99 per share and 9,167 shares ofrestricted stock were forfeited and the Company granted options topurchase 2,500 shares of common stock, at an average exercise price of$12.98 per share, and 160,135 shares of restricted stock. The optionsand restricted stock will vest over a three-year period.

Therewere approximately 1,075,600 shares available for future grant underthe 2004 Plan and the Amended Plan at June 30, 2005.

Theweighted average fair value of options issued under the 2004 Plan, forthe six months ended June  30, 2005, under the Black-Scholesoption-pricing model, was $2.00 per option.

The weighted averagefair value of options issued under the 2001 Plan, for the six monthsended June  30, 2004, under the minimum value method, was $3.61per option.

NOTE 8—EARNINGS PER SHARE

Basic anddiluted income per share are calculated in accordance with SFAS No.128, "Earnings Per Share." The basic anddiluted income per common share for all periods presented were computedbased on the weighted-average number of common shares outstanding, asfollows (Dollars and shares in thousands, except per share data):

|                                                                            |  |                            |         |                         |  |        |        |              |  |        |         |        |  |        |         |         |  |        |
|----------------------------------------------------------------------------|--|----------------------------|---------|-------------------------|--|--------|--------|--------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|
|                                                                       |  | Threemonths ended June 30, |         | Six monthsended June30, |  |   |
|                                                                       |  | 2005                       |         | 2004                    |  | 2005   |        | 2004         |
|                                                                       |  |                       |         | (Asrestated)            |  |   |        | (Asrestated) |
| Netincome                                                                  |  | $                          | 8,420   |                    |  | $      | 2,028  |         |  | $      | 24,148  |   |  | $      | 1,757   |    |
| Dividendson convertible redeemable preferredstock:                         |  |                       |    |                    |  |   |   |         |  |   |    |   |  |   |    |    |
| SeriesA                                                                    |  |                       | — |                    |  |   | 183    |         |  |   | — |   |  |   | 363     |    |
| SeriesB                                                                    |  |                       | — |                    |  |   | 1,032  |         |  |   | — |   |  |   | 2,039   |    |
| SeriesC                                                                    |  |                       | — |                    |  |   | 354    |         |  |   | — |   |  |   | 699     |    |
| Accretionof discount on preferredstock                                     |  |                       | — |                    |  |   | 130    |         |  |   | — |   |  |   | 259     |    |
| Totaldividends on preferredstock                                           |  |                       | — |                    |  |   | 1,699  |         |  |   | — |   |  |   | 3,360   |    |
| Netincome (loss) attributable to commonstockholders                        |  | $                          | 8,420   |                    |  | $      | 329    |         |  | $      | 24,148  |   |  | $      | (1,603  | )  |
| Basicearnings pershare:                                                    |  |                       |    |                    |  |   |   |         |  |   |    |   |  |   |    |    |
| Netincome (loss) attributable to commonstockholders                        |  | $                          | 8,420   |                    |  | $      | 329    |         |  | $      | 24,148  |   |  | $      | (1,603  | )  |
| Weightedaverage common stock outstanding for basic earnings pershare       |  |                       | 19,486  |                    |  |   | 518    |         |  |   | 19,446  |   |  |   | 518     |    |
| Basicearnings (loss) pershare                                              |  | $                          | 0.43    |                    |  | $      | 0.64   |         |  | $      | 1.24    |   |  | $      | (3.09   | )  |
| Dilutedearnings pershare:                                                  |  |                       |    |                    |  |   |   |         |  |   |    |   |  |   |    |    |
| Netincome (loss) attributable to common stockholders                       |  | $                          | 8,420   |                    |  | $      | 329    |         |  | $      | 24,148  |   |  | $      | (1,603  | )  |  |   |   |   |  |   |   |   |
| Addpreferred stock dividends                                               |  |                       | — |                    |  |   | 1,699  |         |  |   | — |   |  |   | — |    |
| Netincome (loss) for diluted earnings pershare                             |  | $                          | 8,420   |                    |  | $      | 2,028  |         |  | $      | 24,148  |   |  | $      | (1,603  | )  |
| Commonstock outstanding for basic earnings per sharecomputation            |  |                       | 19,486  |                    |  |   | 518    |         |  |   | 19,446  |   |  |   | 518     |    |
| Assumedconversion ofdilutive:                                              |  |                       |    |                    |  |   |   |         |  |   |    |   |  |   |    |    |
| Convertiblepreferred stock                                                 |  |                       | — |                    |  |   | 4,340  |         |  |   | — |   |  |   | — |    |  |   |   |   |  |   |   |   |
| Stockoptions and unvested restricted stock                                 |  |                       | 419     |                    |  |   | 59     |         |  |   | 454     |   |  |   | — |    |
| Weightedaverage common stock outstanding for diluted earnings per share(1) |  |                       | 19,905  |                    |  |   | 4,917  |         |  |   | 19,900  |   |  |   | 518     |    |
| Dilutedearnings (loss) pershare                                            |  | $                          | 0.42    |                    |  | $      | 0.41   |         |  | $      | 1.21    |   |  | $      | (3.09   | )  |
|                                                                            |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Reflects,on a retroactive basis, for all periods presented, the exchange ofapproximately 12.80 shares of MortgageIT common stock for each share ofHoldings common stock and the retention and retirement of common sharespursuant to the reorganization of MortgageIT. |

27

----

Options and warrants aggregatingapproximately 535,000 and 561,000 were excluded from the computationfor the three and six months ended June 30, 2004, as their effect wouldhave been anti-dilutive. Potentially dilutive common shares amountingto 4,354,000 relating to the conversion of Series A, Series B andSeries C preferred stock and options were excluded from the computationfor the six months ended June 30, 2004, as their effect would have beenanti-dilutive.

NOTE 9—STATEMENT OF CASH FLOWS

Supplemental disclosure of cash flow information (Dollars inthousands)

|                              |  |                         |        |        |  |        |        |        |  |  |
|------------------------------|--|-------------------------|--------|--------|--|--------|--------|--------|--|--|
|                         |  | Sixmonths ended June30, |
|                         |  | 2005                    |        | 2004   |
| Cashpaid during the yearfor: |  |                    |   |   |  |   |   |   |
| Interest                     |  | $                       | 76,656 |   |  | $      | 3,141  |   |
| Incometaxes                  |  |                    | 8,246  |   |  |   | 3,996  |   |
|                              |

NOTE10—SEGMENT REPORTING

The Company operates its business intwo primary segments, mortgage investment operations conducted in theREIT and mortgage banking operations conducted in the TRS. Mortgageinvestment operations are driven by the balance of Portfolio ARM Loansand the net interest income generated on those balances. Mortgagebanking operations includes loan origination, underwriting, funding,brokering and secondary marketing. Following is a summary of theCompany's segment operating results for the three and six monthsended June 30, 2005 (Dollars in thousands).

Three months endedJune 30,2005

|                                                   |  |                                  |           |                               |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|---------------------------------------------------|--|----------------------------------|-----------|-------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations (1) |           | MortgageBanking Operations(2) |  | Eliminations |           | Total   |
| Gainon sale of mortgage loans                     |  | $                                | —   |                          |  | $            | 53,237    |    |  | $      | (6,252  | )  |  | $      | 46,985    |    |
| Brokeragerevenues                                 |  |                             | —   |                          |  |         | 6,275     |    |  |   | — |    |  |   | 6,275     |    |
| Interestincome                                    |  |                             | 40,430    |                          |  |         | 26,118    |    |  |   | 1,352   |    |  |   | 67,900    |    |
| Interestexpense                                   |  |                             | (32,409   | )                        |  |         | (16,752   | )  |  |   | (94     | )  |  |   | (49,255   | )  |
| Netinterestincome                                 |  |                             | 8,021     |                          |  |         | 9,366     |    |  |   | 1,258   |    |  |   | 18,645    |    |
| Realizedand unrealized gain on hedginginstruments |  |                             | 820       |                          |  |         | —   |    |  |   | — |    |  |   | 820       |    |
| Other                                             |  |                             | —   |                          |  |         | 243       |    |  |   | — |    |  |   | 243       |    |
| Totalrevenues                                     |  |                             | 8,841     |                          |  |         | 69,121    |    |  |   | (4,994  | )  |  |   | 72,968    |    |
| Operatingexpenses                                 |  |                             | 3,728     |                          |  |         | 55,670    |    |  |   | (634    | )  |  |   | 58,764    |    |
| Incomebefore incometax                            |  |                             | 5,113     |                          |  |         | 13,451    |    |  |   | (4,360  | )  |  |   | 14,204    |    |
| Incometaxes                                       |  |                             | —   |                          |  |         | 5,784     |    |  |   | — |    |  |   | 5,784     |    |
| Netincome                                         |  | $                                | 5,113     |                          |  | $            | 7,667     |    |  | $      | (4,360  | )  |  | $      | 8,420     |    |
| Segmentassets                                     |  | $                                | 4,020,954 |                          |  | $            | 2,470,818 |    |  | $      | (28,180 | )  |  | $      | 6,463,592 |    |
|                                                   |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------|
| (1) | Commencedoperations on August 4, 2004. The Company operated in one segment,mortgage banking, prior to August 4,2004. |

|     |                                                                  |
|-----|------------------------------------------------------------------|
| (2) | Represents the consolidatedresults of operations for MortgageIT. |

28

----

Six months ended June 30,2005

|                                                   |  |                                  |           |                               |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|---------------------------------------------------|--|----------------------------------|-----------|-------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations (1) |           | MortgageBanking Operations(2) |  | Eliminations |           | Total   |
| Gainon sale of mortgage loans                     |  | $                                | —   |                          |  | $            | 92,403    |    |  | $      | (13,311 | )  |  | $      | 79,092    |    |
| Brokeragerevenues                                 |  |                             | —   |                          |  |         | 12,673    |    |  |   | — |    |  |   | 12,673    |    |
| Interestincome                                    |  |                             | 73,701    |                          |  |         | 45,673    |    |  |   | 2,278   |    |  |   | 121,652   |    |
| Interestexpense                                   |  |                             | (54,244   | )                        |  |         | (26,403   | )  |  |   | (94     | )  |  |   | (80,741   | )  |
| Netinterestincome                                 |  |                             | 19,457    |                          |  |         | 19,270    |    |  |   | 2,184   |    |  |   | 40,911    |    |
| Realizedand unrealized gain on hedginginstruments |  |                             | 8,128     |                          |  |         | —   |    |  |   | 1,614   |    |  |   | 9,742     |    |
| Other                                             |  |                             | —   |                          |  |         | 506       |    |  |   | — |    |  |   | 506       |    |
| Totalrevenues                                     |  |                             | 27,585    |                          |  |         | 124,852   |    |  |   | (9,513  | )  |  |   | 142,924   |    |
| Operatingexpenses                                 |  |                             | 6,742     |                          |  |         | 104,471   |    |  |   | (1,203  | )  |  |   | 110,010   |    |
| Incomebefore incometax                            |  |                             | 20,843    |                          |  |         | 20,381    |    |  |   | (8,310  | )  |  |   | 32,914    |    |
| Incometaxes                                       |  |                             | 2         |                          |  |         | 8,764     |    |  |   | — |    |  |   | 8,766     |    |
| Netincome                                         |  | $                                | 20,841    |                          |  | $            | 11,617    |    |  | $      | (8,310  | )  |  | $      | 24,148    |    |
| Segmentassets                                     |  | $                                | 4,020,954 |                          |  | $            | 2,470,818 |    |  | $      | (28,180 | )  |  | $      | 6,463,592 |    |
|                                                   |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                      |
|-----|----------------------------------------------------------------------------------------------------------------------|
| (1) | Commencedoperations on August 4, 2004. The Company operated in one segment,Mortgage Banking, prior to August 4,2004. |

|     |                                                                 |
|-----|-----------------------------------------------------------------|
| (2) | Represents the consolidatedresults of operations for MortgageIT |

NOTE11—COMMITMENTS AND CONTINGENCIES

The Company is adefendant in various legal proceedings. For further information, seePart II Other Information, Item 1 Legal Proceedings of this Form 10-Q.Although it is difficult to predict the outcome of any litigation, theCompany has established a reserve of $2.0million.

29

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ITEM2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

Unless the context suggestsotherwise, the terms "Company,""Holdings," "we,""us," and "our"refer to MortgageIT Holdings, Inc., a Maryland corporation incorporatedin March 2004, and its subsidiaries."MortgageIT" or"TRS" refers to our wholly owned subsidiary,MortgageIT, Inc., a New York corporation.

Restatement ofConsolidated Financial Statements

The consolidated statementsof operations for the three and six months ended June 30, 2004, andconsolidated statement of cash flows for the six months ended June 30,2004 have been restated.

For a further discussion of thecorrections and restatements, see "Note1A—Restatement of Consolidated Financial Statements"in the accompanying notes to the consolidated financial statements. Theeffect of the restatement of the consolidated financial statements isreflected in "Management's Discussion and Analysisof Financial Condition and Results of Operations"below.

GENERAL

MortgageIT Holdings, Inc. is aresidential mortgage lender that was formed in March 2004 to continueand expand the business of MortgageIT, Inc. Holdings is organized andconducts its operations to qualify as a real estate investment trust("REIT") for federal income tax purposes andis focused on earning net interest income from mortgage loansoriginated by its taxable REIT subsidiary, MortgageIT. MortgageIT wasincorporated in New York in February 1999, and began marketing mortgageloan services in May 1999. MortgageIT is a full-service residentialmortgage banking company that is licensed to originate loans throughoutthe United States. MortgageIT originates single-family mortgage loansof all types, including prime ARM and fixed-rate, first lienresidential mortgage loans. Prior to August 4, 2004, MortgageIT soldall of the loans it originated through both its retail and wholesaleoperations to third party investors. Home Closer LLC, a subsidiary ofMortgageIT, Inc., provides settlement, title and related services. IPISkyscraper Mortgage Corporation, which provided retail mortgage lendingoperations, was a wholly owned subsidiary of MortgageIT until it wasmerged with and into MortgageIT effective December 31, 2004.

TheCompany's business strategy is to self-originate prime ARM loansthat are held in our investment portfolio and used to collateralizedebt obligations, fund them using equity capital and borrowed funds,and generate earnings from the spread between the yield on our assetsand our cost of borrowings. Our investment strategy is designed tomitigate credit risk and interest rate risk. Our mortgage loaninvestment portfolio consists primarily of prime ARM Loans thatcollateralize multi-class pass-through securities that we issue insecuritization transactions, and prime quality ARM Loans that we intendto securitize.

The loans that we retain in our portfolio areserviced through a subservicing arrangement. Generally, we expect tocontinue to sell the fixed rate loans originated by MortgageIT to thirdparties as well as any ARM or hybrid ARM loans that we do not retain inour portfolio.

On August 4, 2004, we closed our initial publicoffering and sold 14.6 million shares of our common stock at a price tothe public of $12.00 per share, for net proceeds of approximately$163.4 million, after deducting the underwriters' discount andother offering-related expenses. Since the completion of our initialpublic offering, the primary focus of our business has been to build aleveraged portfolio of single-family residential mortgage loanscomprised largely of prime ARM and hybrid ARM loans, which have aninitial fixed-rate period followed by an adjustable-rate period. Ourportfolio of mortgage loans consists exclusively of loans originated bythe TRS. As of June 30, 2005, we had transferred to our investmentportfolio approximately $4.05 billion of single-family residentialprime ARM and hybrid ARM loans originated by MortgageIT.

In June2005, the Company conducted a secondary public offering of its commonstock and sold 7,289,428 shares at a price to the public at a price of$18.25 per share. In July 2005, the underwriters 

30

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of the secondary public offering exercised,in full, their option to purchase an additional 1,422,646 shares ofcommon stock from the Company at the public offering price of $18.25 tocover over-allotments. Net proceeds to the Company, after deducting theunderwriting discount and estimated offering expenses, wereapproximately $150 million. In addition, certain stockholders sold2,194,878 shares in the public offering. The Company did not receiveany proceeds from the sale of shares by the selling stockholders.

In November 2004, MortgageIT announced its plan to expand itswholesale subprime origination division and has established a salesleadership team in several key regions in order to intensify the focuson subprime single-family residential loan origination. As of June 30,2005, this division had 438 employees and generated 12.4% ofMortgageIT's total originations in the second quarter of 2005.The division is expanding organically, through the development of newbranches managed by seasoned mortgage professionals. All of thesubprime loan production is currently sold to third party investors andwe do not currently anticipate holding subprime loans in our investmentportfolio.

In October 2004, the Company launched a nationalcorrespondent lending platform. The newly created business unit,through its centralized management and loan acquisition teams, seeks topurchase prime first-lien closed mortgage loans from small to mid-sizedbanks, credit unions and mortgage bankers. In the second quarter of2005, the correspondent business unit accounted for 8.8% ofMortgageIT's total originations. These loans are subject to thesame credit review standards utilized by our other prime productionchannels and are sold to third-party investors.

DESCRIPTION OFBUSINESS

The Company operates its business in two primarysegments, mortgage investment operations and mortgage bankingoperations. Mortgage investment operations are driven by the netinterest income generated on our leveraged prime mortgage loaninvestment portfolio. Mortgage banking operations are driven by incomegenerated from our mortgage loan origination business and includesales, loan processing, underwriting, funding, secondary marketing andbrokerage activities.

Financial information regarding theCompany's business segments can be found in Note 10 to theconsolidated financial statements.

Mortgage InvestmentOperations

Our mortgage investment operations involve theacquisition and retention, in a leveraged portfolio, of eithertraditional ARM loans or hybrid ARM loans. Traditional ARM loans aremortgage loans that have interest rates that reprice in one year orless ("Traditional ARMs" or"Traditional ARM loans"), and hybrid ARMloans are mortgage loans that have a fixed interest rate for an initialperiod of not more than five years and then convert to Traditional ARMsfor their remaining terms to maturity ("HybridARMs" or "Hybrid ARM loans," andtogether with the Traditional ARM loans, "Portfolio ARMLoans").

All of the Portfolio ARM Loans we acquireare originated in our mortgage banking operations and must meet theunderwriting criteria and guidelines set forth in our investment andrisk management policy. For purposes of maintaining liquidity forborrowings or as collateral, we may also invest in U.S. Treasurysecurities and debentures and discount notes guaranteed by twogovernment-sponsored corporations, Federal National MortgageAssociation ("FNMA" or "FannieMae") and Federal Home Loan Mortgage Corporation("FHLMC" or "FreddieMac").

The funding of our mortgage loan portfolioprimarily consists of borrowings from our warehouse lines of credit forloans awaiting securitization, the issuance of collateralized debtobligations ("CDOs") and repurchaseagreements. We acquire ARM loans for our investment portfolio with theintention of securitizing them by transferring them to independenttrusts. In order to facilitate the securitization of our loans, wegenerally create subordinate certificates, which provide a specifiedamount of credit enhancement to the higher rated certificates. Uponsecuritization, we finance the loans through the issuance of CDOs inthe capital markets and occasionally retain certain subordinatecertificates. We service Portfolio ARM Loans through a subservicer.

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We do not account for CDOs placed withthird party investors as sales and, therefore, do not record any gainor loss in connection with securitization transactions. Thesecuritizations are accounted for as long-term collateralizedfinancings. Consequently, the Portfolio ARM Loans transferred to theindependent trust are shown as assets on our balance sheet. On ourbalance sheet, our Portfolio ARM Loans consist of ARM loanscollateralizing debt obligations and ARM loans held for securitization.We, therefore, generate revenue in our mortgage investment operationsfrom the spread between the interest income on our Portfolio ARM Loansand our cost of borrowings (i.e., the interest expense on ourCDOs, warehouse lines of credit, or repurchase agreements).

Theloan securitization process benefits us by creating highly liquidsecuritized assets that can be readily financed in the capitalmarkets.

Portfolio Strategy

It is our general policy tooriginate 100% of the ARM Loans we hold in our investmentportfolio. However, we retain the right to purchase mortgage-backedsecurities guaranteed by Fannie Mae or Freddie Mac or the GovernmentNational Mortgage Association ("GNMA" or"Ginnie Mae").

We select loans forinclusion in our investment portfolio based on a variety of credit riskfactors. Our Portfolio Risk Committee has established specific loaninvestment guidelines, including minimum FICO scores, maximumloan-to-value ratios, maximum loan size and other applicable creditquality criteria.

According to our investment guidelines, weinvest at least 85% of assets in high quality ARMs and HybridARMs, and short-term investments, including:

|              |                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | PrimeARM and Hybrid ARM mortgage loans that have been deposited into truststhat issue mortgage-backed securities collateralized by the transferredloans; |

|              |                                     |
|--------------|-------------------------------------|
| •  | FNMA and FHLMC mortgage securities; |

|              |                                                                                                                                                                                                                                                                                                 |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | ARM securities rated within one of the two highestrating categories by at least one of the nationally recognizedstatistical ratings agencies (Moody's Investors Service("Moody's"); Standard &Poor's, a division of The McGraw-Hill Companies, Inc.("S&P"); or Fitch Ratings("Fitch")); |

|              |                                                                                                                                           |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|
| •  | securitiesand loans that are unrated but that we determine to be of comparablequality to comparable high-quality mortgage securities; and |

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | cash and cash equivalents, including short-terminvestments in U.S. Treasury and agency non-mortgage securities. |

The portfolio also may retain certain classes of our mortgage-backedsecurities that are below investment grade (below BBB). Interests innon-investment grade assets will comprise no more than 25% ofstockholders' equity on an historical cost basis.

At June30, 2005, our investment operations held total assets of $4.0 billion,of which $3.8 billion consisted of securitized loans and loans awaitingsecuritization. That compares to $2.4 billion in total assets atDecember 31, 2004, of which $2.3 billion consisted of securitized loansand loans awaiting securitization.

Mortgage BankingOperations

Our mortgage banking operations are conductedthrough our wholly owned TRS subsidiary, MortgageIT, and itssubsidiaries. The TRS is a full-service residential mortgage bankingcompany that is licensed to originate loans throughout the UnitedStates

The TRS generates revenue through the origination, saleand brokering of mortgage loans sourced through its loan productionchannels. This revenue primarily consists of gain on sale of mortgageloans, loan brokerage revenues and net interest income. Gain on sale ofmortgage loans is generated from the sale of mortgage loans toinvestors, on a servicing released basis, generally within 30 to 60days of funding. Accordingly, we do not capitalize the value ofmortgage servicing rights. Gain is 

32

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recognized based on the difference betweenthe net sales proceeds and the carrying value of the mortgage loanssold and is recognized in earnings at the time of sale. The carryingvalue of the mortgage loans sold includes direct loan-relatedorigination costs and fees. Brokerage revenue consists of fees andcommissions earned by brokering mortgage loans ultimately funded bythird party lenders. Interest on mortgage loans held for sale accrueson loans from the date of funding through the date of sale.

MortgageIT's mortgage banking operations expenses consistprimarily of:

|              |                                                              |
|--------------|--------------------------------------------------------------|
| •  | loan origination commissions,salaries and employee benefits; |

|              |                                   |
|--------------|-----------------------------------|
| •  | mortgage loanprocessing expenses; |

|              |                                     |
|--------------|-------------------------------------|
| •  | general and administrativeexpenses; |

|              |                                                                   |
|--------------|-------------------------------------------------------------------|
| •  | marketing, loan acquisition and businessdevelopment expenses; and |

|              |                                                           |
|--------------|-----------------------------------------------------------|
| •  | rent expense,professional fees, and depreciation expense. |

A substantialportion of MortgageIT's expenses are variable in nature. Loanorigination commissions are paid to loan production officers only uponthe origination of the mortgage loan, making such commission expenses100% variable. Salaries, benefits and other related payrollcosts may fluctuate based upon management's assessment of currentand predicted future levels of mortgage loan origination volume.

Loan Underwriting

We follow a specific underwritingmethodology based on the following philosophy—first evaluate theborrower's ability to repay the loan, and then evaluate the valueof the property securing the loan. We have developed underwritingguidelines and practices that establish clear parameters for our loanunderwriters and credit officers to make loan approval decisions. Formortgage loans retained in our investment portfolio, we seek thoseloans that we believe have low risk of default and resulting loss.Although our loan underwriting procedures are structured to predictfuture borrower payment patterns and financial capability, based on theborrower's past history and current financial information, aswell as our ability to collect the remaining loan balance throughforeclosure in the event of a default, no assurance can be made thatevery loan originated will perform as anticipated.

In evaluatingthe borrower's ability and willingness to repay a loan, we reviewand analyze the following aspects of the borrower: credit score, incomeand its source, employment history, debt levels in revolving,installment and other mortgage loans, credit history and use of creditin the past, and the ability and/or willingness to provide verificationfor the above. Credit scores, credit history, use of credit in the pastand information as to debt levels can typically be obtained from athird party credit report through a credit repository. Those sourcesare used in all instances, as available. Sometimes, borrowers havelittle or no credit history that can be tracked by one of the primarycredit repositories. In these instances, the reason for the lack ofhistory is considered and taken into account. In our experience, mostprospective borrowers have accessible credit histories.

Inevaluating a potential property to be used as collateral for a mortgageloan, we consider all of the following aspects of the property: theloan balance versus the property value, i.e., the loan-to-valueratio, or LTV, the property type, how the property will be occupied (aprimary residence, second home or investment property), if theproperty's apparent value is supported by recent sales of similarproperties in the same or a nearby area, any unique characteristics ofthe property and our confidence in the data and their sources.

Other considerations that may effect our decision regarding aborrower's loan application are the borrower's purpose inrequesting the loan (purchase of a home as opposed to cashing equityout of the home through a refinancing, for example), the loan type(adjustable-rate, including adjustment periods and loan life rate caps,or fixed-rate), and any items unique to a loan that we believe couldaffect credit performance.

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Business Strategy

All of theloans originated at the TRS are either transferred to our investmentloan portfolio, or sold or brokered to third party investors. Ourmortgage banking operations consist primarily of the followingactivities:

|              |                                                                                                                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | retail prime production operations,including both brokered loans and funded loans that are originatedthrough MortgageIT's IPI Skyscraper Division of retail branchoffices and through its internet origination channel; |

|              |                                                                                                                                                                                                            |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | wholesale prime production operations, including loansoriginated through retail loan brokers and correspondents that are notMortgageIT employees and funded by MortgageIT through its MIT LendingDivision; |

|              |                                                                                                                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | subprime production operations,including both retail loans originated through MortgageIT'sretail subprime department, and wholesale loans originated throughMortgageIT's subprime lending division; |

|              |                                                                                                                                                                                   |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | correspondent lending operations, including loansoriginated through banks, credit unions and mortgage bankers and fundedby MortgageIT through its correspondent lending division; |

|              |                                          |
|--------------|------------------------------------------|
| •  | secondary loan marketing operations; and |

|              |                                                                                         |
|--------------|-----------------------------------------------------------------------------------------|
| •  | mortgage loan title, settlement and other mortgagerelated services through Home Closer. |

Sale of Loans

Wegenerally sell our mortgage loans on a whole loan, non-recourse basis.However, we do have potential liability under the representations andwarranties we make to purchasers and insurers of the loans. In theevent of a breach of such representations and warranties, we may berequired to either repurchase the subject mortgage loans or indemnifythe investor or insurer. In such cases, any subsequent credit loss onthe mortgage loans is recognized by MortgageIT.

All of oursubprime loan production is sold to third party investors.

LoanProducts

MortgageIT originates both mortgage loans to financehome purchases, referred to as purchase mortgage loans, and loans torefinance existing mortgage loans. For the quarter ended June 30, 2005,MortgageIT's purchase loan originations represented approximately56% of its total residential mortgage loan originations measuredby principal balance.

MortgageIT originates prime first lienconventional and non-conventional, conforming single-family residentialmortgage loans. In addition, MortgageIT also originates a lesser amountof non-conforming first lien single-family residential mortgage loanssuch as jumbo loans, non-prime loans and "AltA" loans, as well as home equity and second mortgageloans. Substantially all of the loans originated by MortgageIT allowfor prepayment without penalty, and we retain loans that allow forprepayment without penalty.

Hedging Activities

We generally do not seek to anticipate the direction of interestrates as a part of our business strategy. We seek to maintain hedgepositions that avoid the effects of severe interest rate movements,which might otherwise impair our ability to earn net interest incomeand gain on sale revenues. Accordingly, we generally seek to mitigateinterest rate risk by matching the repricing durations of our PortfolioARM Loans with the repricing durations of our liabilities. We also seekto mitigate the interest rate risk associated with our mortgage loansheld for sale and interest rate lock commitments issued toborrowers.

For our mortgage investment operations, subject tothe limitations imposed by the REIT qualification tests, some or all ofthe following financial instruments are used for hedging financing costinterest 

34

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rate risk: Eurodollar futures contracts,interest rate swaps, interest rate caps, collars and floors, and otherinstruments that may be determined to be advantageous and are permittedunder the investment and risk management policy adopted by our board ofdirectors.

For our mortgage banking operations, some or all ofthe following financial instruments are used for hedging the fair valueof loans held for sale: forward sale loan commitments and forward salesand purchases of mortgage-backed securities and options on suchsecurities in the forward delivery TBA market, Eurodollar futures, andother instruments that may be determined to be advantageous and arepermitted under the investment and risk management policy adopted byour board of directors.

For further information on our interestrate risk management, see Item 3 Quantitative and QualitativeDisclosures About Market Risk–Interest Rate Risk Management ofthis Form 10-Q and Note 4 – Derivatives and Hedging Activities inthe accompanying notes to the consolidated financial statements.

RESULTS OF OPERATIONS

The following table sets forthcertain financial data as a percentage of total revenues for the threeand six months ended June 30, 2005 and2004.

|                                                    |  |                           |        |                         |  |        |         |              |  |        |        |         |  |        |         |         |  |  |
|----------------------------------------------------|--|---------------------------|--------|-------------------------|--|--------|---------|--------------|--|--------|--------|---------|--|--------|---------|---------|--|--|
|                                               |  | Threemonths endedJune 30, |        | Six months endedJune30, |
|                                               |  | 2005                      |        | 2004                    |  | 2005   |         | 2004         |
|                                               |  |                      |        | (Asrestated)            |  |   |         | (Asrestated) |
| Revenues:                                          |  |                      |   |                    |  |   |    |         |  |   |   |    |  |   |    |    |
| Gainon sale of mortgageloans                       |  |                      | 64.4   | %                  |  |   | 57.1    | %       |  |   | 55.3   | %  |  |   | 56.4    | %  |
| Brokeragerevenues                                  |  |                      | 8.6    | %                  |  |   | 32.4    | %       |  |   | 8.9    | %  |  |   | 33.0    | %  |
| Netinterestincome                                  |  |                      | 25.6   | %                  |  |   | 10.5    | %       |  |   | 28.6   | %  |  |   | 10.6    | %  |
| Realizedand unrealized gain on hedginginstruments  |  |                      | 1.1    | %                  |  |   | — |         |  |   | 6.8    | %  |  |   | — |    |
| Other                                              |  |                      | 0.3    | %                  |  |   | 0.0     | %       |  |   | 0.4    | %  |  |   | 0.0     | %  |
| Totalrevenues                                      |  |                      | 100.0  | %                  |  |   | 100.0   | %       |  |   | 100.0  | %  |  |   | 100.0   | %  |
| Operatingexpenses:                                 |  |                      |   |                    |  |   |    |         |  |   |   |    |  |   |    |    |
| Compensationand employeebenefits                   |  |                      | 44.1   | %                  |  |   | 54.4    | %       |  |   | 42.1   | %  |  |   | 58.3    | %  |
| Processingexpenses                                 |  |                      | 18.8   | %                  |  |   | 17.3    | %       |  |   | 16.8   | %  |  |   | 15.7    | %  |
| Generaland administrativeexpenses                  |  |                      | 8.5    | %                  |  |   | 6.8     | %       |  |   | 9.1    | %  |  |   | 7.7     | %  |
| Rent                                               |  |                      | 3.1    | %                  |  |   | 5.1     | %       |  |   | 3.2    | %  |  |   | 5.9     | %  |
| Marketing,loan acquisition and businessdevelopment |  |                      | 1.4    | %                  |  |   | 3.2     | %       |  |   | 1.3    | %  |  |   | 3.6     | %  |
| Professionalfees                                   |  |                      | 3.4    | %                  |  |   | 1.3     | %       |  |   | 3.4    | %  |  |   | 1.7     | %  |
| Depreciationandamortization                        |  |                      | 1.2    | %                  |  |   | 1.8     | %       |  |   | 1.1    | %  |  |   | 2.0     | %  |
| Totaloperatingexpenses                             |  |                      | 80.5   | %                  |  |   | 89.9    | %       |  |   | 77.0   | %  |  |   | 94.9    | %  |
| Incomebefore incometaxes                           |  |                      | 19.5   | %                  |  |   | 10.1    | %       |  |   | 23.0   | %  |  |   | 5.1     | %  |
| Incometaxes                                        |  |                      | 7.9    | %                  |  |   | 4.6     | %       |  |   | 6.1    | %  |  |   | 2.3     | %  |
| Netincome                                          |  |                      | 11.6   | %                  |  |   | 5.5     | %       |  |   | 16.9   | %  |  |   | 2.8     | %  |
|                                                    |

Threemonths ended June 30, 2005 compared to three months ended June 30,2004

Net income

Consolidated net income increased from$2.0 million for the three months ended June 30, 2004 to $8.4 millionfor the three months ended June 30, 2005. The increase is primarilyattributable to higher net interest income and higher gain on sale ofmortgage loans. Total revenues increased by approximately 100%to $73.0 million for the quarter ended June 30, 2005 from $36.6 millionfor the comparable period in 2004, while total expenses increased byapproximately 79% to $58.8 million from $32.9 

35

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million. Our loan brokerage volume andrevenue decreased by 25.1% and 47%, respectively, fromthe second quarter of 2004. Gain on sale of mortgage loans increased by125.1% in the second quarter of 2005 compared to the comparableperiod in 2004. In addition, net interest income increased by386.1% to $18.6 million in the second quarter of 2005 from $3.8million in the comparable period in 2004.

Mortgage InvestmentOperations

Our mortgage investment operations segment, or"REIT," began operations on August 4, 2004following our reorganization and initial public offering. This businesssegment generates revenue from net interest income earned on ourPortfolio ARM Loans.

Revenues

**Net interestincome**.    REIT net interest income was $8.0 million on averageearning assets of $3.4 billion for the three months ended June 30,2005. The following table presents the average balance for eachcategory of our interest-earning assets and interest-bearingliabilities, with the corresponding annualized effective rate ofinterest and the related interest income or expense for the sameperiod:

Average Balance, Rate and Interest Income/ExpenseTable(Dollars inthousands)

|                                      |  |                                   |           |               |  |                          |        |         |  |        |        |        |  |  |
|--------------------------------------|--|-----------------------------------|-----------|---------------|--|--------------------------|--------|---------|--|--------|--------|--------|--|--|
|                                 |  | Forthe three months ended June30, |
|                                 |  | 2005                              |
|                                 |  | AverageBalance                    |           | EffectiveRate |  | InterestIncomeandExpense |
| Interest-earningassets:              |  |                              |      |          |  |                     |   |    |  |   |   |   |
| PortfolioARMLoans                    |  | $                                 | 3,403,563 |          |  |                     | 4.76   | %  |  | $      | 40,374 |   |
| Cashand cashequivalents              |  |                              | 22,935    |          |  |                     | 0.99   |    |  |   | 56     |   |
|                                 |  |                              | 3,426,498 |          |  |                     | 4.73   |    |  |   | 40,430 |   |
| Interest-bearingliabilities:         |  |                              |      |          |  |                     |   |    |  |   |   |   |
| Collateralizeddebtobligations        |  |                              | 2,658,664 |          |  |                     | 3.99   |    |  |   | 26,466 |   |
| Warehouselinespayable                |  |                              | 555,301   |          |  |                     | 3.80   |    |  |   | 5,257  |   |
| Repurchaseagreements                 |  |                              | 89,332    |          |  |                     | 3.08   |    |  |   | 686    |   |
|                                 |  |                              | 3,303,297 |          |  |                     | 3.93   |    |  |   | 32,409 |   |
| Netinterest-earning assets andspread |  | $                                 | 123,201   |          |  |                     | 0.80   | %  |  | $      | 8,021  |   |
| Netinterest margin(1)                |  |                              |      |          |  |                     | 0.94   | %  |  |   |   |   |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earning assets. |

Expenses

REIT operating expenses totaled $3.7 million forthe three months ended June 30, 2005, primarily consisting of:

|              |                                     |
|--------------|-------------------------------------|
| •  | compensation and employee benefits; |

|              |                                        |
|--------------|----------------------------------------|
| •  | mortgage loan processing expenses; and |

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | professional fees, and general and administrativeexpenses. |

A substantial portion of REIT expenses are generallyfixed in nature. The variable expenses are primarily processingexpenses, including subservicing costs, provision for credit losses andbrokerage commission expenses paid on Eurodollar contracts.

Mortgage Banking Operations

Revenues

**Gain onsale of mortgage loans**.    Gain on sale of mortgage loansincreased approximately 155.0% to $53.2 million for the threemonths ended June 30, 2005 from $20.9 million for the three monthsended 

36

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June 30, 2004. On a standalone basis, wholeloan sales increased by 136.0% to $5.0 billion for the threemonths ended June 30, 2005 from $2.1 billion for the three months endedJune 30, 2004. On a consolidated basis, mortgage whole loan sales tothird parties increased by 93.6% to $4.1 billion, after theelimination of $899 million in intercompany loan sales, for the threemonths ended June 30, 2005 from $2.1 billion for the three months endedJune 30, 2004.

**Brokerage Revenue**.    Brokerage revenuedecreased by approximately 47.0% to $6.3 million for the threemonths ended June 30, 2005 from $11.8 million for the three monthsended June 30, 2004. The decrease was attributable to a 25.1%decrease in the volume of loans brokered to third parties due to ourstrategy to increase retail funded loan volume and reduce retailbrokered loan volume, as well as a decrease in the margin on brokeredvolume.

**Net interest income**.    Net interest incomeincreased by approximately 144.2% to $9.4 million for the threemonths ended June 30, 2005 from $3.8 million for the three months endedJune 30, 2004. The increase is primarily attributable to a higheraverage balance of loans held for sale due to a higher volume oforiginations. The following table presents the average balance for eachcategory of our interest-earning assets and interest-bearingliabilities, with the corresponding annualized effective rate ofinterest and the related interest income or expense.

AverageBalance, Rate and Interest Income/Expense Table(Dollars inthousands)

|                                             |  |                                   |           |               |  |                          |        |                |  |               |        |                          |  |        |         |        |  |        |        |         |  |        |        |        |  |  |
|---------------------------------------------|--|-----------------------------------|-----------|---------------|--|--------------------------|--------|----------------|--|---------------|--------|--------------------------|--|--------|---------|--------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                                        |  | Forthe three months ended June30, |
|                                        |  | 2005                              |           | 2004          |
|                                        |  | AverageBalance                    |           | EffectiveRate |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate |        | InterestIncomeandExpense |
| Interest-earningassets:                     |  |                              |      |          |  |                     |   |           |  |          |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Mortgageloans held forsale                  |  | $                                 | 1,852,818 |          |  |                     | 5.59   | %         |  | $             | 25,811 |                     |  | $      | 451,371 |   |  |   | 5.58   | %  |  | $      | 6,275  |   |
| Cashand cashequivalents                     |  |                              | 49,217    |          |  |                     | 2.50   |           |  |          | 307    |                     |  |   | 10,287  |   |  |   | 0.62   |    |  |   | 16     |   |
|                                        |  |                              | 1,902,035 |          |  |                     | 5.51   |           |  |          | 26,118 |                     |  |   | 461,658 |   |  |   | 5.47   |    |  |   | 6,291  |   |
| Interest-bearingliabilities:                |  |                              |      |          |  |                     |   |           |  |          |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Warehouselinespayable                       |  |                              | 1,784,823 |          |  |                     | 3.46   |           |  |          | 15,374 |                     |  |   | 434,219 |   |  |   | 1.92   |    |  |   | 2,080  |   |
| Juniorsubordinated debentures and otherdebt |  |                              | 81,142    |          |  |                     | 6.81   |           |  |          | 1,378  |                     |  |   | 15,000  |   |  |   | 10.03  |    |  |   | 375    |   |
|                                        |  |                              | 1,865,965 |          |  |                     | 3.60   |           |  |          | 16,752 |                     |  |   | 449,219 |   |  |   | 2.19   |    |  |   | 2,455  |   |
| Netinterest-earning assets andspread        |  | $                                 | 36,070    |          |  |                     | 1.91   | %         |  | $             | 9,366  |                     |  | $      | 12,439  |   |  |   | 3.28   | %  |  | $      | 3,836  |   |
| Netinterest margin(1)                       |  |                              |      |          |  |                     | 1.98   | %         |  |          |   |                     |  |   |    |   |  |   | 3.33   | %  |  |   |   |   |
|                                             |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earning assets. |

Expenses

**Compensation and employeebenefits**.    Compensation and employee benefits expensesincreased approximately 58.1% to $31.5 million for the threemonths ended June 30, 2005 from $19.9 million for the three monthsended June 30, 2004. The increase was primarily due to an 88%increase in the volume of funded loans to $6.4 billion in the threemonths ended June 30, 2005 from $3.4 billion in the three months endedJune 30, 2004, as well as the addition of 15 branches opened betweenJune 30, 2004 and June 30, 2005.

**Processingexpenses**.    Mortgage loan processing expenses increasedapproximately 107.0% to $13.1 million for the three months endedJune 30, 2005 from $6.3 million for the three months ended June

37

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30, 2004. The increase was primarily due toan increase in the number of funded loans and a higher repurchasereserve due to increased subprime origination volume as a share oftotal origination volume.

**General and administrativeexpenses**.    General and administrative expenses increased by101.5% to $5.0 million for the three months ended June 30, 2005from $2.5 million for the three months ended June 30, 2004. Thisincrease was primarily due to the increase in the volume of fundedloans to $6.4 billion in the three months ended June 30, 2005 from $3.4billion in the three months ended June 30, 2004, as well as an increasein the number of branches to 53 during the second quarter of 2005 from38 in the comparable period in 2004.

**Marketing, loanacquisition and business development expenses**.    Marketing, loanacquisition and business development expenses decreased approximately12.8% to $1.0 million for the three months ended June 30, 2005from $1.2 million for the three months ended June 30, 2004. The declinewas primarily due to decreased use of internet loan production leads bythe retail loan production division.

**Rentexpense**.    Rent expense increased approximately 22.8% to$2.3 million for the three months ended June 30, 2005 from $1.9 millionfor the three months ended June 30, 2004. This increase was primarilydue to an increase in the number of branches to 53 operating during thesecond quarter of 2005 from 38 in the comparable period in 2004.

**Professional fees**.    Professional fees increasedapproximately 305.5% to $1.9 million for the three months endedJune 30, 2005 from $472,000 for the three months ended June 30, 2004.This increase was primarily due to higher legal and audit expenses.

**Depreciation and amortization expenses**.    Depreciation andamortization expenses increased 30.6% to $841,000 for the threemonths ended June 30, 2005 from $644,000 for the three months endedJune 30, 2004. The increase was primarily due to increased capitalexpenditures related to 15 new branches opened between June 30, 2004and June 30, 2005.

**Income tax expense**.    MortgageITmade the election to be treated as a taxable REIT subsidiary and,therefore, is subject to federal and state corporate income taxes.Accordingly, the Company records a tax provision on the taxable incomeof the TRS, which includes intercompany income that is eliminated inour consolidated statements of operations.

Six monthsended June 30, 2005 compared to six months ended June 30, 2004

Net income (loss)

Consolidated net income increased from$1.8 million for the six months ended June 30, 2004 to $24.1 millionfor the six months ended June 30, 2005. The increase is attributable tohigher net interest income, higher gain on sale of mortgage loans, andgains on derivatives instruments used in our investment portfolio hedgeprogram. Total revenues increased by approximately 128.9% to$142.9 million for the six months ended June 30, 2005 from $62.4million for the comparable period in 2004, while total expensesincreased by approximately 85.7% to $110.0 million from $59.2million. Our loan brokerage volume and revenue decreased by23.2% and 38.4%, respectively, from the first six monthsof 2004. Gain on sale of mortgage loans increased by 124.5% inthe first six months of 2005 compared to the comparable period in 2004and we recorded a $9.7 million gain on derivatives used in ourinvestment portfolio hedging program. The derivatives gains wererecorded primarily as a result of not applying SFAS No. 133 hedgeaccounting standards in the first quarter of 2005 to certain hedgingactivities. In addition, net interest income increased by 519.2%to $40.9 million in the first six months of 2005 from $6.6 million inthe comparable period in 2004.

Mortgage InvestmentOperations

Our mortgage investment operations segment, or"REIT," began operations on August 4, 2004following our reorganization and initial public offering. This businesssegment generates revenue from net interest income earned on ourPortfolio ARM Loans.

38

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Revenues

**Net interestincome**.    REIT net interest income was $19.5 million on averageearning assets of $3.1 billion for the six months ended June 30, 2005.The following table presents the average balance for each category ofour interest-earning assets and interest-bearing liabilities, with thecorresponding annualized effective rate of interest and the relatedinterest income or expense for the same period:

AverageBalance, Rate and Interest Income/Expense Table(Dollars inthousands)

|                                      |  |                                 |           |               |  |                          |        |         |  |        |        |        |  |  |
|--------------------------------------|--|---------------------------------|-----------|---------------|--|--------------------------|--------|---------|--|--------|--------|--------|--|--|
|                                 |  | Forthe six months ended June30, |
|                                 |  | 2005                            |
|                                 |  | AverageBalance                  |           | EffectiveRate |  | InterestIncomeandExpense |
| Interest-earningassets:              |  |                            |      |          |  |                     |   |    |  |   |   |   |
| PortfolioARMLoans                    |  | $                               | 3,066,999 |          |  |                     | 4.81   | %  |  | $      | 73,626 |   |
| Cashand cashequivalents              |  |                            | 34,115    |          |  |                     | 0.44   |    |  |   | 75     |   |
|                                 |  |                            | 3,101,114 |          |  |                     | 4.77   |    |  |   | 73,701 |   |
| Interest-bearingliabilities:         |  |                            |      |          |  |                     |   |    |  |   |   |   |
| Collateralizeddebtobligations        |  |                            | 2,370,904 |          |  |                     | 3.67   |    |  |   | 43,439 |   |
| Warehouselinespayable                |  |                            | 537,193   |          |  |                     | 3.55   |    |  |   | 9,499  |   |
| Repurchaseagreements                 |  |                            | 89,135    |          |  |                     | 2.94   |    |  |   | 1,306  |   |
|                                 |  |                            | 2,997,232 |          |  |                     | 3.63   |    |  |   | 54,244 |   |
| Netinterest-earning assets andspread |  | $                               | 103,882   |          |  |                     | 1.14   | %  |  | $      | 19,457 |   |
| Netinterest margin(1)                |  |                            |      |          |  |                     | 1.26   | %  |  |   |   |   |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earning assets. |

Expenses

REIT operating expenses totaled $6.7 million forthe six months ended June 30, 2005, primarily consisting of:

|              |                                     |
|--------------|-------------------------------------|
| •  | compensation and employee benefits; |

|              |                                        |
|--------------|----------------------------------------|
| •  | mortgage loan processing expenses; and |

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | professional fees, and general and administrativeexpenses. |

A substantial portion of REIT expenses are generallyfixed in nature. The variable expenses are primarily processingexpenses, including subservicing costs, provision for credit losses andbrokerage commission expenses paid on Eurodollar contracts.

Mortgage Banking Operations

Revenues

**Gain onsale of mortgage loans**.    Gain on sale of mortgage loansincreased approximately 162.3% to $92.4 million for the sixmonths ended June 30, 2005 from $35.2 million for the six months endedJune 30, 2004. On a standalone basis, whole loan sales increased by132.0% to $8.6 billion for the six months ended June 30, 2005from $3.7 billion for the six months ended June 30, 2004. On aconsolidated basis, mortgage whole loan sales to third partiesincreased by 85.8% to $6.9 billion, after the elimination of$1.7 billion million in intercompany loan sales, for the six monthsended June 30, 2005 from $3.7 billion for the six months ended June 30,2004.

39

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**Brokerage Revenue**.    Brokeragerevenue decreased by approximately 38.4% to $12.7 million forthe six months ended June 30, 2005 from $20.6 million for the sixmonths ended June 30, 2004. The decrease was primarily attributable toa 23.2% decrease in the volume of loans brokered to thirdparties due to our strategy to increase retail funded loan volume andreduce retail brokered loan volume, as well as a decrease in the marginon brokered volume.

**Net interest income**.    Netinterest income increased by approximately 191.7% to $19.3million for the six months ended June 30, 2005 from $6.6 million forthe six months ended June 30, 2004. The increase is primarilyattributable to a higher average balance of loans held for sale due toa higher volume of originations. The following table presents theaverage balance for each category of our interest-earning assets andinterest-bearing liabilities, with the corresponding annualizedeffective rate of interest and the related interest income orexpense.

Average Balance, Rate and Interest Income/ExpenseTable(Dollars inthousands)

|                                             |  |                                 |           |               |  |                          |        |                |  |               |        |                          |  |        |         |        |  |        |        |         |  |        |        |        |  |  |
|---------------------------------------------|--|---------------------------------|-----------|---------------|--|--------------------------|--------|----------------|--|---------------|--------|--------------------------|--|--------|---------|--------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                                        |  | Forthe six months ended June30, |
|                                        |  | 2005                            |           | 2004          |
|                                        |  | AverageBalance                  |           | EffectiveRate |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate |        | InterestIncomeandExpense |
| Interest-earningassets:                     |  |                            |      |          |  |                     |   |           |  |          |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Mortgageloans held forsale                  |  | $                               | 1,547,735 |          |  |                     | 5.87   | %         |  | $             | 45,307 |                     |  | $      | 417,718 |   |  |   | 5.55   | %  |  | $      | 11,564 |   |
| Cashand cashequivalents                     |  |                            | 30,574    |          |  |                     | 2.40   |           |  |          | 366    |                     |  |   | 13,766  |   |  |   | 0.64   |    |  |   | 44     |   |
|                                        |  |                            | 1,578,309 |          |  |                     | 5.80   |           |  |          | 45,673 |                     |  |   | 431,484 |   |  |   | 5.40   |    |  |   | 11,608 |   |
| Interest-bearingliabilities:                |  |                            |      |          |  |                     |   |           |  |          |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Warehouselinespayable                       |  |                            | 1,452,803 |          |  |                     | 3.42   |           |  |          | 24,744 |                     |  |   | 401,845 |   |  |   | 2.30   |    |  |   | 4,613  |   |
| Juniorsubordinated debentures and otherdebt |  |                            | 48,071    |          |  |                     | 6.92   |           |  |          | 1,659  |                     |  |   | 7,750   |   |  |   | 10.03  |    |  |   | 388    |   |
|                                        |  |                            | 1,500,874 |          |  |                     | 3.52   |           |  |          | 26,403 |                     |  |   | 409,595 |   |  |   | 2.45   |    |  |   | 5,001  |   |
| Netinterest-earning assets andspread        |  | $                               | 77,435    |          |  |                     | 2.28   | %         |  | $             | 19,270 |                     |  | $      | 21,889  |   |  |   | 2.95   | %  |  | $      | 6,607  |   |
| Netinterest margin(1)                       |  |                            |      |          |  |                     | 2.45   | %         |  |          |   |                     |  |   |    |   |  |   | 3.07   | %  |  |   |   |   |
|                                             |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (1) | Netinterest margin is computed by dividing annualized net interest incomeby the average daily balance of interest-earning assets. |

Expenses

**Compensation and employeebenefits**.    Compensation and employee benefits expensesincreased approximately 60.3% to $58.4 million for the sixmonths ended June 30, 2005 from $36.4 million for the six months endedJune 30, 2004. The increase was primarily due to a 93.3%increase in the volume of funded loans to $10.7 billion in the sixmonths ended June 30, 2005 from $5.6 billion in the six months endedJune 30, 2004, as well as the addition of 15 branches opened betweenJune 30, 2004 and June 30, 2005.

**Processingexpenses**.    Mortgage loan processing expenses increasedapproximately 134.8% to $23.0 million for the six months endedJune 30, 2005, from $9.8 million for the six months ended June 30,2004. The increase was primarily due to an increase in the number offunded loans and a higher repurchase reserve due to increased subprimeorigination volume as a share of total origination volume.

**General and administrative expenses**.    General andadministrative expenses increased by 134% to $11.2 million forthe six months ended June 30, 2005 from $4.8 million for the six monthsended June 30, 2004. This increase was primarily due to the increase inthe volume of funded loans to $10.7 billion 

40

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in the six months ended June 30, 2005 from$5.6 billion in the six months ended June 30, 2004, as well as anincrease in the number of branches to 53 during the first six months of2005 from 38 in the comparable period in 2004. In addition, the resultsinclude the impact of special legal charges and reserves in the amountof approximately $2.9 million associated with the Company's SFASNO. 133 review and restatement and other legal matters.

**Marketing, loan acquisition and business developmentexpenses**.    Marketing, loan acquisition and business developmentexpenses decreased approximately 13.7% to $1.9 million for thesix months ended June 30, 2005 from $2.2 million for the six monthsended June 30, 2004. The decline was primarily due to decreased use ofinternet loan production leads by the retail loan productiondivision.

**Rent expense**.    Rent expense increasedapproximately 24.1% to $4.6 million for the six months endedJune 30, 2005 from $3.7 million for the six months ended June 30, 2004.This increase was primarily due to an increase in the number ofbranches to 53 operating during the first six months of 2005 from 38 inthe comparable period in 2004.

**Professionalfees**.    Professional fees increased approximately 252.0%to $3.7 million for the six months ended June 30, 2005 from $1.1million for the six months ended June 30, 2004. This increase wasprimarily due to legal and audit expenses related to theCompany's restatement of its financials in connection with itsSFAS No.133 review, as well as outstanding litigation and regulatorymatters.

**Depreciation and amortizationexpenses**.    Depreciation and amortization expenses increased28.9% to $1.6 million for the six months ended June 30, 2005from $1.3 million for the six months ended June 30, 2004. The increasewas primarily due to increased capital expenditures related to 15 newbranches opened between June 30, 2004 and June 30, 2005.

**Income tax expense**.    MortgageIT made the election to betreated as a taxable REIT subsidiary and, therefore, is subject tofederal and state corporate income taxes. Accordingly, the Companyrecords a tax provision on the taxable income of the TRS, whichincludes intercompany income that is eliminated in our consolidatedstatements of operations

FINANCIAL CONDITION

Prior toour reorganization as a REIT, our assets consisted primarily ofmortgage loans held for sale. At June 30, 2005 and December 31, 2004,our assets consisted of both Portfolio ARM Loans and mortgage loansheld for sale, representing 59% and 37%, respectively, oftotal assets at June 30, 2005, and 73% and 22%,respectively, of total assets at December 31, 2004.

Total assetsincreased $2.93 billion from December 31, 2004 to June 30, 2005. Theincrease primarily reflects an increase in Portfolio ARM Loans in theamount of $1.21 billion and an increase in mortgage loans held for salein the amount of $1.60 billion. Portfolio ARM Loans consists of $3.63billion and $1.43 billion of ARM loans that collateralize debtobligations, and $171.4 million and $1.17 billion of ARM loans held forsecuritization at June 30, 2005 and December 31, 2004, respectively.The growth of ARM loans that collateralize debt obligations wasprimarily funded by an increase in securitizations of $2.12 billion and$1.33 billion and the growth in ARM loans held for securitization andmortgages held for sale was primarily funded by an increase inwarehouse lines payable of $558.7 million and $1.57 billion at June 30,2005 and December 31, 2004, respectively.

The following tablepresents various characteristics of our Portfolio ARM Loans as of June30, 2005. The aggregate unpaid principal balance of the loans includedin this table is approximately $3.8billion.

|                      |  |         |         |         |  |        |           |         |  |        |        |         |  |  |
|----------------------|--|---------|---------|---------|--|--------|-----------|---------|--|--------|--------|---------|--|--|
|                 |  | Average |         | High    |  | Low    |
| Originalloanbalance  |  | $       | 287,558 |    |  | $      | 1,000,000 |    |  | $      | 26,500 |    |
| Couponrate onloans   |  |    | 5.38    | %  |  |   | 7.25      | %  |  |   | 3.50   | %  |
| %Grossmargin         |  |    | 2.35    | %  |  |   | 3.00      | %  |  |   | 1.75   | %  |
| Lifetimecap          |  |    | 11.16   | %  |  |   | 18.25     | %  |  |   | 3.88   | %  |
| Originalterm(months) |  |    | 360     |    |  |   | 360       |    |  |   | 360    |    |
|                      |

41

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|                                       |  |         |        |        |  |        |        |        |  |        |        |         |  |  |
|---------------------------------------|--|---------|--------|--------|--|--------|--------|--------|--|--------|--------|---------|--|--|
|                                  |  | Average |        | High   |  | Low    |
| Remaining term(months)                |  |    | 354    |   |  |   | 360    |   |  |   | 350    |    |
| Geographicdistribution (top 5states): |  |    |   |   |  |   |   |   |  |   |   |    |
| California                            |  |    |   |   |  |   |   |   |  |   | 59.1   | %  |
| Arizona                               |  |    |   |   |  |   |   |   |  |   | 7.4    |    |
| Washington                            |  |    |   |   |  |   |   |   |  |   | 5.7    |    |
| Florida                               |  |    |   |   |  |   |   |   |  |   | 4.4    |    |
| Illinois                              |  |    |   |   |  |   |   |   |  |   | 3.3    |    |
| Other                                 |  |    |   |   |  |   |   |   |  |   | 20.1   |    |
| Occupancystatus:                      |  |    |   |   |  |   |   |   |  |   |   |    |
| Owneroccupied                         |  |    |   |   |  |   |   |   |  |   | 88.9   | %  |
| Investor                              |  |    |   |   |  |   |   |   |  |   | 8.6    |    |
| Secondhome                            |  |    |   |   |  |   |   |   |  |   | 2.5    |    |
| Documentationtype:                    |  |    |   |   |  |   |   |   |  |   |   |    |
| Full/Alternative                      |  |    |   |   |  |   |   |   |  |   | 48.7   | %  |
| Other                                 |  |    |   |   |  |   |   |   |  |   | 51.3   |    |
| Loanpurpose:                          |  |    |   |   |  |   |   |   |  |   |   |    |
| Purchase                              |  |    |   |   |  |   |   |   |  |   | 54.4   | %  |
| Cash-outrefinance                     |  |    |   |   |  |   |   |   |  |   | 27.8   |    |
| Rate &termrefinance               |  |    |   |   |  |   |   |   |  |   | 17.8   |    |
| Originalloan-to-value:                |  |    |   |   |  |   |   |   |  |   |   |    |
| 80.01%andover                         |  |    |   |   |  |   |   |   |  |   | 2.4    | %  |
| 70.01%-80.00%                         |  |    |   |   |  |   |   |   |  |   | 70.2   |    |
| 60.01%-70.00%                         |  |    |   |   |  |   |   |   |  |   | 16.6   |    |
| 50.01%-60.00%                         |  |    |   |   |  |   |   |   |  |   | 6.1    |    |
| 50.00%orless                          |  |    |   |   |  |   |   |   |  |   | 4.7    |    |
| Weightedaverage originalloan-to-value |  |    |   |   |  |   |   |   |  |   | 73.7   | %  |
| Propertytype:                         |  |    |   |   |  |   |   |   |  |   |   |    |
| Singlefamily                          |  |    |   |   |  |   |   |   |  |   | 61.6   | %  |
| PUD                                   |  |    |   |   |  |   |   |   |  |   | 22.9   |    |
| Condominium                           |  |    |   |   |  |   |   |   |  |   | 10.8   |    |
| Otherresidential                      |  |    |   |   |  |   |   |   |  |   | 4.7    |    |
| ARMloan type:                         |  |    |   |   |  |   |   |   |  |   |   |    |
| 3-yearhybrid                          |  |    |   |   |  |   |   |   |  |   | 33.8   | %  |
| 5-yearhybrid                          |  |    |   |   |  |   |   |   |  |   | 65.4   |    |
| Other                                 |  |    |   |   |  |   |   |   |  |   | 0.8    |    |
| ARMinterest ratecaps:                 |  |    |   |   |  |   |   |   |  |   |   |    |
| Initialcap:                           |  |    |   |   |  |   |   |   |  |   |   |    |
| Under3.00                             |  |    |   |   |  |   |   |   |  |   | 8.3    | %  |
| 3.01-4.00                             |  |    |   |   |  |   |   |   |  |   | 0.0    |    |
| 4.01-5.00                             |  |    |   |   |  |   |   |   |  |   | 22.6   |    |
| 5.01-6.00                             |  |    |   |   |  |   |   |   |  |   | 69.1   |    |
| Periodiccap:                          |  |    |   |   |  |   |   |   |  |   |   |    |
| None                                  |  |    |   |   |  |   |   |   |  |   | 0.6    | %  |
| Under1.00%                            |  |    |   |   |  |   |   |   |  |   | 0.2    |    |
| Over1.00%                             |  |    |   |   |  |   |   |   |  |   | 99.2   |    |
|                                  |  |    |   |   |  |   |   |   |  |   |   |    |
| Percentof interest-only loanbalances  |  |    |   |   |  |   |   |   |  |   | 80.2   | %  |
|                                  |  |    |   |   |  |   |   |   |  |   |   |    |
| Weightedaverage FICO (1)score:        |  |    |   |   |  |   |   |   |  |   | 732    |    |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | FICOis a credit score, ranging from 300 to 850, with 850 being the bestscore, based upon the credit evaluation methodology developed by Fair,Isaac and Company, a consulting firm specializing in creating creditevaluation models. |

42

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CRITICAL ACCOUNTING POLICIES ANDESTIMATES

Management's discussion and analysis offinancial condition and results of operations is based on the amountsreported in our consolidated financial statements. These consolidatedfinancial statements have been prepared in conformity with accountingprinciples generally accepted in the United States of America("GAAP"), many of which require the use ofestimates, judgments and assumptions that affect reported amounts.Changes in the estimates and assumptions could have a material effecton these consolidated financial statements. In accordance with recentSEC guidance, those material accounting policies that we believe arethe most critical to an investor's understanding of our financialresults and condition and require complex management judgment have beendescribed below. Additional information regarding our accountingpolicies is contained in Note 1 to the consolidated financialstatements.

Derivatives and Hedging Activities

Weutilize derivatives to manage interest rate risk exposure. Inaccordance with SFAS No. 133, "Accounting for DerivativeInvestments and Hedging Activities," all derivativeinstruments are recorded at fair value. We designate every derivativeinstrument as either (1) a hedge of the fair value of a recognizedasset or liability or of an unrecognized firm commitment, (2) a hedgeof the variability of cash flows to be paid related to either aforecasted or recognized liability, or (3) a free-standing derivativeinstrument.

To qualify for hedge accounting under SFAS No. 133,we must demonstrate, on an ongoing basis, that our interest rate riskmanagement activity is highly effective. We determine the effectivenessof our interest rate risk management activities using standardstatistical measures. If we are unable to qualify certain of ourinterest rate risk management activities for hedge accounting, then thechange in fair value of the associated derivative financial instrumentswould be reflected in current period earnings. See Note 4 of ourconsolidated financial statements for further information pertaining toour accounting for derivatives and hedging activities.

Changesin the fair value of a derivative that is highly effective and that isdesignated and qualifies as a fair value hedge, along with the changein the fair value of the hedged asset or liability, are recorded inearnings. Our fair value hedges are used primarily for mortgage loansheld for sale.

Changes in the fair value of a derivative that ishighly effective and that is designated and qualifies as a cash flowhedge are recorded in OCI to the extent that the derivative iseffective as a hedge, until earnings are affected by the variability incash flows of the designated hedged item. Our cash flow hedges are usedprimarily to hedge the financing cost for forecasted or recognizedmortgage-backed collateralized debt obligations.

We obtain thefair value of Eurodollar futures, TBA securities, options on TBAsecurities and interest rate swaps and caps from quoted marketprices.

The fair value of forward sale commitments to delivermortgages is estimated using current quoted market prices for dealer orinvestor commitments as applies to our existing positions.

Thefair value of an IRLC is based on an estimate of the fair value of theunderlying mortgage loan, and given the probability that the loan willfund within the terms of the IRLC. After issuance, the value of an IRLCcan change and be either positive or negative, depending on the changein value of the underlying mortgage loan. The probability that theunderlying loan will fund is driven by a number of factors, inparticular, the change, if any, in mortgage rates after the lock date.In general, the probability of funding increases if mortgage rates riseand decreases if mortgage rates fall. The probability that a loan willfund within the terms of the IRLC also is influenced by the source ofthe applicant, purpose for the loan (purchase or refinance) and theapplication approval rate.

Fair value estimates are made as of aspecific point in time based on estimates using present value or othervaluation techniques. These techniques may involve uncertainties andare significantly affected by the assumptions used and the judgmentsmade regarding risk characteristics of various financial instruments,discount rates, estimates of future cash flows, future expected lossexperience and other factors. Changes in assumptions couldsignificantly affect these estimates and the resulting fair values.

43

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Interest Income on Portfolio ARMLoans

Interest income is accrued based on the outstandingprincipal amount and contractual terms of our loans. Direct loanorigination fees and costs are deferred and amortized as an interestincome yield adjustment over the life of the related loans using theeffective yield method. Estimating prepayments and estimating theremaining lives of the loans requires management judgment, whichinvolves consideration of possible future interest rate environments.The actual lives could be more or less than the amount estimated bymanagement. See Item 3 – Quantitative and Qualitative DisclosuresAbout Market Risk – Interest Rate Risk Management in this reporton Form 10-Q for further details.

Loan Loss Reserves

MortgageIT's historical operations had an insignificant amountof loan losses due to default or non-performance on the loans primarilybecause mortgage loans were sold soon after being originated. Becausewe now hold loans for investment, we record an allowance for loanlosses reflecting our estimate of future loan default losses. OurPortfolio ARM Loans are collectively evaluated for impairment, as theloans are homogeneous in nature. The allowance is based uponmanagement's assessment of the various risk factors affecting ourinvestment loan portfolio, including current economic conditions, themakeup of the portfolio based on credit grade, loan-to-value ratios,delinquency status, historical credit losses, purchased mortgageinsurance and other factors deemed to warrant consideration. Theallowance is maintained through ongoing loss provisions charged tooperating income and are reduced by loans that are charged off.Determining the allowance for loan losses is subjective in nature dueto the estimates required and the potential for imprecision. Twocritical assumptions used in estimating the loan loss reserves are anassumed rate of default, which is the expected rate at which loans gointo foreclosure over the life of the loans, and an assumed rate ofloss severity, which represents the expected rate of realized loss upondisposition of the properties that have gone into foreclosure.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure ofour ability to meet potential cash requirements, including ongoingcommitments to repay borrowings, fund and maintain investments, paydividends to our stockholders and other general business needs. It isour policy to have adequate liquidity available at all times. As aresult of our secondary public offering, which was completed on July 6,2005, we believe our existing cash balances, funds available under ourcredit facilities and cash flows from operations are sufficient to fundour operations for at least the next 12 months. We manage liquidity toensure that we have the continuing ability to maintain cash flows thatare adequate to fund operations and meet commitments on a timely andcost-effective basis.

Liquidity from Mortgage InvestmentOperations

The principal sources of liquidity for our mortgageinvestment operations are the issuance of mortgage-backed securities,repurchase agreements, and principal payments and net interest earnedfrom our Portfolio ARM Loans. The net interest income earned from ourPortfolio ARM Loans is the primary source of income and liquidity forthe payment of dividends to our stockholders. We believe that ourliquidity level is in excess of that necessary to pay dividends to ourstockholders and to satisfy our operating requirements.

Loansecuritizations are the primary funding source for our Portfolio ARMLoans.

We securitize mortgage loans by transferring them toindependent trusts that issue securities collateralized by thetransferred mortgage loans. The loan securitization process benefits usby creating highly liquid securitized assets that can be readilyfinanced in the capital markets. We believe there is a reliable andstable market for term financing of investment grade mortgage-backedsecurities that we issue.

Through June 30, 2005, we completedfive securitization transactions in which we securitized ARM loans intoa series of pro rata pay, floating-rate securities. The securitizationprocess benefits us by 

44

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enabling us to issue permanent financingthat is not subject to rollover risk or margin calls, and by creatinghighly liquid assets that can be readily financed in the reverserepurchase agreement market.

In these transactions, we issuedAAA and AA-rated floating-rate pass-through certificates totaling $3.67billion and A+/BBB+ subordinated floating rate securities totaling$36.7 million to third party investors, and retained $106.3 million ofsubordinated certificates, which provide credit support to thehigher-rated certificates. The interest rates on the floating-ratepass-through certificates reset monthly and are indexed to theone-month LIBOR rate. In connection with the issuance of thesemortgage-backed securities we incurred securitization costs of $11.2million, including investment banking fees, legal fees and otherrelated costs. The securitization costs are amortized over the expectedlife of the mortgage-backed securities.

As of June 30, 2005 andDecember 31, 2004, outstanding mortgage-backed securities werecollateralized by ARM loans with a remaining principal balance ofapproximately $3.6 billion and $1.4 billion, respectively. Thesemortgage-backed securities mature between 2033 and 2035 and arecallable at par by us after the total remaining balance of the loanscollateralizing the debt is paid down to 20% of its originalbalance. The balance of our debt is also reduced as the underlying loancollateral is paid down, and is expected to have an average life ofapproximately four years.

We also utilize repurchase agreementsas a source of financing for our mortgage investment operations. Thesearrangements vary in size and other characteristics among multipleproviders. In particular, repurchase agreements have terms that willvary with respect to advance rates, interest spreads, size, durationand other characteristics depending on the nature of the underlyingcollateral in the program.

Under these agreements, we sell someor all of the retained interest in our mortgage-backed securities to acounterparty and we agree to repurchase those assets at a future date.At maturity, we purchase the assets back from the counterparty at anamount equal to the original sales price plus interest. During the termof a repurchase agreement, we continue to earn principal and intereston the underlying mortgage assets. As of June 30, 2005 and December 31,2004, we had $82.1 million and $67.7 million of repurchase agreementsoutstanding, respectively.

These financing arrangements areshort-duration facilities, generally 30 days, secured by the retainedinterest in our residential mortgage-backed securities, the value ofwhich may move inversely with changes in interest rates. A decline inthe market value of our investments may limit our ability to borrow orresult in lenders requiring additional collateral. As a result, wecould be required to sell some of our investments under adverse marketconditions in order to maintain liquidity. If such sales are made atprices lower than the amortized costs of such investments, we willincur losses.

In addition, we draw down on all of our warehousefacilities, except for the facility with RFC, to finance loans that areheld for securitization by the REIT.

Liquidity from MortgageBanking Operations

For our mortgage banking operations, ourprincipal sources of liquidity are our warehouse facilities and ourprincipal use of liquidity is the origination of new mortgageloans.

To originate a mortgage loan, MortgageIT utilizes itsshort-term warehouse credit facilities that are available to fundmortgage loans held for sale. These facilities are secured by themortgage loans owned by MortgageIT and by certain other assets,including cash deposited in interest-bearing collateral accounts.Advances drawn under these facilities bear interest at rates that varydepending on the type of mortgage loans securing the advances. Thesefacilities are subject to sub-limits, advance rates and terms that varydepending on the type of mortgage loans securing these financings andthe ratio of MortgageIT's liabilities to its tangible net worth.As of June 30, 2005, the aggregate warehouse facilities aggregated $3.3billion and the maximum amount available for additional borrowingsunder these facilities was approximately $517.7 million.

Thesefacilities bear interest at LIBOR plus a spread based on the types ofloans being funded. The documents governing MortgageIT'swarehouse facilities contain a number of compensating balance

45

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requirements and restrictive financial andother covenants that, among other things, require it to maintain aminimum ratio of total liabilities to tangible net worth, minimumlevels of tangible net worth, liquidity and stockholders' equityand maximum leverage ratios, as well as to comply with applicableregulatory and investor requirements.

During the six monthsended June 30, 2005, the Company negotiated two new credit facilities,which, when added to the Company's three existing creditfacilities, bring to five, the total number of facilities it may drawupon.

The weighted average effective rate of interest forborrowings under all warehouse lines of credit, was approximately3.5% and 2.6% for the six months ended June 30, 2005 andthe year ended December 31, 2004, respectively.

All mortgageloans held for sale have been pledged as collateral under the abovewarehouse credit facilities. In addition, the facilities containvarious financial covenants and restrictions, including a requirementthat we maintain specified leverage ratios and net worth amounts. As ofJune 30, 2005, we were in compliance with the covenants contained inall of our warehouse credit facilities. When we have violated covenantscontained in our credit facilities in the past, we have obtainedwaivers with respect to those violations from our lenders. No assurancecan be made that our lenders will waive future covenant violations, ifthey occur. The agreements also contain covenants limiting our abilityto:

|              |                                                       |
|--------------|-------------------------------------------------------|
| •  | consolidate, merge or enter into similartransactions; |

|              |                          |
|--------------|--------------------------|
| •  | transfer or sell assets; |

|              |                                    |
|--------------|------------------------------------|
| •  | create liens on the collateral; or |

|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | change the nature of our business, without obtainingthe prior consent of the lenders, which consent may not be unreasonablywithheld. |

These limits may in turn restrict our ability to paycash or stock dividends on our common stock. In addition, under thewarehouse facilities, we cannot continue to finance a mortgage loanthat we hold through the warehouse facility if:

|              |                                                                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the loan is rejected as "unsatisfactoryfor purchase" by the ultimate investor and has exceededits permissible warehouse period, which varies by facility; |

|              |                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------|
| •  | we fail to deliver the applicable note, mortgage orother documents evidencing the loan within the requisite timeperiod; |

|              |                                                                                                                      |
|--------------|----------------------------------------------------------------------------------------------------------------------|
| •  | the underlying property that secures theloan has sustained a casualty loss in excess of 5% of itsappraised value; or |

|              |                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------|
| •  | the loan ceases to be aneligible loan (as determined pursuant to the warehouse facilityagreement). |

In addition to the warehouse facilities, MortgageIThas entered into a mortgage loan purchase agreement with UBS, which werefer to as a conduit facility. Under this agreement, UBS purchases aloan from MortgageIT, which enables MortgageIT to record the sale andrecognize the gain on sale. Upon sale, MortgageIT removes both theloans and the corresponding warehouse liability from its balance sheet.A third party subsequently purchases the loan directly from UBS.MortgageIT facilitates the final settlement of the loan sale betweenUBS and the third party, and receives a performance fee for servicesprovided to UBS. MortgageIT classifies the performance fee as brokeragerevenue. The capacity available under the conduit facility is includedin the $1.25 billion warehouse facility. The overall facility capacityat any given time is reduced by the outstanding balance on thewarehouse facility plus the outstanding balance of the conduitfacility. The conduit facility is not a committed facility and may beterminated at the discretion of UBS.

In addition to thewarehouse facilities and the UBS conduit facility, MortgageIT, issuedin two separate private placements $77.3 million of junior subordinateddebentures (the "Debentures"). The Debentureswere issued to a trust subsidiary of MortgageIT in order to fund thetrust's obligations with respect to an aggregate of $75 millionof trust preferred securities which were issued by such 

46

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trust subsidiary. The Debentures arefloating rate and bear a variable interest rate of 375 basis pointsabove 3-month LIBOR, paid quarterly, and mature in 2035. They areredeemable at par after five years and at a premium to par in certainlimited circumstances over the first five years. In connection with theissuance of the Debentures, the Company incurred costs of $2.4 million.These costs are being amortized over the expected life of thesecurities.

Finally, MortgageIT has entered into a $15 millionNote Purchase Agreement with Technology Investment Capital Corp.("TICC"), whereby MortgageIT sold anaggregate principal amount of $15 million of senior secured promissorynotes (the "Notes") to TICC. The proceedsfrom the sale of the Notes provide working capital for MortgageIT. TheNotes bore interest at a rate of 10% per annum through September30, 2004, at a rate of 7.5% per annum for the period fromOctober 1, 2004 through March 31, 2005. Beginning on April 1, 2005, theNotes bear interest at the rate of 10% per annum. Interest onthe Notes is payable quarterly in arrears.The Notes provide for asingle payment of the entire amount of the unpaid principal and anyunpaid accrued interest on the Notes on March 29, 2007. As of June 30,2005, MortgageIT was in compliance with all of the restrictions andcovenants contained in the Note Purchase Agreement, except thewarehouse line ratio, for which a waiver has been obtained. However, noassurance can be made that waivers will be granted in the future, tothe extent such waivers are necessary.

MortgageIT makes certainrepresentations and warranties, and is subject to various affirmativeand negative financial and other covenants, under the terms of both thewarehouse credit facilities and certain investor loan sale agreementsregarding, among other things, the loans' compliance with lawsand regulations, their conformity with the investors'underwriting standards and the accuracy of information. In the event ofa breach of these representations, warranties or covenants or in theevent of an early payment default, these loans may become ineligiblecollateral for the warehouse credit facilities or may become ineligiblefor sale to an investor, and MortgageIT may be required to repurchasethe loans from the warehouse lender or the investor. MortgageIT hasimplemented procedures to help ensure quality control and conformity tounderwriting standards and to minimize the risk of being required torepurchase loans. MortgageIT has been required to repurchase loans ithas sold from time to time; however, these repurchases have not had amaterial impact on the results of operations of MortgageIT.

MortgageIT's ability to originate and fund loans hashistorically depended in large part on its ability to sell the mortgageloans it originates at a premium in the secondary market so that it maygenerate cash proceeds to repay borrowings under its warehousefacilities. The value of MortgageIT's loans is relevant indetermining the overall amount of borrowings that will be available toit under its financing facilities. The value of our loans depends on anumber of factors, including:

|              |                                                               |
|--------------|---------------------------------------------------------------|
| •  | interest rates onour loans compared to market interest rates; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | theborrower credit risk classification; |

|              |                                                                      |
|--------------|----------------------------------------------------------------------|
| •  | loan-to-valueratios, loan terms, underwriting and documentation; and |

|              |                              |
|--------------|------------------------------|
| •  | general economic conditions. |

Cash and CashEquivalents

Our cash and cash equivalents decreased to $27.2million at June 30, 2005 from $70.2 million at December 31, 2004. Ourprimary sources of cash and cash equivalents during the six monthsended June 30, 2005 were as follows:

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | a $2.1billion increase in collateralized debt obligations; |

|              |                                                      |
|--------------|------------------------------------------------------|
| •  | a $558.7 million increase in warehouse linespayable; |

|              |                                                                                                  |
|--------------|--------------------------------------------------------------------------------------------------|
| •  | a $72.6 million increase in net proceedsfrom the issuance of junior subordinated debentures; and |

|              |                                                   |
|--------------|---------------------------------------------------|
| •  | a $14.5 million increase in repurchaseagreements. |

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Our primary uses of cash and cashequivalents during the six months ended June 30, 2005 were asfollows:

|              |                                                                                     |
|--------------|-------------------------------------------------------------------------------------|
| •  | a $2.8 billion increase in Portfolio ARMLoans and mortgage loans held for sale; and |

|              |                                                    |
|--------------|----------------------------------------------------|
| •  | a$17.9 million distribution and dividend payments. |

Payment ofDistributions

On December 16, 2004, we declared our initialdistribution on our common stock of $0.44 per share. The distributionwas made in January 2005 and, for financial reporting purposes, wasreflected as an increase in our accumulated deficit. The total cashdistribution of approximately $8.5 million exceeded the minimum taxableincome distribution requirements for the year.

On March 16,2005, we declared a common stock dividend of $0.48 per share. Thedividend was distributed in April 2005 and, for financial reportingpurposes, was reflected as an increase in our accumulated deficit. Thetotal cash dividend of approximately $9.3 million exceeded the minimumtaxable income distribution requirements for the quarter.

On May17, 2005, we declared a common stock dividend of $0.48 per share. Thedividend was distributed in July 2005 and, for financial reportingpurposes, was reflected as an increase in our accumulated deficit. Thetotal cash dividend of approximately $9.3 million exceeded the minimumtaxable income distribution requirements for the quarter.

We arerequired to make annual distributions of our income to our stockholdersin order to maintain our REIT status and to avoid corporate income taxand the nondeductible excise tax. However, differences in timingbetween the recognition of REIT taxable income and the actual receiptof cash could require us to sell assets or to borrow funds on ashort-term basis to meet the REIT distribution requirements and toavoid corporate income tax and the nondeductible excise tax. Further,certain of our assets may generate substantial mismatches between REITtaxable income and available cash. Such assets could, for exampleinclude mortgage-backed securities we hold that have been issued at adiscount and require the accrual of taxable income in advance of thereceipt of cash. As a result, our taxable income may exceed our cashavailable for distribution and the requirement to distribute asubstantial portion of our net taxable income could cause us to: (1)sell assets under adverse market conditions, (2) borrow on unfavorableterms or (3) distribute amounts that would otherwise be invested infuture acquisitions, capital expenditures or repayment of debt in orderto comply with the REIT distribution requirements.

INFLATION

For the periods presented herein, inflation hasbeen relatively low and we believe that inflation has not had amaterial effect on our results of operations. To the extent inflationincreases in the future at a rate that is faster than the marketcurrently anticipates, interest rates are also likely rise, which wouldlikely reduce the number of mortgage loans we originate. A reduction inthe number of loans we originate resulting from increased inflationwould adversely affect our future results of operations. Additionally,to the extent that the investment portfolio earnings are sensitive torising interest rates, unanticipated increases in inflation mayadversely affect our results of operations.

OFF-BALANCE SHEETARRANGEMENTS

None.

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CONTRACTUAL OBLIGATIONS

We hadthe following commitments (excluding derivative financial instruments)at June 30, 2005 (inthousands):

|                                       |  |                       |           |                |  |           |           |           |  |                 |         |        |  |        |         |        |  |        |           |        |  |  |
|---------------------------------------|--|-----------------------|-----------|----------------|--|-----------|-----------|-----------|--|-----------------|---------|--------|--|--------|---------|--------|--|--------|-----------|--------|--|--|
|                                  |  | Paymentsdue by Period |
|                                  |  | (Dollars inthousands) |
|                                  |  | Total                 |           | Lessthan1 year |  | 1-3 years |           | 3-5 years |  | Morethan5 years |
| Collateralized debt obligations(1)(2) |  | $                     | 3,460,709 |           |  | $         | 63,727    |      |  | $               | 23,943  |   |  | $      | 36,451  |   |  | $      | 3,336,588 |   |
| Warehouselinespayable                 |  |                  | 2,428,044 |           |  |      | 2,428,044 |      |  |            | — |   |  |   | — |   |  |   | —   |   |
| Repurchaseagreements                  |  |                  | 82,149    |           |  |      | 82,149    |      |  |            | — |   |  |   | — |   |  |   | —   |   |
| Juniorsubordinateddebentures          |  |                  | 77,324    |           |  |      | —   |      |  |            | — |   |  |   | — |   |  |   | 77,324    |   |
| Operatingleases(3)                    |  |                  | 32,396    |           |  |      | 8,657     |      |  |            | 14,689  |   |  |   | 8,124   |   |  |   | 926       |   |
| Notespayable                          |  |                  | 15,000    |           |  |      | —   |      |  |            | 15,000  |   |  |   | — |   |  |   | —   |   |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                               |
|-----|-------------------------------|
| (1) | Excludingdebt issuance costs. |

|     |                                                                                                                                                                                                                                                                                                                                               |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Maturities ofour collateralized debt obligations are dependent upon cash flowsreceived from underlying loans receivable. Our estimate of theirrepayment is based on scheduled principal payments on the underlyingloans receivable. This estimate will differ from actual amounts to theextent we experience pre-payments and/or loan losses. |

|     |                 |
|-----|-----------------|
| (3) | Net ofsublease. |

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ITEM3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK

Market risk is the exposure tolosses resulting from changes in interest rates, credit spreads,foreign currency exchange rates, commodity prices and equity prices. Aswe are invested solely in U.S. dollar-denominated instruments,primarily single-family residential mortgage instruments, and ourborrowings are also domestic and U.S. dollar denominated, we are notsubject to foreign currency exchange, or commodity and equity pricerisk. The primary market risk that we are exposed to is interest raterisk and its related ancillary risks. Interest rate risk is highlysensitive to many factors, including governmental monetary and taxpolicies, domestic and international economic and politicalconsiderations, and other factors beyond our control. Our interestbearing assets, liabilities and related derivative instruments used forhedging purposes are market risk sensitive and may change in value ifinterest rates fluctuate. The following table presents information asto the notional amount, carrying amount and estimated fair value ofcertain of our market risk sensitive assets, liabilities and hedginginstruments at June 30, 2005 and December 31,2004:

|                                               |  |                       |           |                |  |                    |           |        |  |        |           |        |  |  |
|-----------------------------------------------|--|-----------------------|-----------|----------------|--|--------------------|-----------|--------|--|--------|-----------|--------|--|--|
|                                          |  | June30,2005           |
|                                          |  | NotionalAmount        |           | CarryingAmount |  | EstimatedFairValue |
|                                          |  | (Dollars inthousands) |
| Assets:                                       |  |                  |      |           |  |               |      |   |  |   |      |   |
| Mortgageloans held forsale                    |  | $                     | 2,348,215 |           |  | $                  | 2,384,928 |   |  | $      | 2,384,928 |   |
| Forwarddeliverycommitments                    |  |                  | 1,348,122 |           |  |               | 502       |   |  |   | 502       |   |
| Mortgageloans held for sale,net               |  |                  |      |           |  |               | 2,385,430 |   |  |   | 2,385,430 |   |
| ARMloans held for securitization,net          |  |                  | 169,565   |           |  |               | 171,409   |   |  |   | 172,389   |   |
| ARMloans collateralizing debt obligations,net |  |                  | 3,599,738 |           |  |               | 3,634,194 |   |  |   | 3,638,062 |   |
| Hedginginstruments                            |  |                  | 7,747,204 |           |  |               | 35,186    |   |  |   | 35,186    |   |
| Liabilities:                                  |  |                  |      |           |  |               |      |   |  |   |      |   |
| Warehouselinespayable                         |  | $                     | 2,428,044 |           |  | $                  | 2,428,044 |   |  | $      | 2,428,044 |   |
| Collateralizeddebt obligations,net            |  |                  | 3,460,709 |           |  |               | 3,451,002 |   |  |   | 3,460,709 |   |
| Repurchaseagreements                          |  |                  | 82,149    |           |  |               | 82,149    |   |  |   | 82,149    |   |
| Juniorsubordinateddebentures                  |  |                  | 77,324    |           |  |               | 77,324    |   |  |   | 77,324    |   |
| Hedginginstruments                            |  |                  | 2,358,937 |           |  |               | 2,837     |   |  |   | 2,837     |   |
|                                               |

|                                               |  |                       |           |                |  |                    |           |        |  |        |           |        |  |  |
|-----------------------------------------------|--|-----------------------|-----------|----------------|--|--------------------|-----------|--------|--|--------|-----------|--------|--|--|
|                                          |  | December31,2004       |
|                                          |  | NotionalAmount        |           | CarryingAmount |  | EstimatedFairValue |
|                                          |  | (Dollars inthousands) |
| Assets:                                       |  |                  |      |           |  |               |      |   |  |   |      |   |
| Mortgageloans held forsale                    |  | $                     | 774,194   |           |  | $                  | 784,592   |   |  | $      | 787,234   |   |
| ARMloans held for securitization,net          |  |                  | 1,157,188 |           |  |               | 1,166,961 |   |  |   | 1,167,824 |   |
| ARMloans collateralizing debt obligations,net |  |                  | 1,418,323 |           |  |               | 1,432,692 |   |  |   | 1,434,534 |   |
| Hedginginstruments                            |  |                  | 6,428,399 |           |  |               | 19,526    |   |  |   | 19,526    |   |
| Liabilities:                                  |  |                  |      |           |  |               |      |   |  |   |      |   |
| Warehouselinespayable                         |  | $                     | 1,869,385 |           |  | $                  | 1,869,385 |   |  | $      | 1,869,385 |   |
| Collateralizeddebt obligations,net            |  |                  | 1,331,986 |           |  |               | 1,328,096 |   |  |   | 1,331,986 |   |
| Repurchaseagreements                          |  |                  | 67,674    |           |  |               | 67,674    |   |  |   | 67,674    |   |
| Hedginginstruments                            |  |                  | 1,039,790 |           |  |               | 1,145     |   |  |   | 1,145     |   |
|                                               |

INTERESTRATE RISK MANAGEMENT

We utilize a variety of derivativeinstruments in order to hedge our interest rate risk. Our hedgingtransactions using derivative instruments involve certain risks such ascounterparty credit risk, the enforceability of hedging contracts andthe risk that unanticipated and significant changes in interest

50

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rates will cause a significant loss of basisin the contract. The counterparties to our derivative arrangements aremajor financial institutions and securities dealers that are wellcapitalized with high credit ratings and with which we may also haveother financial relationships. While we do not anticipatenonperformance by any counterparty, we are exposed to potential creditlosses in the event the counterparty fails to perform. Our exposure tocredit risk in the event of default by a counterparty can be measuredas the difference between the value of the contract and the currentmarket price. We manage this risk by using multiple counterparties andlimiting our counterparties to major financial institutions with goodcredit ratings, and in some cases, establishing rights to collateralposted by the derivative counterparty. In addition, we monitor thecredit quality of our derivative counterparties. Accordingly, we do notexpect any material losses as a result of default by suchcounterparties. However, there can be no assurance that we will be ableto adequately manage the foregoing risks, or ultimately realize aneconomic benefit that exceeds the costs related to these hedgingstrategies.

Mortgage Investment Operations

Ourinvestment risk exposure is largely due to interest rate risk. Interestrate risk is defined as the sensitivity of our current and futureearnings to interest rate volatility, variability of spreadrelationships, the difference in repricing intervals between our assetsand liabilities and the effect that interest rates may have on our cashflows, especially Portfolio ARM Loan prepayments. Interest rate riskmay affect our interest income, interest expense and the market valueof our interest rate risk-sensitive assets and liabilities. Ourpolicies to manage interest rate risk aim to produce earnings stabilityand preserve capital by minimizing the negative effects of changingmarket interest rates and the impact of prepayment risk.

We aresubject to interest rate exposure with respect to our financing costsrelating to our Portfolio ARM Loans. Changes in interest rates impactour earnings in various ways. While we invest primarily in ARM Loans,rising short-term interest rates may temporarily negatively affect ourearnings, and, conversely, falling short-term interest rates maytemporarily increase our earnings. This impact can occur for severalreasons and is affected by portfolio prepayment activity as discussedbelow. First, our borrowings may react to changes in interest ratessooner than our ARM Loans because the weighted average next repricingdates of the borrowings are likely to be shorter time periods thanthose of the ARM Loans. Second, interest rates on ARM Loans may becapped per adjustment period (commonly referred to as the periodiccap), and our borrowings may not have similar limitations. Third,changes in interest rates on ARM Loans typically lag behind changes inapplicable interest rate indices due to the required notice periodprovided to ARM Loan borrowers when the interest rates on their loansare scheduled to change.

Interest rates can also affect our netreturn on Hybrid ARM loans. During a declining interest rateenvironment, the prepayment of Hybrid ARM loans may accelerate,possibly resulting in a decline in our net return on Hybrid ARM loans,as replacement Hybrid ARM loans may have a lower yield than the olderones paying off. In contrast, during an increasing interest rateenvironment, Hybrid ARM loans may prepay slower than expected,requiring us to finance a greater amount of Hybrid ARM loans thanoriginally anticipated at a time when interest rates may be higher,resulting in a decline in our net return on Hybrid ARM loans.

The rate of prepayment on mortgage loans may increase if interestrates decline or if the difference between long-term and short-terminterest rates diminishes. Increased prepayments would cause us toamortize the deferred origination costs and fees for our mortgage loansover a shorter period, resulting in a reduced yield on our mortgageloans. Additionally, to the extent proceeds of prepayments cannot bereinvested at a rate of interest at least equal to the rate previouslyearned on such mortgage loans, our portfolio yield could be adverselyaffected.

Conversely, the rate of prepayment on mortgage loansmay decrease if interest rates rise or if the difference betweenlong-term and short-term interest rates increases. Decreasedprepayments would cause us to amortize the deferred origination costsand fees for our mortgage loans over a longer period. Therefore, inrising interest rate environments where prepayments are declining, theyield on our ARM Loan portfolio could be expected to increase due tohigher interest rates and decreased amortization expense attributableto slower prepayments.

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The positions we take to hedge our netinterest income recognize the effect of prepayments on the size andcomposition of the portfolio. We manage prepayment risk by regularlyrecalculating the notional amount of the required hedge positionsthrough the application of a prepayment model and implement hedgeadjustments, as required.

While we have not experienced anysignificant credit losses to date, such losses are possible. Forexample, a rising interest rate environment or economic downturn couldcause our mortgage loan default rate and credit losses to increase,which would adversely affect our liquidity and operating results.

The following table summarizes the repricing characteristics of ourPortfolio ARM Loans:

Repricing Characteristics of Portfolio ARMLoans

|                                   |  |                         |           |              |  |        |         |         |  |  |  |  |  |  |
|-----------------------------------|--|-------------------------|-----------|--------------|--|--------|---------|---------|--|--|--|--|--|--|
|                              |  | June30, 2005            |           |
|                              |  | UnpaidPrincipal Balance |           | PortfolioMix |  |
|                              |  | (Dollars inthousands)   |           |
| Traditional ARMAssets:            |  |                    |      |         |  |   |    |    |  |
| Index:                            |  |                    |      |         |  |   |    |    |  |
| Six-monthLIBOR                    |  | $                       | 31,233    |         |  |   | 0.8     | %  |  |
| One-yearconstant maturitytreasury |  |                    | 420       |         |  |   | — |    |  |
|                              |  |                    | 31,653    |         |  |   | 0.8     | %  |  |
| HybridARMAssets:                  |  |                    |      |         |  |   |    |    |  |
| Index:                            |  |                    |      |         |  |   |    |    |  |
| 3years orless                     |  |                    | 1,273,446 |         |  |   | 33.8    | %  |  |
| Over 3years to 5years             |  |                    | 2,464,204 |         |  |   | 65.4    | %  |  |
|                              |  |                    | 3,737,650 |         |  |   | 99.2    | %  |  |
|                              |  | $                       | 3,769,303 |         |  |   | 100.0   | %  |  |
|                                   |

Aswe build our investment portfolio of mortgage loans, our riskmanagement is focused on protecting against possible"compression" in the net interest marginearned on our investment portfolio. The "yieldcurve" creates this risk because of different repricingdurations for instruments with different maturities. In substance, thehedging objective is to protect the net interest margin by matchingrepricing durations for the ARM and Hybrid ARM loan portfolio and thecorresponding funding sources. As discussed below, Hybrid ARM loans arethe primary loans requiring hedging of the corresponding fundingsources.

Traditional ARM loans have shorter repricing periods(one year or less) than do Hybrid ARM loans. The interest rate onTraditional ARM loans will reset monthly, semi-annually or annually ata contractual margin over a U.S. Treasury index or a LIBOR index. Thecorresponding funding liabilities will similarly have shortercontractual repricing frequencies. Additionally, when Hybrid ARM loansreach the end of their fixed rate period and become"rolled Hybrids," they reprice based onsemi-annual or annual LIBOR or U.S. Treasury indices and behave muchlike Traditional ARMs. While there exists some "basisrisk" between the repricing of both the Traditional ARMsand rolled Hybrids versus the typical one month funding costs of theportfolio, management believes this basis risk is manageable. HybridARM loans initially have longer repricing periods than TraditionalARMs. We may not be able to obtain matched repricing features for thecorresponding funding sources since our borrowings generally haveshorter repricing contractual terms than most of our Hybrid ARM loanswhere the initial rate is fixed for up to five years.

Tomitigate the effect of interest rate fluctuations on our net interestincome, including the effect of prepayment rates, we hedge thefinancing costs of our issued mortgage-backed securities with interestrate swap agreements, Eurodollar futures or options contracts andinterest rate cap agreements (collectively "Hybrid HedgingInstruments") in order to better match the repricingdurations of our Portfolio ARM Loans and our issued mortgage-backedsecurities.

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We may also use other instruments that maybe determined to be advantageous and are permitted under the hedgingpolicy adopted by our board of directors.

We use Eurodollarfutures to hedge for forecasted and recognized LIBOR-based borrowings.Eurodollar futures have the effect of fixing the interest rate onLIBOR-based liabilities in the event that LIBOR-based funding costschange.

We enter into Cap Agreements by incurring a one-time feeor premium. Pursuant to the terms of the Cap Agreements, we willreceive cash payments if the LIBOR-based interest rate index specifiedin any such Cap Agreement increases above contractually specifiedlevels. Therefore, such Cap Agreements have the effect of capping theinterest rate expense on a portion of our borrowings above a levelspecified by the Cap Agreement. The purchase price of these CapAgreements is amortized over the life of the Cap Agreements, and theamortization expense generally increases as the Cap Agreements approachmaturity. Therefore, the cap premium amortization expense in futureperiods can be expected to increase from the current amortizationrate.

We enter into Swap Agreements to fix the interest rate ona portion of our borrowings as specified in the Swap Agreement. When weenter into a Swap Agreement, we generally agree to pay a fixed interestrate, generally based on LIBOR. These Swap Agreements have the effectof converting our variable-rate debt into fixed-rate debt over the lifeof the Swap Agrements.

Both Cap Agreements and Swap Agreementsrepresent a way to lengthen the average repricing period of ourvariable-rate borrowings such that the average repricing of theborrowings more closely matches the average repricing of our PortfolioARM Loans.

Management relies on a variety of tools to assess theinterest rate risk exposure of the investment portfolio under variousinterest rate scenarios. Using financial modeling, the fair value andinterest rate sensitivity of financial instruments, or groups ofsimilar instruments, is estimated and then aggregated to form acomprehensive picture of the risk characteristics of the investmentportfolio.

The table below presents the sensitivity of themarket value of our portfolio using a discounted cash flow simulationmodel. Application of this method results in an estimation of thechange in the market value of our assets and hedged liabilities per 50basis point ("bp") incremental instantaneousparallel shifts in the LIBOR yield curve as of June 30, 2005 — ameasure commonly referred to as sensitivity of equity. Positivesensitivity of equity indicates an increase in the market value of ourassets relative to the market value of our hedged liabilitiescorresponding to the indicated shift in the yield curve.

As ofJune 30,2005

|                                                     |  |                                                |         |         |  |        |         |         |  |        |         |          |  |        |         |          |  |  |
|-----------------------------------------------------|--|------------------------------------------------|---------|---------|--|--------|---------|---------|--|--------|---------|----------|--|--------|---------|----------|--|--|
|                                                |  | BasisPoint Increase (Decrease) in InterestRate |
|                                                |  | (100)                                          |         | (50)    |  | +50    |         | +100    |
|                                                |  | (Dollarsin thousands)                          |
| Change in market valuesof:                          |  |                                           |    |    |  |   |    |    |  |   |    |     |  |   |    |     |
| Assets                                              |  | $                                              | 43,281  |    |  | $      | 24,700  |    |  | $      | (31,985 | )   |  | $      | (68,671 | )   |
| Hedgedliabilities                                   |  |                                           | (40,662 | )  |  |   | (22,252 | )  |  |   | 28,069  |     |  |   | 62,271  |     |
| Netchange in market value of portfolioequity        |  | $                                              | 2,619   |    |  | $      | 2,448   |    |  | $      | (3,916  | )   |  | $      | (6,400  | )   |
| Percentagechange in market value of portfolioequity |  |                                           | 0.78    | %  |  |   | 0.73    | %  |  |   | (1.17   | )%  |  |   | (1.91   | )%  |
|                                                     |

Theuse of Hybrid Hedging Instruments is a critical part of our interestrate risk management strategies, and the effects of these HybridHedging Instruments on the market value of the investment portfolio arereflected in the model's output. This analysis also takes intoconsideration the value of options embedded in our mortgage assets,including constraints on the repricing of the interest rate of ARMassets resulting from periodic and lifetime cap features, as well asprepayment options. Assets and liabilities that are not interestrate-sensitive such as cash, payment receivables, prepaid expenses,payables and accrued expenses are excluded. The sensitivity of equitycalculated from this model is a key measure of the effectiveness of ourinterest rate risk management strategies.

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

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The table below presents the duration ofour assets and liabilities as of June 30, 2005, under the thenprevailing yield curve, as well as with instantaneous parallel 50bpsshifts in the curve. Positive portfolio duration indicates that themarket value of the investment portfolio, net of borrowings and hedges,will decline if our interest rates rise and increase if interest ratesdecline. The closer duration is to zero, the less interest rate changesare expected to affectearnings.

|                                 |  |                                                |      |        |  |        |      |        |  |        |      |        |  |        |      |        |  |        |       |         |  |  |
|---------------------------------|--|------------------------------------------------|------|--------|--|--------|------|--------|--|--------|------|--------|--|--------|------|--------|--|--------|-------|---------|--|--|
|                            |  | BasisPoint Increase (Decrease) in InterestRate |
|                            |  | (100)                                          |      | (50)   |  | Base   |      | +50    |  | +100   |
|                            |  | (Years)                                        |
| DurationofAssets                |  |                                           | 1.12 |   |  |   | 1.24 |   |  |   | 1.47 |   |  |   | 1.75 |   |  |   | 1.98  |    |
| Durationof Borrowings andHedges |  |                                           | 0.94 |   |  |   | 1.14 |   |  |   | 1.40 |   |  |   | 1.70 |   |  |   | 1.99  |    |
| NetPortfolioDuration            |  |                                           | 0.18 |   |  |   | 0.10 |   |  |   | 0.07 |   |  |   | 0.05 |   |  |   | (0.01 | )  |
|                                 |

Althoughmarket value sensitivity analysis is widely accepted in identifyinginterest rate risk, it does not take into consideration changes thatmay occur such as, but not limited to, changes in investment andfinancing strategies, changes in market spreads, changes in the shapeof the yield curve and changes in business volumes.

MortgageBanking Operations

Movements in interest rates can pose a majorrisk to our mortgage banking operations in either a rising or declininginterest rate environment. MortgageIT utilizes warehouse lines ofcredit to fund its origination activity. The cost of these borrowingsis at variable interest rate terms that increase or decrease as shortterm interest rates increase or decrease. In addition, we are exposedto price risk from the time an interest rate lock commitment is made toa mortgage applicant (or financial intermediary) to the time therelated mortgage loan is sold. During this period, we are exposed tolosses if mortgage rates rise, because the value of the IRLC ormortgage declines.

The committed pipeline consists of loanapplications in process where we have issued IRLCs to the applicants(or financial intermediaries). IRLCs guarantee the rate and points onthe underlying mortgage for a specified period, generally from seven tosixty days. Managing the price risk related to the committed pipelineis complicated by the fact that the ultimate percentage of applicationsthat close within the terms of the IRLC is variable. The primary factorthat drives the variability of the closing percentage is change inmortgage rates. In general, the percentage of applications in thecommitted pipeline that ultimately close within the terms of the IRLCincreases if mortgage rates rise and decreases if mortgage rates fall.This is due primarily to the relative attractiveness of currentmortgage rates compared to the applicants' committed rates. Theclosing percentage is also influenced by the source of theapplications, age of the applications, purpose for the loans (purchaseor refinance) and the application approval rate. We have developedclosing ratio estimates for the committed pipeline using empirical datataking into account all of these variables. To mitigate the effect ofthe interest rate risk inherent in issuing an IRLC from the lock-indate to the funding date of a loan, MortgageIT uses various derivativeinstruments, including forward sale loan commitments and forward salesand purchases of mortgage-backed securities and options on suchsecurities in the forward delivery TBA market to economically hedge theIRLCs.

If MortgageIT does not deliver into forward sale loan orTBA commitments, such instruments can be settled on a net basis. Netsettlement entails paying or receiving cash based upon the change inmarket value of the existing instrument. All forward sale loancommitments and forward sales and purchases of TBA commitments aretypically settled within 90 days of the contract date.

MortgageIT also hedges the economic value of funded loans that areheld for sale but not yet allocated to an investor sale commitment.Once a loan has been funded, MortgageIT's risk managementobjective for its mortgage loans held for sale is to protect earningsfrom an unexpected decline in value of its mortgage loans. Similar toIRLCs, MortgageIT's strategy is to use forward sale loancommitments and TBAs to hedge its mortgage loans held for sale. Thenotional amount of the derivative contracts, along with the underlyingrate and terms of such contracts, are equivalent to the 

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unpaid principal amount of the mortgageinventory being hedged; hence, the derivative contracts effectively fixthe forward sales price and thereby substantially mitigate interestrate and price risk to MortgageIT.

The following furtherdescribes the derivative instruments we may use in our risk managementactivities related to the committed pipeline and mortgage loaninventory. The value of these derivative instruments generally moves inthe opposite direction to the value of the mortgage loan inventory. Wereview our committed pipeline and mortgage inventory risk profiles on adaily basis.

|              |                                                                                                                                                                                                 |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Forwardsales of mortgage-backed securities: represents an obligation to sell amortgage-backed security at a specific price in the future; therefore,its value increases as mortgage rates rise. |

|              |                                                                                                                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Forward purchases of mortgage-backed securities:represents an obligation to buy a mortgage-backed security at aspecific price in the future; therefore, its value increases asmortgage rates fall. |

|              |                                                                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long call options onmortgage-backed securities: represents a right to buy a mortgage-backedsecurity at a specific price in the future; therefore, its valueincreases as mortgage rates fall. |

|              |                                                                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long put optionson mortgage-backed securities: represents a right to sell amortgage-backed security at a specific price in the future; therefore,its value increases as mortgage rates rise. |

|              |                                                                                                                                                                                                       |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Longcall options on Treasury futures: represents a right to acquire aTreasury futures contract at a specific price in the future; therefore,its value increases as the benchmark Treasury rate falls. |

|              |                                                                                                                                                                                                   |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long put options on Treasury futures: represents aright to sell a Treasury futures contract at a specific price in thefuture; therefore, its value increases as the benchmark Treasury raterises. |

|              |                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Short Eurodollar futures contracts:represents a standardized exchange-traded contract, the value of whichis tied to spot Eurodollar rates at specified future dates; therefore,its value increases when Eurodollar rates rise. |

Finally, themortgage banking industry is generally subject to seasonal trends.These seasonal trends reflect the pattern in the national housingmarket. Home sales typically rise during the spring and summer seasonsand decline during the fall and winter seasons. Seasonality has less ofan effect on mortgage refinancing activity, which is primarily drivenby prevailing mortgage rates.

ITEM 4.    CONTROLS ANDPROCEDURES

(a) Evaluation of disclosure controls andprocedures

We carried out an evaluation, with the participationof management, including our Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of our disclosure controls andprocedures (pursuant to Rule 13a-15(e) under the Securities ExchangeAct of 1934) as of the end of the period covered by this report. Basedupon that evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures areeffective to ensure that we are able to record, process, summarize andreport the information we are required to disclose in the reports wefile with the SEC within the time periods required.

(b)Internal control over financial reporting

There has been nochange in our internal control over financial reporting that occurredduring the most recent fiscal quarter that has materially affected, oris reasonably likely to materially affect, our internal control overfinancial reporting, except that, as of April 1, 2005, we qualified forand elected to apply SFAS No. 133 cash flow hedge accounting forEurodollar futures contracts.

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PART II. OTHER INFORMATION

Item1.    Legal Proceedings

On September 29, 2004, as amended onOctober 12, 2004, an action was filed in the U.S. District Court forthe Southern District of New York against our subsidiary, MortgageITand IPI Skyscraper Mortgage which was, at the time, a subsidiary of,and has now been merged with and into, MortgageIT. The case was filedby four former loan officers of a MortgageIT branch in Newburgh, NewYork, and seeks to recover allegedly unpaid minimum wage and overtimeunder both federal and New York labor laws. The case was filed as aputative class action; a motion for certification of a class under NewYork law and for collective action under federal law was filed on March11, 2005. We opposed the motion, which remains pending, and we arevigorously asserting our defenses in this action.

In addition tothis case, we are a defendant in various other legal proceedingsinvolving matters generally incidental to our business. Although it isdifficult to predict the outcome of these other proceedings, managementbelieves, based on discussions with counsel, that any ultimateliability will not materially affect our consolidated financialposition or results of operations.

Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of SecurityHolders

At our annual meeting of stockholders held on May 17,2005, the following matters were voted upon with the results of thevoting on such matters indicated:

1.    Election of thefollowing two directors to three-year terms:

|                |
|----------------|
|                |  |  |  |  |  |  |  |  |  |  |
|           |  | For |  | Withheld |
| NancyMcKinstry |  |   | 11,791,059 |   |  |   | 5,132,258 |   |
| MarkC. Pappas  |  |   | 16,597,790 |   |  |   | 325,527 |   |
|                |

Thefollowing sets forth the names of directors continuing in office afterour annual meeting:

Fred A.AssenheimerWilliam CollinsMichael N. GarinMichael J.MaroccoDoug W. NaidusTimothy Schantz

2.    Approvalof the Amended MortgageIT Holdings, Inc. Long-Term Incentive Plan:

|         |
|---------|
|         |  |  |  |  |  |  |
| For     |  |   | 10,170,141 |   |
| Against |  |   | 1,679,400 |   |
| Abstain |  |   | 50,953 |   |
|         |

Item5.    Other Information

None.

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Item 6.    Exhibits

Exhibitsfiled with this Form10-Q:

|                              |  |                                                                                                                                                                                           |  |  |  |  |
|------------------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| No.                          |  | Description                                                                                                                                                                               |
| 10.1(1)                      |  | AmendmentNo. 7 to Amended and Restated Master Repurchase Agreement, dated March7, 2005, between MortgageIT Holdings, Inc., MortgageIT, Inc. andMerrill Lynch Mortgage Capital, Inc.       |
| 10.2     |  | Fourth Amendment to First Amended and Restated Warehousing Creditand Security Agreement, dated as of August 9, 2005, between MortgageIT,Inc. and Residential FundingCorporation.          |
| 31.1     |  | Certificationof Chief Executive Officer pursuant to Rule 13a - 14(a)/15d-14(a) ofthe Securities Exchange Act of 1934, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of2002. |
| 31.2     |  | Certificationof Chief Financial Officer pursuant to Rule 13a - 14(a)/15d-14(a) ofthe Securities Exchange Act of 1934, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of2002. |
| 32.1     |  | Certificationof Chief Executive Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002.                                           |
| 32.2     |  | Certificationof Chief Financial Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002.                                           |
|                              |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                           |
|-----|---------------------------------------------------------------------------------------------------------------------------|
| (1) | Incorporated byreference to the Registrant's Registration Statement on FormS-11, as amended (Registration No.333-125556). |

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Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto dulyauthorized:

|                         |
|-------------------------|
|                         |  |  |  |  |  |  |
| MORTGAGEITHOLDINGS,INC. |
| By:                     |  | /s/    DOUGW. NAIDUS |
|                    |  | **Name:**   Doug W.Naidus**Title:** Chairman and Chief ExecutiveOfficer**Date:** August 11,2005 |
| By:                     |  | /s/    GLENNJ. MOURIDY |
|                    |  | **Name:** Glenn J.Mouridy**Title:** President and Chief FinancialOfficer**Date:** August 11,2005 |
|                         |

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