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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION

Washington,D.C. 20549

FORM 10-Q

    QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the quarterly period ended: September 30,2005

OR

    TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Forthe transition period from             to             

Commission FileNumber: 001-32213

MORTGAGEIT HOLDINGS, INC.

(Exact name of registrant as specified in itscharter)

|                                                             |  |                                    |  |  |  |  |
|-------------------------------------------------------------|--|------------------------------------|--|--|--|--|
| Maryland                                                    |  | 20-0947002                         |
| (Stateor other jurisdiction ofincorporation ororganization) |  | (IRS EmployerIdentificationNumber) |
|                                                        |  |                               |
| 33Maiden LaneNew York, NewYork                              |  | 10038                              |
| (Addressof principal executive offices)                     |  | (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

                                                                               

Indicateby check mark whether the Registrant is a shell company (as defined inRule 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: 28,884,868 SHARES OUTSTANDING AS OFOCTOBER 31, 2005.

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TABLE OFCONTENTS

|                           |  |                                                                                      |    |        |    |        |        |        |        |        |  |  |  |  |
|---------------------------|--|--------------------------------------------------------------------------------------|----|--------|----|--------|--------|--------|--------|--------|--|--|--|--|
|                      |  |                                                                                 |    | PAGE   |    |   |
| Forward-LookingStatements |  |                                                                                 | 3  |   |    |   |   |   |
| PartI                     |  | FinancialInformation                                                                 |    |   | 5  |   |        |   |   |   |
| Item 1.                   |  | FinancialStatements                                                                  |    |   | 5  |   |        |   |   |   |
|                      |  | Consolidated BalanceSheets                                                           |    |   | 5  |   |        |   |   |   |
|                      |  | Consolidated Statements ofOperations(Unaudited)                                      |    |   | 6  |   |        |   |   |   |
|                      |  | ConsolidatedStatements of Comprehensive Income (Loss)(Unaudited)                     |    |   | 7  |   |        |   |   |   |
|                      |  | ConsolidatedStatements of Changes in Stockholders' Equity(Unaudited)                 |    |   | 8  |   |        |   |   |   |
|                      |  | ConsolidatedStatements of Cash Flows(Unaudited)                                      |    |   | 9  |   |        |   |   |   |
|                      |  | Notes to ConsolidatedFinancialStatements                                             |    |   | 10 |   |        |   |   |   |
| Item2.                    |  | Management's Discussion and Analysis of FinancialCondition and Results of Operations |    |   | 33 |   |        |   |   |   |
| Item3.                    |  | Quantitative and Qualitative Disclosures About MarketRisk                            |    |   | 55 |   |        |   |   |   |
| Item 4.                   |  | Controls AndProcedures                                                               |    |   | 60 |   |        |   |   |   |
| Part II.                  |  | OtherInformation                                                                     |    |   | 61 |   |        |   |   |   |
| Item 1.                   |  | LegalProceedings                                                                     |    |   | 61 |   |        |   |   |   |
| Item 2.                   |  | UnregisteredSales of Equity Securities and Use ofProceeds                            |    |   | 61 |   |        |   |   |   |
| Item 3.                   |  | Defaults UponSenior Securities                                                       |    |   | 61 |   |        |   |   |   |
| Item4.                    |  | Submission of Matters to a Vote of SecurityHolders                                   |    |   | 61 |   |        |   |   |   |
| Item 5.                   |  | OtherInformation                                                                     |    |   | 61 |   |        |   |   |   |
| Item6.                    |  | Exhibits                                                                             |    |   | 61 |   |        |   |   |   |
| Signatures                |  |                                                                                 | 62 |   |    |   |   |   |
|                           |

2

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FORWARD-LOOKINGSTATEMENTS

The information contained in this quarterly reporton Form 10-Q is not a complete description of the risks associated withan investment in MortgageIT Holdings, Inc.("Holdings" or the"Company") or the Company's business.The Company urges you to carefully review and consider the variousdisclosures made in this quarterly report on Form 10-Q and in theCompany's other filings with the Securities and ExchangeCommission ("SEC"), including theCompany's annual report on Form 10-K, which discuss theCompany's business in greater detail.

This quarterlyreport on Form 10-Q contains certain "forward-lookingstatements" within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. Such forward-looking statements relate to, among other things,the operating performance of the Company's investments andfinancing needs. Forward-looking statements are generally identifiableby use of forward-looking terminology 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. The Company's ability topredict results or the actual effect of future plans or strategies isinherently uncertain. Although the Company believes that theexpectations reflected in such forward-looking statements are based onreasonable assumptions, its actual results and performance in thefuture could differ materially from forecasted results. Factors thatcould have a material adverse effect on the Company's financialcondition or results of operations include, but are not limited to:

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

|              |                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------|
| •  | MortgageIT, Inc.'s ability tooriginate a portfolio of high quality prime adjustable-rate mortgage("ARM") and hybrid ARM loans; |

|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | changes in interest rates and/or creditspreads, as well as the success of the Company's hedging strategyin relation to such changes; |

|              |                                                                                                      |
|--------------|------------------------------------------------------------------------------------------------------|
| •  | thequality and size of the investment pipeline and the rate at which theCompany can invest its cash; |

|              |                                                      |
|--------------|------------------------------------------------------|
| •  | adversefederal and state legislation and regulation; |

|              |                                                         |
|--------------|---------------------------------------------------------|
| •  | the Company's ability to consummatepending investments; |

|              |                                                                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | theCompany's need for a significant amount of capital to consummatefuture investments and the availability and cost of capital for suchinvestments; |

|              |                                                                                           |
|--------------|-------------------------------------------------------------------------------------------|
| •  | the Company'sability to compete effectively within the finance and real estateindustries; |

|              |                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------|
| •  | the Company'sprimary reliance, as a holding company, on dividends from theCompany's subsidiaries to meet debt service obligations; |

|              |                                                       |
|--------------|-------------------------------------------------------|
| •  | changes in the Company's criticalaccounting policies; |

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

|              |                                                                                                                                          |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the Company's ability to maintain aneffective system of internal control over financial reporting anddisclosure controls and procedures; |

|              |                                                                                                                     |
|--------------|---------------------------------------------------------------------------------------------------------------------|
| •  | the Company's use of informationprovided by customers and counterparties, which may be incomplete orinaccurate; and |

|              |                                                                     |
|--------------|---------------------------------------------------------------------|
| •  | other risks detailedfrom time to time in the Company's SEC filings. |

Readersare cautioned not to place undue reliance on any of theseforward-looking statements, which reflect the Company'smanagement's views as of the date of this quarterly report onForm 10-Q. The factors noted above could cause our actual results todiffer significantly from those contained in any 

3

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forward-looking statement. For a discussion ofthe critical accounting policies that the Company currently believesare important to its business, see "Management'sDiscussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Policies andEstimates."

Although the Company believes that theexpectations reflected in the forward-looking statements arereasonable, the Company cannot guarantee future results, levels ofactivity, performance or achievements. The Company is under no duty toupdate any of the forward-looking statements after the date of thisquarterly report on Form 10-Q to conform these statements to actualresults.

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PART I.    FINANCIALINFORMATION

ITEM 1.    FINANCIAL STATEMENTS

MortgageIT Holdings, Inc. and Subsidiaries

CONSOLIDATEDBALANCE SHEETS (Dollars inthousands)

|                                                                                                           |  |                  |           |                 |  |        |           |         |  |  |
|-----------------------------------------------------------------------------------------------------------|--|------------------|-----------|-----------------|--|--------|-----------|---------|--|--|
|                                                                                                      |  | September30,2005 |           | December31,2004 |
|                                                                                                      |  | (Unaudited)      |           |            |
| **ASSETS**                                                                                                |  |             |      |            |  |   |      |    |
| Cashand cashequivalents                                                                                   |  | $                | 58,999    |            |  | $      | 70,224    |    |
| Restrictedcash                                                                                            |  |             | 1,691     |            |  |   | 1,679     |    |
| Marketablesecurities held tomaturity                                                                      |  |             | 3,684     |            |  |   | 7,546     |    |
| Portfolio ARMLoans                                                                                        |  |             |      |            |  |   |      |    |
| ARM loanscollateralizing debt obligations,net                                                             |  |             | 4,083,127 |            |  |   | 1,432,692 |    |
| ARMloans held for securitization,net                                                                      |  |             | 588,252   |            |  |   | 1,166,961 |    |
| TotalPortfolio ARMLoans                                                                                   |  |             | 4,671,379 |            |  |   | 2,599,653 |    |
| Mortgageloans held forsale                                                                                |  |             | 3,293,729 |            |  |   | 784,592   |    |
| Hedginginstruments                                                                                        |  |             | 48,644    |            |  |   | 19,526    |    |
| Accountsreceivable, net ofallowance                                                                       |  |             | 114,515   |            |  |   | 28,731    |    |
| Prepaidsand otherassets                                                                                   |  |             | 19,920    |            |  |   | 11,693    |    |
| Goodwill                                                                                                  |  |             | 11,639    |            |  |   | 11,639    |    |
| Propertyand equipment,net                                                                                 |  |             | 8,490     |            |  |   | 5,567     |    |
| **Totalassets**                                                                                           |  | $                | 8,232,690 |            |  | $      | 3,540,850 |    |
| **LIABILITIESAND STOCKHOLDERS'EQUITY**                                                                    |  |             |      |            |  |   |      |    |
| Liabilities:                                                                                              |  |             |      |            |  |   |      |    |
| Collateralizeddebtobligations                                                                             |  | $                | 3,899,237 |            |  | $      | 1,331,986 |    |
| Warehouselinespayable                                                                                     |  |             | 3,673,365 |            |  |   | 1,869,385 |    |
| Repurchaseagreements                                                                                      |  |             | 75,897    |            |  |   | 67,674    |    |
| Hedginginstruments                                                                                        |  |             | 4,340     |            |  |   | 1,145     |    |
| Juniorsubordinateddebentures                                                                              |  |             | 77,324    |            |  |   | —   |    |
| Notespayable and otherdebt                                                                                |  |             | 15,000    |            |  |   | 15,000    |    |
| Accounts payable,accrued expenses and otherliabilities                                                    |  |             | 130,088   |            |  |   | 63,993    |    |
| **Totalliabilities**                                                                                      |  |             | 7,875,251 |            |  |   | 3,349,183 |    |
| **STOCKHOLDERS'EQUITY:**                                                                                  |  |             |      |            |  |   |      |    |
| Common stock, $.01 parvalue: 125,000,000 shares authorized;28,884,868 and 19,405,473issued andoutstanding |  |             | 289       |            |  |   | 194       |    |
| Additionalpaid-incapital                                                                                  |  |             | 393,038   |            |  |   | 238,405   |    |
| Unearnedcompensation — restrictedstock                                                              |  |             | (6,657    | )          |  |   | (6,196    | )  |
| Accumulatedother comprehensive income(loss)                                                               |  |             | 10,556    |            |  |   | (387      | )  |
| Accumulateddeficit                                                                                        |  |             | (39,787   | )          |  |   | (40,349   | )  |
| **Totalstockholders'equity**                                                                              |  |             | 357,439   |            |  |   | 191,667   |    |
| **Totalliabilities and stockholders'equity**                                                              |  | $                | 8,232,690 |            |  | $      | 3,540,850 |    |
|                                                                                                           |

5

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MortgageIT Holdings, Inc. andSubsidiaries

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

|                                                          |  |                                |         |                              |  |        |         |              |  |        |          |         |  |        |         |         |  |  |
|----------------------------------------------------------|--|--------------------------------|---------|------------------------------|--|--------|---------|--------------|--|--------|----------|---------|--|--------|---------|---------|--|--|
|                                                     |  | Threemonths endedSeptember 30, |         | Nine monthsendedSeptember30, |
|                                                     |  | 2005                           |         | 2004                         |  | 2005   |         | 2004         |
|                                                     |  |                           |         | (Asrestated)                 |  |   |         | (Asrestated) |
| **Revenues:**                                            |  |                           |    |                         |  |   |    |         |  |   |     |    |  |   |    |    |
| Gainon sale of mortgageloans                             |  | $                              | 61,612  |                         |  | $      | 14,405  |         |  | $      | 140,704  |    |  | $      | 49,634  |    |
| Brokeragerevenues                                        |  |                           | 7,506   |                         |  |   | 8,955   |         |  |   | 20,179   |    |  |   | 29,544  |    |
| Interestincome                                           |  |                           | 90,384  |                         |  |   | 15,804  |         |  |   | 212,036  |    |  |   | 27,412  |    |
| Interestexpense                                          |  |                           | (75,741 | )                       |  |   | (6,925  | )       |  |   | (156,482 | )  |  |   | (11,926 | )  |
| Netinterestincome                                        |  |                           | 14,643  |                         |  |   | 8,879   |         |  |   | 55,554   |    |  |   | 15,486  |    |
| Realizedand unrealized gain (loss) on hedginginstruments |  |                           | — |                         |  |   | (9,856  | )       |  |   | 9,742    |    |  |   | (9,856  | )  |
| Other                                                    |  |                           | 209     |                         |  |   | 248     |         |  |   | 715      |    |  |   | 272     |    |
| **Totalrevenues**                                        |  |                           | 83,970  |                         |  |   | 22,631  |         |  |   | 226,894  |    |  |   | 85,080  |    |
| **Operatingexpenses:**                                   |  |                           |    |                         |  |   |    |         |  |   |     |    |  |   |    |    |
| Compensationand employeebenefits                         |  |                           | 39,037  |                         |  |   | 20,492  |         |  |   | 99,051   |    |  |   | 56,922  |    |
| Processingexpenses                                       |  |                           | 16,014  |                         |  |   | 7,165   |         |  |   | 40,064   |    |  |   | 16,952  |    |
| Generaland administrativeexpenses                        |  |                           | 6,112   |                         |  |   | 2,811   |         |  |   | 19,117   |    |  |   | 7,614   |    |
| Rent                                                     |  |                           | 2,700   |                         |  |   | 1,990   |         |  |   | 7,257    |    |  |   | 5,662   |    |
| Marketing,loan acquisition and businessdevelopment       |  |                           | 1,206   |                         |  |   | 902     |         |  |   | 3,126    |    |  |   | 3,127   |    |
| Professionalfees                                         |  |                           | 2,411   |                         |  |   | 792     |         |  |   | 7,238    |    |  |   | 1,851   |    |
| Depreciationandamortization                              |  |                           | 984     |                         |  |   | 686     |         |  |   | 2,621    |    |  |   | 1,956   |    |
| Totaloperatingexpenses                                   |  |                           | 68,464  |                         |  |   | 34,838  |         |  |   | 178,474  |    |  |   | 94,084  |    |
| **Income(loss) before incometaxes**                      |  |                           | 15,506  |                         |  |   | (12,207 | )       |  |   | 48,420   |    |  |   | (9,004  | )  |
| **Incometax expense(benefit)**                           |  |                           | 6,841   |                         |  |   | (242    | )       |  |   | 15,607   |    |  |   | 1,204   |    |
| **Netincome(loss)**                                      |  |                           | 8,665   |                         |  |   | (11,965 | )       |  |   | 32,813   |    |  |   | (10,208 | )  |
| **Dividendson convertible redeemable preferredstock**    |  |                           | — |                         |  |   | 587     |         |  |   | —  |    |  |   | 3,947   |    |
| **Netincome (loss) attributable to commonstockholders**  |  | $                              | 8,665   |                         |  | $      | (12,552 | )       |  | $      | 32,813   |    |  | $      | (14,155 | )  |
| **Persharedata:**                                        |  |                           |    |                         |  |   |    |         |  |   |     |    |  |   |    |    |
| Basic                                                    |  | $                              | 0.31    |                         |  | $      | (0.93   | )       |  | $      | 1.47     |    |  | $      | (2.91   | )  |
| Diluted                                                  |  | $                              | 0.30    |                         |  | $      | (0.93   | )       |  | $      | 1.44     |    |  | $      | (2.91   | )  |
| Weightedaverage number of shares—basic             |  |                           | 28,077  |                         |  |   | 13,451  |         |  |   | 22,381   |    |  |   | 4,861   |    |
| Weightedaverage number of shares—diluted           |  |                           | 28,427  |                         |  |   | 13,451  |         |  |   | 22,788   |    |  |   | 4,861   |    |
|                                                          |

Theaccompanying notes are an integral part of the consolidated financialstatements.

6

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MortgageIT Holdings, Inc. andSubsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS) (Unaudited) (Dollars inthousands)

|                                                                |  |                                |        |                              |  |        |         |               |  |        |        |        |  |        |         |         |  |  |
|----------------------------------------------------------------|--|--------------------------------|--------|------------------------------|--|--------|---------|---------------|--|--------|--------|--------|--|--------|---------|---------|--|--|
|                                                           |  | Threemonthsended September 30, |        | Nine monthsendedSeptember,30 |
|                                                           |  | 2005                           |        | 2004                         |  | 2005   |         | 2004          |
|                                                           |  |                           |        | (Asrestated)                 |  |   |         | (As restated) |
| Net income(loss)                                               |  | $                              | 8,665  |                         |  | $      | (11,965 | )        |  | $      | 32,813 |   |  | $      | (10,208 | )  |
| Othercomprehensiveincome:                                      |  |                           |   |                         |  |   |    |          |  |   |   |   |  |   |    |    |
| Unrealizedgain on hedging instruments arising during theperiod |  |                           | 20,254 |                         |  |   | — |          |  |   | 9,008  |   |  |   | — |    |
| Reclassificationof losses included in netincome                |  |                           | 1,062  |                         |  |   | — |          |  |   | 1,935  |   |  |   | — |    |
| Netunrealized gains during theperiod                           |  |                           | 21,316 |                         |  |   | — |          |  |   | 10,943 |   |  |   | — |    |
| Comprehensiveincome(loss)                                      |  | $                              | 29,981 |                         |  | $      | (11,965 | )        |  | $      | 43,756 |   |  | $      | (10,208 | )  |
|                                                                |

Theaccompanying notes are an integral part of the consolidated financialstatements.

7

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MortgageIT Holdings, Inc.and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS' EQUITY (Unaudited)Nine months ended September30, 2005 (Dollars and shares inthousands)

|                                                                     |  |              |         |                          |  |                    |         |                                  |  |                                           |         |                          |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------------------|--|--------------|---------|--------------------------|--|--------------------|---------|----------------------------------|--|-------------------------------------------|---------|--------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                |  | CapitalStock |         |                     |  |               |         |                             |  |                                      |         |                     |
|                                                                |  | Common       |         | AdditionalPaid-InCapital |  | AccumulatedDeficit |         | UnamortizedCostofRestrictedStock |  | AccumulatedOtherComprehensiveIncome(Loss) |         | TotalStockholders'Equity |
|                                                                |  | 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    |  |         | 8,712   |                     |  |               | 87      |                             |  |                                      | 149,995 |                     |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 150,082 |    |
| Issuanceof commonstock                                              |  |         | — |                     |  |               | — |                             |  |                                      | 4       |                     |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 4       |    |
| Restrictedstockgrant                                                |  |         | — |                     |  |               | — |                             |  |                                      | 2,944   |                     |  |   | — |    |  |   | (2,944  | )  |  |   | — |    |  |   | — |    |
| Amortizationof the cost of restrictedstock                          |  |         | — |                     |  |               | — |                             |  |                                      | — |                     |  |   | — |    |  |   | 2,483   |    |  |   | — |    |  |   | 2,483   |    |
| Issuanceof common stock in connection with restricted stockgrants   |  |         | 626     |                     |  |               | 6       |                             |  |                                      | (6      | )                   |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Issuanceof common stock in connection with exercise of stockoptions |  |         | 141     |                     |  |               | 2       |                             |  |                                      | 1,696   |                     |  |   | — |    |  |   | — |    |  |   | — |    |  |   | 1,698   |    |
| Othercomprehensiveincome                                            |  |         | — |                     |  |               | — |                             |  |                                      | — |                     |  |   | — |    |  |   | — |    |  |   | 10,943  |    |  |   | 10,943  |    |
| Dividendsdeclared on common stock — $1.44 pershare            |  |         | — |                     |  |               | — |                             |  |                                      | — |                     |  |   | (32,251 | )  |  |   | — |    |  |   | — |    |  |   | (32,251 | )  |
| Netincome                                                           |  |         | — |                     |  |               | — |                             |  |                                      | — |                     |  |   | 32,813  |    |  |   | — |    |  |   | — |    |  |   | 32,813  |    |
| Balanceat September 30,2005                                         |  |         | 28,884  |                     |  | $                  | 289     |                             |  | $                                         | 393,038 |                     |  | $      | (39,787 | )  |  | $      | (6,657  | )  |  | $      | 10,556  |    |  | $      | 357,439 |    |
|                                                                     |

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 in thousands)

|                                                                                    |  |                               |            |              |  |        |            |         |  |  |
|------------------------------------------------------------------------------------|--|-------------------------------|------------|--------------|--|--------|------------|---------|--|--|
|                                                                               |  | Ninemonths ended September30, |
|                                                                               |  | 2005                          |            | 2004         |
|                                                                               |  |                          |            | (Asrestated) |
| **Cash flows from operatingactivities:**                                           |  |                          |       |         |  |   |       |    |
| Net income(loss)                                                                   |  | $                             | 32,813     |         |  | $      | (10,208    | )  |
| Adjustmentsto reconcile net income (loss) to net cash used in operatingactivities: |  |                          |       |         |  |   |       |    |
| Depreciation andamortization                                                       |  |                          | 7,957      |         |  |   | 1,956      |    |
| Amortizationof restricted stockcosts                                               |  |                          | 2,483      |         |  |   | 144        |    |
| Unrealized (gain)loss on hedginginstruments                                        |  |                          | (7,635     | )       |  |   | 8,262      |    |
| Changes inoperating assets:                                                        |  |                          |       |         |  |   |       |    |
| (Increase)decrease in restrictedcash                                               |  |                          | (12        | )       |  |   | 597        |    |
| Increase in mortgageloans held forsale                                             |  |                          | (2,509,137 | )       |  |   | (96,299    | )  |
| Increasein accountsreceivable                                                      |  |                          | (85,785    | )       |  |   | (14,241    | )  |
| Increasein prepaids and otherassets                                                |  |                          | (6,168     | )       |  |   | (4,968     | )  |
| Changes inoperating liabilities:                                                   |  |                          |       |         |  |   |       |    |
| Increase inaccounts payable, accrued expenses and otherliabilities                 |  |                          | 61,012     |         |  |   | 11,966     |    |
| **Netcash used in operatingactivities**                                            |  |                          | (2,504,472 | )       |  |   | (102,791   | )  |
| **Cashflows from investing activities:**                                           |  |                          |       |         |  |   |       |    |
| Increase inPortfolio ARMloans                                                      |  |                          | (2,071,726 | )       |  |   | (1,139,915 | )  |
| Purchasesof property andequipment                                                  |  |                          | (5,544     | )       |  |   | (1,719     | )  |
| Proceedsfrom maturities of marketablesecurities                                    |  |                          | 19,322     |         |  |   | 7,105      |    |
| Purchases ofmarketablesecurities                                                   |  |                          | (15,460    | )       |  |   | (7,106     | )  |
| **Netcash used in investingactivities**                                            |  |                          | (2,073,408 | )       |  |   | (1,141,635 | )  |
| **Cashflows from financing activities:**                                           |  |                          |       |         |  |   |       |    |
| Proceeds fromissuance of commonstock                                               |  |                          | 150,086    |         |  |   | 163,392    |    |
| Proceeds fromthe exercise of stockoptions                                          |  |                          | 1,698      |         |  |   | 224        |    |
| Net proceeds fromissuance of junior subordinateddebentures                         |  |                          | 72,618     |         |  |   | —    |    |
| Proceedsfrom collateralized debtobligations                                        |  |                          | 3,057,367  |         |  |   | 752,378    |    |
| Paymentsmade on collateralized debtobligations                                     |  |                          | (490,116   | )       |  |   | —    |    |
| Netborrowings from repurchaseagreements                                            |  |                          | 8,223      |         |  |   | —    |    |
| Netpayments on hedginginstruments                                                  |  |                          | (10,035    | )       |  |   | (21,610    | )  |
| Dividendsand distributionspaid                                                     |  |                          | (27,166    | )       |  |   | —    |    |
| Payments toformer MortgageITshareholders                                           |  |                          | —    |         |  |   | (2,576     | )  |
| Proceedsfrom notes payable and otherdebt                                           |  |                          | —    |         |  |   | 15,000     |    |
| Repayment ofnotes payable and otherdebt                                            |  |                          | —    |         |  |   | (1,125     | )  |
| Net proceedsfrom warehouse linespayable                                            |  |                          | 1,803,980  |         |  |   | 396,079    |    |
| **Netcash provided by financingactivities**                                        |  |                          | 4,566,655  |         |  |   | 1,301,762  |    |
| **Net(decrease) increase in cash and cashequivalents**                             |  |                          | (11,225    | )       |  |   | 57,336     |    |
| **Cashand cash equivalents at beginning ofperiod**                                 |  |                          | 70,224     |         |  |   | 22,261     |    |
| **Cashand cash equivalents at end ofperiod**                                       |  | $                             | 58,999     |         |  | $      | 79,597     |    |
|                                                                                    |

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 nine months ended September 30,2005 are not necessarily indicative of the results that may be expectedfor the year ending December 31, 2005. The interim financialinformation should be read in conjunction with MortgageIT Holdings,Inc.'s 2004 Annual Report on Form 10-K.

Basis ofPresentation

MortgageIT Holdings, Inc.("Holdings" or the"Company") is a residential mortgage lenderthat was formed in March 2004 to continue and expand the business ofMortgageIT, Inc. ("MortgageIT" or the"TRS"). Holdings is organized and conductsits operations to qualify as a REIT for federal income tax purposes andis focused on earning net interest income from mortgage loansoriginated by MortgageIT, Holdings' taxable REIT subsidiary.MortgageIT was incorporated in New York on February 1, 1999 and beganmarketing mortgage loan services on May 4, 1999. MortgageIT originates,sells and brokers residential mortgage loans in 50 states and theDistrict of Columbia, and is an approved U.S. Department of Housing andUrban Development ("HUD") Title IINonsupervised Delegated Mortgagee.

As discussed further in Note10, the Company operates its business in two primary segments, mortgageinvestment operations and mortgage banking operations. Mortgageinvestment operations are driven by the net interest income generatedon its investment loan portfolio. Mortgage banking operations includeloan origination, underwriting, funding, secondary marketing and loanbrokerage activities.

All shares of common stock and commonstock equivalents 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,Holdings' wholly owned subsidiary, MortgageIT, andMortgageIT's wholly owned subsidiaries, IPI Skyscraper MortgageCorporation ("IPI") and Home Closer LLC("Home Closer"), for the period from August4, 2004 (the date REIT operations commenced) to December 31, 2004, andexclusively for MortgageIT and its wholly owned subsidiaries, IPI andHome Closer for the preceding periods. IPI, which provides residentialmortgage banking and brokerage services in the New York, New Jersey andConnecticut tri-state area, was a wholly owned subsidiary of MortgageITuntil it was merged with and into MortgageIT effective December 31,2004. Home Closer provides title, settlement and other mortgage relatedservices to the Company and its customers. All material intercompanyaccount balances and transactions have been eliminated inconsolidation.

During the second quarter of 2005, the Companyformed two new subsidiaries, MHL Funding Corp., a qualified REITsubsidiary ("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.

Use of Estimates

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts 

10

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reported in the financial statements and theaccompanying notes. Management bases its estimates on certainassumptions, which it believes are reasonable under the circumstances,and does not believe that any change in those assumptions would have asignificant effect on the financial position or results of operationsof the Company. Actual results could differ materially from thoseestimates.

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 loans that have not yet beenallocated to a forward sales commitment. At September 30, 2005 andDecember 31, 2004, unallocated mortgage loans held for sale may becarried at the lower of adjusted cost or market value, or at marketvalue. Determining market value requires judgment by management indetermining how the market would value a particular mortgage loan basedon characteristics of the loan and available market information.

Allocated Mortgage Loans Held For Sale

Allocated mortgageloans held for sale represent loans that have been allocated to aforward sales commitment. For the nine months ended September 30, 2005,the Company qualified and elected to apply Statement of FinancialAccounting Standards ("SFAS") No. 133"Accounting for Derivative Instruments and HedgingActivities" ("SFAS No. 133")fair value hedge accounting for allocated loans held for sale. AtSeptember 30, 2005, allocated 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. At December 31, 2004, allocated mortgage loans held forsale were carried at the lower of adjusted cost or market value.Adjusted cost includes the loan principal amount outstanding, net ofdeferred direct origination costs and fees.

LoanSecuritizations

The Company securitizes mortgage loans bytransferring 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 deficienciesafter 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 SFAS No. 140 "Accounting for Transfers andServicing of Financial Assets and Extinguishments ofLiabilities" ("SFAS No. 140").Depending on the structure of the securitization, the accounting forsecuritizations is treated as either a sale or secured financing forfinancial statement 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. Gains and losses on a derivativethat is highly effective and that is designated and qualifies as a cashflow hedge are recorded in other comprehensive income (loss) to theextent that the derivative is effective as a hedge, until earnings areaffected by the variability in cash flows of the designated hedgeditem. The ineffective portion of the change in fair value of aderivative instrument that qualifies as either a fair value hedge or acash flow hedge, and the change in value of a derivative instrumentthat 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.

Interest Rate Lock Commitments

The Company'scommitted mortgage pipeline includes interest rate lock commitments("IRLCs") that have been extended toborrowers who have applied for loan funding and meet certain definedcredit 

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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

SFAS No. 130, "Reporting ComprehensiveIncome," divides comprehensive income into net income andother comprehensive income (loss), which includes unrealized gains andlosses on derivative financial instruments that qualify for cash flowhedge accounting under SFAS No. 133.

Revenue Recognition

Mortgage Investment Operations

Interest income is accruedbased on the outstanding principal amount and contractual terms of theloans. Direct loan origination costs and fees associated with the loansare amortized into interest income over the lives of the loans usingthe effective yield method, adjusted for the effects of estimatedprepayments. Estimating prepayments and estimating the remaining livesof the loans requires judgment by management, which involvesconsideration of possible future interest rate environments. The actuallives could be more or less than the amount estimated bymanagement.

Mortgage Banking Operations

Gain on sale ofloans represents the difference between the net sales proceeds and thecarrying values of the mortgage loans sold, and is recognized at thetime of sale. Direct loan origination costs and fees associated withthe loans are initially recorded as an adjustment of the cost of theloans held for sale and are recognized in earnings when the loans aresold.

Brokerage fees represent revenues earned for the brokeringof mortgage loans to third party lenders and are earned and recognizedat the time the loan is closed by the third party lender. Revenues areprimarily comprised of borrower application and/or administrative feesand brokerage fees paid to the Company by third party lenders.

Interest income is accrued as earned. Interest on mortgage loansheld for sale accrues on loans from the date of funding through thedate of sale. Interest on loans is computed based on the contractualloan note rate.

Generally, the Company is not exposed tosignificant credit risk on its loans sold to investors. In the normalcourse of business, the Company is obligated to repurchase loans frominvestors consistent with the terms of its investor contracts.Subsequent to the loan sale, the Company may record a repurchasereserve for potential future losses applicable to loans sold. Therepurchase reserve is included in accrued expenses on theCompany's balance sheet.

Loan Loss Reserves

TheCompany maintains an allowance for loan losses based onmanagement's estimate of credit losses inherent in theCompany's Portfolio ARM Loans. The estimation of the allowance isbased on a variety of factors including, but not limited to, industrystatistics, current economic conditions, loan portfolio composition,delinquency trends, credit losses to date on underlying loans andremaining credit protection. If the credit performance of theCompany's Portfolio ARM Loans is different than 

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expected, the Company adjusts the allowancefor loan losses to a level deemed appropriate by management to providefor estimated losses inherent in the Company's ARM loanportfolio. Two critical assumptions used in estimating the loan lossreserves are an assumed rate of default, which is the expected rate atwhich loans go into foreclosure over the life of the loans, and anassumed rate of loss severity, which represents the expected rate ofrealized loss upon disposition of the properties that have gone intoforeclosure. In addition, once a loan is 90 days or more delinquent ora borrower declares bankruptcy, the Company adjusts the value of itsaccrued interest receivable to what it believes to be collectible andstops accruing interest on that loan.

Stock Compensation

As of September 30, 2005, the Company had in effect the 2004Long-Term Incentive Plan (the "2004 Plan")and the Amended Long-Term Incentive Plan (the "AmendedPlan"), which are described more fully in Note 7.MortgageIT previously adopted the 2001 Stock Option Plan, which wasterminated on August 4, 2004 pursuant to the reorganization ofMortgageIT. The Company accounts for all transactions under whichemployees receive shares of stock or other equity instruments in theCompany based on the price of its stock in accordance with theprovisions of Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees."Pursuant to these accounting standards, the Company records deferredcompensation for stock awards at the date of grant based on theestimated values of the shares on that date. There is no stockoption-based employee compensation cost reflected in net income becauseall options granted had an exercise price equal to the market value ofthe underlying common stock on the date of grant. The following tableillustrates the effect on net income (loss) if the Company had appliedthe fair value recognition provisions of SFAS No. 123,"Accounting for Stock-Based Compensation-Transition andDisclosure" ("SFAS No.123")(Dollars in thousands, except per share data):

|                                                                                                           |  |                                |        |                              |  |        |         |               |  |        |        |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------------------------------------|--|--------------------------------|--------|------------------------------|--|--------|---------|---------------|--|--------|--------|---------|--|--------|---------|---------|--|--|
|                                                                                                      |  | Threemonths endedSeptember 30, |        | Nine monthsendedSeptember30, |
|                                                                                                      |  | 2005                           |        | 2004                         |  | 2005   |         | 2004          |
|                                                                                                      |  |                           |        | (Asrestated)                 |  |   |         | (As restated) |
| Net income(loss) attributable to commonstockholders                                                       |  | $                              | 8,665  |                         |  | $      | (12,552 | )        |  | $      | 32,813 |    |  | $      | (14,155 | )  |
| Amortizationof restricted stock, including forfeitures, net of related taxeffects                         |  |                           | 559    |                         |  |   | 84      |          |  |   | 1,708  |    |  |   | 84      |    |
| Stock-basedemployee compensation expense determined under the fair value method,net of related taxeffects |  |                           | (622   | )                       |  |   | (158    | )        |  |   | (1,881 | )  |  |   | (387    | )  |
| Proforma net income(loss)                                                                                 |  | $                              | 8,602  |                         |  | $      | (12,626 | )        |  | $      | 32,640 |    |  | $      | (14,458 | )  |
| Netincome (loss) per share attributable to commonstock:                                                   |  |                           |   |                         |  |   |    |          |  |   |   |    |  |   |    |    |
| Basic—Asreported                                                                                    |  | $                              | 0.31   |                         |  | $      | (0.93   | )        |  | $      | 1.47   |    |  | $      | (2.91   | )  |
| Basic—Proforma                                                                                      |  | $                              | 0.31   |                         |  | $      | (0.94   | )        |  | $      | 1.46   |    |  | $      | (2.97   | )  |
| Netincome (loss) per share for diluted earnings pershare:                                                 |  |                           |   |                         |  |   |    |          |  |   |   |    |  |   |    |    |
| Diluted—Asreported                                                                                  |  | $                              | 0.30   |                         |  | $      | (0.93   | )        |  | $      | 1.44   |    |  | $      | (2.91   | )  |
| Diluted—Proforma                                                                                    |  | $                              | 0.30   |                         |  | $      | (0.94   | )        |  | $      | 1.43   |    |  | $      | (2.97   | )  |
|                                                                                                           |

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 has elected 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 is not subject to federalincome tax on that portion of its income that is distributed tostockholders, as long as certain asset, income and stock ownershiptests are met. To maintain its 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 may be carried at the lower of adjusted cost or market value,or at market value. Allocated mortgage loans held for sale are carriedat market value at September 30, 2005 and at the lower of adjusted costor market value at December 31, 2004.

Derivative instrumentsrelated to the hedging of the Company's financing costs,including interest rate swap agreements, Eurodollar futures contractsand interest rate cap agreements (collectively "HybridHedging Instruments") are carried at fair value and areclassified as hedging instruments on the balance sheets.

Derivative instruments, including IRLCs and those related to thehedging of the Company's locked pipeline loans and mortgage loansheld for sale, including forward delivery contracts on mortgage-backedsecurities ("TBA Securities"), options on TBASecurities, and Eurodollar futures contracts, are carried at fair valueand are classified as hedging instruments on the balance sheets.

Liabilities, including warehouse lines payable, collateralized debtobligations, notes payable and other debt, are carried at theircontractual notional amounts which approximate fair value. PortfolioARM Loans are carried at cost, as more fully described in Note2.

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The following table presents informationas to the carrying amount and estimated fair value of certain of theCompany's market risk sensitive assets, liabilities and hedginginstruments at September 30, 2005 and December 31, 2004:

|                                               |  |                                 |           |                    |  |        |           |        |  |  |
|-----------------------------------------------|--|---------------------------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                                          |  | September30,2005                |
|                                          |  | CarryingAmount                  |           | EstimatedFairValue |
|                                          |  | (Dollarsinthousands)(unaudited) |
| Assets:                                       |  |                            |      |               |  |   |      |   |
| Mortgageloans held forsale                    |  | $                               | 3,284,445 |               |  | $      | 3,287,839 |   |
| Forwarddeliverycommitments                    |  |                            | 9,284     |               |  |   | 9,284     |   |
| Mortgageloans held for sale,net               |  |                            | 3,293,729 |               |  |   | 3,297,123 |   |
|                                          |  |                            |      |               |  |   |      |   |
| ARMloans held for securitization,net          |  |                            | 588,252   |               |  |   | 587,552   |   |
| ARM loanscollateralizing debt obligations,net |  |                            | 4,083,127 |               |  |   | 4,040,712 |   |
| Hedginginstruments                            |  |                            | 48,644    |               |  |   | 48,644    |   |
|                                          |  |                            |      |               |  |   |      |   |
| Liabilities:                                  |  |                            |      |               |  |   |      |   |
| Warehouselinespayable                         |  | $                               | 3,673,365 |               |  | $      | 3,673,365 |   |
| Collateralizeddebtobligations                 |  |                            | 3,899,237 |               |  |   | 3,899,237 |   |
| Repurchaseagreements                          |  |                            | 75,897    |               |  |   | 75,897    |   |
| Juniorsubordinateddebentures                  |  |                            | 77,324    |               |  |   | 77,324    |   |
| Hedginginstruments                            |  |                            | 4,340     |               |  |   | 4,340     |   |
|                                               |

|                                               |  |                       |           |                    |  |        |           |        |  |  |
|-----------------------------------------------|--|-----------------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                                          |  | 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 |   |
| Collateralizeddebtobligations                 |  |                  | 1,331,986 |               |  |   | 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 its impact.

In March 2005, SEC Staff Accounting Bulletin("SAB") No. 107, Application of SFAS No. 123(revised 2004), "Accounting for Stock-BasedCompensation," was released. This release summarizes theSEC staff position regarding the interaction between SFAS No. 123(revised 2004), Stock-Based Compensation, and certain SEC rules andregulations and provides the SEC's views regarding the valuationof share-based payment arrangements for publiccompanies.

NOTE 1A—RESTATEMENT OF CONSOLIDATED FINANCIALSTATEMENTS

The Company has determined that it could not supportthe use of hedge accounting for derivative contracts entered into priorto November 24, 2004. As a result, the Company's consolidatedstatements of operations for the three and nine months ended September30, 2004 and consolidated statement of cash flows for the nine monthsended September 30, 2004 have been restated.

Fair Value HedgeAccounting Restatement

The Company now believes that thedocumentation of fair value hedge accounting relationships and theassessment of hedge effectiveness was inadequate as required by theapplicable accounting standards contained in SFAS No. 133. As such, theCompany made the determination that it was not appropriate to applyhedge accounting for purposes of the Company's financialstatements for the three and nine months ended September 30, 2004 and,as such, loans held for sale were recorded at the lower of cost ormarket. The Company has corrected its accounting for mortgage loansheld for sale and interest rate risk management activities related tofair value hedging activities (a "fair value"hedge). Commencing with the quarter ended December 31, 2004, theCompany qualified for and has elected to apply SFAS No. 133 fair valuehedge accounting for loans held for sale, exclusive of loans allocatedto forward sales commitments. As of March 31, 2005, the Companyqualified for and has elected to apply SFAS No. 133 fair value hedgeaccounting for loans allocated to forward sales commitments as well.For loans held for sale that are designated as allocated to a forwardsales commitment, the mark to market price is equivalent to the forwardcommitment price on the date that the loans are allocated to a trade.Changes in the market value of these loans and the market value of therelated forward commitments can be expected to offset each other fromallocation date to date of settlement.

Cash Flow HedgeAccounting Restatement

The Company now believes that, prior toNovember 24, 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 contracts and, thus, the Company has elected toapply cash flow hedge accounting for these derivatives.

17

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A summary of the impact of therestatements on net income follows (Dollars in thousands):

|                                                                   |  |                   |         |                    |  |        |         |         |  |  |
|-------------------------------------------------------------------|--|-------------------|---------|--------------------|--|--------|---------|---------|--|--|
|                                                              |  | Threemonths ended |         | Nine monthsended   |
|                                                              |  | September 30,2004 |         | September 30, 2004 |
| Net (loss) income,as previouslyreported                           |  | $                 | (2,631  | )             |  | $      | 755     |    |
| Restatementfor derivative financial instruments, net of taxeffect |  |              | (9,334  | )             |  |   | (10,963 | )  |
| Net loss, asrestated                                              |  | $                 | (11,965 | )             |  | $      | (10,208 | )  |
|                                                                   |

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," Note 8-"Earnings Per Share," and Note10-"Segment Reporting," have been amended forthe impact of the aforementioned restatements. The following tablespresent the accounts on the consolidated statements of operations andcomprehensive income (loss) for the three and nine months endedSeptember 30, 2004 and the consolidated statement of cash flows for thenine months ended September 30, 2004 that were affected by therestatement. (Dollars in thousands, except per share data):

|                                                   |  |                   |         |                   |  |            |         |            |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------|--|-------------------|---------|-------------------|--|------------|---------|------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                              |  | Threemonths ended |         | Nine monthsended  |
|                                              |  | September30, 2004 |         | September 30,2004 |
|                                              |  | Asrestated        |         | Asreported        |  | Asrestated |         | Asreported |
| **Consolidated Statement ofOperations**           |  |              |    |              |  |       |    |       |  |   |    |    |  |   |    |    |
| Gain on sale of mortgageloans                     |  | $                 | 14,405  |              |  | $          | 14,269  |       |  | $      | 49,634  |    |  | $      | 51,941  |    |
| Realizedand unrealized loss on hedginginstruments |  |              | (9,856  | )            |  |       | — |       |  |   | (9,856  | )  |  |   | — |    |
| Totalrevenues                                     |  |              | 22,631  |              |  |       | 32,351  |       |  |   | 85,080  |    |  |   | 97,236  |    |
| (Loss)income before incometaxes                   |  |              | (12,207 | )            |  |       | (2,487  | )     |  |   | (9,004  | )  |  |   | 3,158   |    |
| Incometax (benefit)expense                        |  |              | (242    | )            |  |       | 144     |       |  |   | 1,204   |    |  |   | 2,403   |    |
| Net(loss)income                                   |  |              | (11,965 | )            |  |       | (2,631  | )     |  |   | (10,208 | )  |  |   | 755     |    |
| Netloss attributable to commonstockholders        |  |              | (12,552 | )            |  |       | (3,218  | )     |  |   | (14,155 | )  |  |   | (3,192  | )  |
| Persharedata:                                     |  |              |    |              |  |       |    |       |  |   |    |    |  |   |    |    |
| Basic                                             |  |              | (0.93   | )            |  |       | (0.24   | )     |  |   | (2.91   | )  |  |   | (0.66   | )  |
| Diluted                                           |  |              | (0.93   | )            |  |       | (0.24   | )     |  |   | (2.91   | )  |  |   | (0.66   | )  |
|                                                   |

|                                                                |  |                   |         |                   |  |            |         |            |  |        |         |         |  |        |        |         |  |  |
|----------------------------------------------------------------|--|-------------------|---------|-------------------|--|------------|---------|------------|--|--------|---------|---------|--|--------|--------|---------|--|--|
|                                                           |  | Threemonths ended |         | Nine monthsended  |
|                                                           |  | September30, 2004 |         | September 30,2004 |
|                                                           |  | Asrestated        |         | Asreported        |  | Asrestated |         | Asreported |
| **Consolidated Statements ofComprehensive Income (Loss)**      |  |              |    |              |  |       |    |       |  |   |    |    |  |   |   |    |
| Net (loss)income                                               |  | $                 | (11,965 | )            |  | $          | (2,631  | )     |  | $      | (10,208 | )  |  | $      | 755    |    |
| Unrealizedloss on hedging instruments arising during theperiod |  |              | — |              |  |       | (9,856  | )     |  |   | — |    |  |   | (9,856 | )  |
| Comprehensiveloss                                              |  |              | (11,965 | )            |  |       | (12,487 | )     |  |   | (10,208 | )  |  |   | (9,101 | )  |
|                                                                |

|                                                   |  |                   |         |            |  |        |          |         |  |  |
|---------------------------------------------------|--|-------------------|---------|------------|--|--------|----------|---------|--|--|
|                                              |  | Ninemonths ended  |
|                                              |  | September 30,2004 |
|                                              |  | Asrestated        |         | Asreported |
| **Consolidated Statement of CashFlows**           |  |              |    |       |  |   |     |    |
| Net (loss)income                                  |  | $                 | (10,208 | )     |  | $      | 755      |    |
| Realized andunrealized loss on hedginginstruments |  |              | 8,262   |       |  |   | —  |    |
| Increasein mortgage loans held forsale            |  |              | (96,299 | )     |  |   | (100,201 | )  |
| Increase inprepaids and otherassets               |  |              | (4,968  | )     |  |   | (1,293   | )  |
|                                                   |

18

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NOTE 2—PORTFOLIO ARM LOANS

The following table presents the Company's Portfolio ARM Loansas of September 30, 2005 and December 31, 2004 (Dollars inthousands):

|                                               |  |                                         |           |                                 |  |        |         |         |  |        |           |         |  |  |
|-----------------------------------------------|--|-----------------------------------------|-----------|---------------------------------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
| September30, 2005 (unaudited)                 |  | ARMloanscollateralizingdebt obligations |           | ARM loansheld forsecuritization |  | Total  |
| Principalbalanceoutstanding                   |  | $                                       | 4,045,873 |                            |  | $      | 585,248 |    |  | $      | 4,631,121 |    |
| Netunamortized loan origination costs andfees |  |                                    | 39,882    |                            |  |   | 3,434   |    |  |   | 43,316    |    |
| Loanlossreserves                              |  |                                    | (2,628    | )                          |  |   | (430    | )  |  |   | (3,058    | )  |
| Amortizedcost,net                             |  |                                    | 4,083,127 |                            |  |   | 588,252 |    |  |   | 4,671,379 |    |
| Grossunrealizedloss                           |  |                                    | (42,415   | )                          |  |   | (700    | )  |  |   | (43,115   | )  |
| Estimatedfairvalue                            |  | $                                       | 4,040,712 |                            |  | $      | 587,552 |    |  | $      | 4,628,264 |    |
| Carryingvalue                                 |  | $                                       | 4,083,127 |                            |  | $      | 588,252 |    |  | $      | 4,671,379 |    |
|                                               |

|                                               |  |                                        |           |                                |  |        |           |         |  |        |           |         |  |  |
|-----------------------------------------------|--|----------------------------------------|-----------|--------------------------------|--|--------|-----------|---------|--|--------|-----------|---------|--|--|
| December31, 2004                              |  | ARMloanscollateralizingdebtobligations |           | ARMloans 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 September 30, 2005, theCompany held approximately $4.1 billion of ARM loans that collateralizethe securities 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 nine months ended September 30,2005, the Company recorded loan loss provisions totaling $2.4 millionto reserve for estimated future credit losses on Portfolio ARM Loans,and there were no credit losses charged against the allowance forlosses during the period.

19

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The following table summarizes PortfolioARM Loan delinquency information as of September 30, 2005 and December31, 2004 (Dollars in thousands):

September 30, 2005(unaudited)

|                             |  |           |    |             |  |                             |        |                      |  |        |      |         |  |        |      |         |  |  |
|-----------------------------|--|-----------|----|-------------|--|-----------------------------|--------|----------------------|--|--------|------|---------|--|--------|------|---------|--|--|
| DelinquencyStatus           |  | LoanCount |    | LoanBalance |  | PercentofPortfolio ARMLoans |        | PercentofTotalAssets |
| 60 to 89days                |  |      | 37 |        |  | $                           | 11,027 |                 |  |   | 0.24 | %  |  |   | 0.14 | %  |
| 90days ormore               |  |      | 6  |        |  |                        | 1,662  |                 |  |   | 0.04 |    |  |   | 0.02 |    |
| Inbankruptcy andforeclosure |  |      | 19 |        |  |                        | 5,322  |                 |  |   | 0.11 |    |  |   | 0.06 |    |
|                        |  |      | 62 |        |  | $                           | 18,011 |                 |  |   | 0.39 | %  |  |   | 0.22 | %  |
|                             |

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    | %  |
|                             |

NOTE3—MORTGAGE LOANS HELD FOR SALE

Mortgage loans held forsale consist of the following components (Dollars in thousands):

|                                               |  |                  |           |                 |  |        |         |        |  |  |
|-----------------------------------------------|--|------------------|-----------|-----------------|--|--------|---------|--------|--|--|
|                                          |  | September30,2005 |           | December31,2004 |
|                                          |  | (unaudited)      |           |            |
| Mortgageloans held forsale                    |  | $                | 3,241,370 |            |  | $      | 774,656 |   |
| Deferredorigination costs andfees             |  |             | 52,359    |            |  |   | 9,936   |   |
| Carryingamount of mortgage loans held forsale |  | $                | 3,293,729 |            |  | $      | 784,592 |   |
|                                               |

Mortgageloans are residential mortgages on properties located throughout theUnited States having maturities of up to 40 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 September 30, 2005 and December 31, 2004, theCompany had loan purchase commitments from third party investors forapproximately $1.6 billion and $384.5 million, respectively.Substantially all loans held for sale at September 30, 2005 andDecember 31, 2004 were subsequently sold to third party investors. Allmortgage loans held for sale are pledged as collateral for warehouselines payable (See Note 5).

As of September 30, 2005 andDecember 31, 2004, the Company had aggregate locked pipelinecommitments to fund mortgage loans held for sale of $2.7 billion and$638.3 million, respectively.

NOTE 4—DERIVATIVES ANDHEDGING ACTIVITIES

The Company is exposed to interest rate riskin conjunction with the origination, funding, sale and investment inmortgage loan assets. The Company manages the risk of interest ratechanges primarily through the use of derivative instruments asfollows:

|              |                                                                                                                                         |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| •  | Fair value hedges, which areintended to manage the risks associated with potential changes in thefair value of loans held for sale; and |

20

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|              |                                                                                                                            |
|--------------|----------------------------------------------------------------------------------------------------------------------------|
| •  | Cash flowhedges, which are intended to manage the risks associated withpotential changes in the Company's financing costs. |

Inconnection with its mortgage loan origination activities, MortgageITissues IRLCs to loan applicants and financial intermediaries. The IRLCsguarantee the loan terms, subject to credit approval, for a specifiedperiod while the application is in process, typically between 15 and 60days. MortgageIT's risk management objective is to protectearnings from an unexpected change in the fair value of IRLCs byeconomically hedging the estimated closed loan volume from the IRLCpipeline. MortgageIT's pipeline hedging strategy primarilyutilizes TBA Securities to protect the value of its IRLCs. The TBASecurities, options on TBA Securities, forward sales commitments andIRLCs relating to mortgage loans held for sale, are derivativeinstruments and have been classified as such by the Company.Accordingly, these derivatives have been recorded at fair value withchanges in fair value reflected in gain on sale of loans.

AtSeptember 30, 2005 and December 31, 2004, the notional amount of theCompany's IRLCs relating to mortgage loans held for sale, wasapproximately $1.67 billion and $414.9 million, respectively. The fairvalue of the IRLCs at September 30, 2005 and December 31, 2004reflected a loss of approximately $4.3 million and $384,000,respectively.

At September 30, 2005 and December 31, 2004 thenotional amount of TBA Securities and options on TBA Securitiesoutstanding was approximately $947 million and $610.0 million with afair value gain of approximately $4.5 million and a fair value loss of$743,000, respectively.

At September 30, 2005 and December 31,2004, the notional amount of the Company's forward salescommitments from third party investors was approximately $2.1 billionand $399.4 million with a fair value gain of approximately $11.2million and $236,000, respectively.

Fair Value Hedges

The Company is exposed to interest rate risk in conjunction with thesale of mortgage loans. The Company manages the risk of interest ratechanges associated with its loans held for sale through use of TBASecurities, options on TBA Securities, forward sale commitments andEurodollar futures contracts. These derivative instruments are designedto hedge potential changes in the fair value of loans held forsale.

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

Cash FlowHedges

The Company primarily utilizes Eurodollar futurescontracts, interest rate cap agreements ("CapAgreements") and interest rate swap agreements("Swap Agreements") in order to managepotential changes in future LIBOR-based financing costs. The Companygenerally borrows funds based on short-term LIBOR-based interest ratesto finance its Portfolio ARM Loans. However, its Portfolio ARM Loanshave an initial fixed interest rate period up to five years. As aresult, the Company's existing and forecasted borrowings repriceto a new rate more frequently than its Portfolio ARM Loans. Therefore,the purpose of these hedges is to better match the average repricing ofthe variable rate debt with the average repricing of the Portfolio ARMLoans.

All changes in the fair value of Cap Agreements and SwapAgreements for the period and, effective April 1, 2005, the effectiveportion of the Eurodollar futures contracts' gain or loss, arerecorded in OCI on the consolidated balance sheets and will berecognized as interest expense when the forecasted financingtransactions occur. If it becomes probable that the forecastedtransaction, which is the future interest payments on theCompany's collateralized debt obligations, will not occur asspecified at the inception of the hedging relationship, then therelated gain or loss in OCI would be reclassified out of OCI andrecognized in interest expense. The carrying value of these derivativeinstruments is included in hedging instruments on the accompanyingconsolidated balance sheets.

The Company purchases CapAgreements by incurring a one-time fee or premium. Pursuant to theterms of the Cap Agreements, the Company will receive cash payments ifthe interest rate index 

21

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specified in the Cap Agreements increasesabove contractually specified levels. Therefore, such Cap Agreementshave the effect of capping the interest rate on a portion of theCompany's borrowings above a level specified by the CapAgreement. The notional balances of the caps generally decline over thelife of these instruments approximating the declining balance of theCompany's collateralized debt obligations.

Under theCompany's existing Cap Agreements, the Company will receive cashpayments should one-month LIBOR increase above the contract rates ofthe caps, which range from 2.50% to 5.36%. The CapAgreements had an average maturity of 3.54 years as of September 30,2005 and will expire between August 2007 and July 2010.

TheCompany enters into Swap Agreements to fix the interest rate on aportion of the Company's borrowings as specified in the SwapAgreement. When the Company enters into a Swap Agreement, it agrees topay a fixed interest rate as specificed in the agreement, typicallybased on LIBOR. Swap Agreements have the effect of converting theCompany's variable-rate debt into fixed-rate debt over the lifeof the Swap Agreements.

Both Cap and Swap Agreements represent ameans to lengthen the average repricing period of the Company'svariable-rate collateralized debt obligations such that the averagerepricing duration of the borrowings more closely matches the averagerepricing duration of the Company's Portfolio ARM Loans.

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

The followingtable presents notional amount, carrying amount and unrealized gainsand (losses) recorded in OCI for the Company's cash flow hedgesat September 30, 2005 and December 31, 2004. The carrying amount of thecash flow derivative instruments is included in hedging instruments inthe accompanying balance sheets.

|                             |  |                              |           |                |  |                      |        |        |  |        |        |         |  |  |
|-----------------------------|--|------------------------------|-----------|----------------|--|----------------------|--------|--------|--|--------|--------|---------|--|--|
|                        |  | September30, 2005(unaudited) |
|                        |  | NotionalAmount               |           | CarryingAmount |  | UnrealizedGain(Loss) |
|                        |  | (Dollars inthousands)        |
| Eurodollar futurescontracts |  | $                            | 3,729,000 |           |  | $                    | 1,787  |   |  | $      | (4,552 | )  |
| Capagreements               |  |                         | 4,282,231 |           |  |                 | 29,787 |   |  |   | 5,441  |    |
| Swapagreements              |  |                         | 620,590   |           |  |                 | 9,996  |   |  |   | 9,667  |    |
| Totalcash flowhedges        |  | $                            | 8,631,821 |           |  | $                    | 41,570 |   |  | $      | 10,556 |    |
|                             |

|                             |  |                       |           |                |  |                      |        |        |  |        |         |         |  |  |
|-----------------------------|--|-----------------------|-----------|----------------|--|----------------------|--------|--------|--|--------|---------|---------|--|--|
|                        |  | 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 DebtObligations

Through September 30, 2005, the Company had issuedAAA/AA-rated floating-rate pass-through certificates totaling $4.36billion and A+/BBB+ subordinated floating rate securities totaling$51.1 million to third party investors and retained $109.9 million ofsubordinated certificates, which provide 

22

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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 referredto as collateralized debt obligations, the Company incurred costs of$12.9 million through September 30, 2005. These costs are beingamortized over the expected life of the securities using the levelyield method. These transactions were accounted for as financings ofloans and represent permanent financing that is not subject to margincalls. The Company's collateralized debt obligations are issuedby trusts and are secured by 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 September 30, 2005 and December 31, 2004, themortgage-backed securities were collateralized by ARM loans with aprincipal balance of $4.0 billion and $1.4 billion, respectively. Thedebt matures between 2033 and 2035 and is callable by the Company atpar anytime after the total balance of the loans collateralizing thedebt is amortized down to 20% of the original unpaid balance.The balance of this debt is reduced as the underlying loan collateralis paid down by borrowers and is expected to have an average life ofapproximately two years.

Repurchase Agreements

TheCompany had outstanding $75.9 million and $67.7 million of repurchaseagreements with a weighted average borrowing rate of approximately3.3% and 2.2% and a weighted average remaining maturityof 26 days and 144 days as of September 30, 2005 and December 31, 2004,respectively.

Junior Subordinated Debentures

DuringApril and May 2005, MortgageIT issued an aggregate of approximately$77.3 million of junior subordinated debentures (theDebentures").The Debentures were issued to a trust subsidiary of MortgageIT in orderto fund the trust's obligations with respect to an aggregate of$75 million of trust preferred securities which were issued by suchtrust subsidiary. 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 $2.5 million. These costs are being amortized overthe expected life of the Debentures using the interest method. As ofSeptember 30, 2005, the Company did not include in its consolidatedfinancial statements the assets, liabilities and operations of thetrust subsidiary pursuant to FASB Interpretation No. 46 (revisedDecember 2003), "Consolidation of Variable InterestEntities" ("FIN 46R"). As ofSeptember 30, 2005, the Company recorded its investment in the trustsubsidiary, of approximately $2.3 million, in prepaids and other assetsin the accompanying consolidated balance sheet.

Warehouse LinesPayable

The Company has various warehouse credit facilitieswith major lenders that are used to fund mortgage loans. During thenine months ended September 30, 2005, the Company negotiated two newcredit facilities, which, when added to the Company's threeexisting credit facilities, brings to five the total number offacilities it may draw upon.

In March 2005, the Company enteredinto a warehouse credit facility with Credit Suisse First BostonMortgage Capital LLC ("CSFB") for a partiallycommitted credit limit of $400 million, which limit was increased to$750 million in September 2005. Under the line, outstanding advancesare secured by the specific mortgage loans funded, and bear interest atLIBOR plus a spread based on the types of loans being funded. As ofSeptember 30, 2005, the Company had approximately $596.7 millionoutstanding on this facility. This credit facility expires in February2006.

In February 2005, the Company entered into a warehousecredit facility with Greenwich Capital Financial Products Inc.("Greenwich") for an uncommitted credit limitof $250 million, which limit 

23

----

was increased to $500 million in August2005. Under the line, outstanding advances are secured by the specificmortgage loans funded, and bear interest at LIBOR plus a spread basedon the types of loans being funded. As of September 30, 2005, theCompany had approximately $483.6 million outstanding on this facility.This credit facility expires in February 2006.

The Companymaintains a credit facility (the "UBS WarehouseFacility") with UBS Real Estate Securities, Inc.("UBS"), which had an uncommitted creditlimit of $1.25 billion, which limit was increased to $2.0 billion inSeptember 2005, which includes a mortgage loan sale conduit facility.This credit facility may be terminated at the discretion of the lender.The facility provides for temporary increases in the line amount on anas-requested basis. Under the UBS Warehouse Facility outstandingadvances are secured by the specific mortgage loans funded, and bearinterest at LIBOR plus a spread based on the types of loans beingfunded. Interest is payable at the time the outstanding principalamount of the advance is due, generally within 30 to 60 days. As ofSeptember 30, 2005 and December 31, 2004, the Company had outstandingon the line $740.8 million and $798.8 million, respectively. Under theconduit facility, the Company sells mortgage loans to UBS at a priceequal to the committed purchase price from a third party investor, andrecords the transaction as a sale in accordance with SFAS No. 140. UBS,in turn, sells the loan to a third party investor. The Companyfacilitates the sale to the third party investor on behalf of UBS andreceives a performance fee that varies depending on the time requiredby UBS to complete the transfer of the loans to the third partyinvestor. The performance fee of $1.6 million, $3.7 million, $1.7million and $6.7 million for the three and nine months ended September30, 2005 and 2004, respectively, is included in brokerage revenue onthe statement of operations. Loans on the conduit line, which totaledapproximately $1.0 billion and $435.1 million at September 30, 2005 andDecember 31, 2004, respectively, reduce availability under the facilityuntil they are transferred to the third party investor by UBS. Themortgage loans sold to UBS are subject to repurchase under certainlimited conditions, primarily if UBS determines that a mortgage loanwas not properly underwritten. This credit facility expires in August2007.

In June 2005, the Company entered into a new warehousecredit facility with Merrill Lynch Bank USA ("MerrillLynch") to replace the warehouse credit facility expiringin August 2005. The new credit facility had a partially committedcredit limit of $1.0 billion, which limit was increased to $1.25billion in July 2005, collateralized by the specific mortgage loansfunded, and bears interest at LIBOR plus a spread based on the types ofloans being funded. As of September 30, 2005 and December 31, 2004, theCompany had approximately $1.2 billion and $906.3 million, outstandingon the new and the old credit facilities, respectively. The new creditfacility expires in June 2006.

The Company maintains a creditfacility with Residential Funding Corporation("RFC"), which has a committed credit limitof $400 million collateralized by the specific mortgage loans funded,and bears interest at LIBOR plus a spread based on the types of loansbeing funded. During August 2005, the Company and RFC agreed to atemporary increase in the facility of $250 million, which expires,December 31, 2005. As of September 30, 2005 and December 31, 2004, theCompany had outstanding approximately $620.0 million and $164.3million, respectively, on this facility. This credit facility expiresin June 2006.

The weighted average effective rate of interestfor borrowings under all warehouse lines of credit was approximately3.8% and 2.6% for the nine months ended September 30,2005 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 September 30, 2005, the Company wasin compliance with the covenants contained in all of its warehousecredit facilities. When the Company has violated covenants contained inits credit facilities in the past, it has obtained waivers with respectto those violations from its lenders. No assurance can be made that theCompany's lenders will waive future covenant violations, if theyoccur.

24

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Maturities of borrowings are as followsat September 30, 2005 (Dollars in thousands):

|                                    |  |                      |           |                |  |           |           |           |  |                 |           |        |  |        |         |        |  |        |         |        |  |  |
|------------------------------------|--|----------------------|-----------|----------------|--|-----------|-----------|-----------|--|-----------------|-----------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                               |  | Paymentsdue byPeriod |
|                               |  | (unaudited)          |
|                               |  | Total                |           | Lessthan1 year |  | 1-3 years |           | 3-5 years |  | Morethan5 years |
| Collateralized debt obligations(1) |  | $                    | 3,899,237 |           |  | $         | 1,131,041 |      |  | $               | 2,032,548 |   |  | $      | 735,648 |   |  | $      | — |   |
| Warehouse linespayable             |  |                 | 3,673,365 |           |  |      | 3,673,365 |      |  |            | —   |   |  |   | — |   |  |   | — |   |
| Repurchaseagreements               |  |                 | 75,897    |           |  |      | 75,897    |      |  |            | —   |   |  |   | — |   |  |   | — |   |
| Juniorsubordinateddebentures       |  |                 | 77,324    |           |  |      | —   |      |  |            | —   |   |  |   | — |   |  |   | 77,324  |   |
|                                    |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Paymentson the Company's collateralized debt obligations are dependentupon cash flows received from underlying loans receivable. TheCompany's estimate of its repayment is based on scheduledprincipal payments on the underlying loans receivable, adjusted forestimated pre-payments. This estimate will differ from actualpre-payment amounts. |

In October 2005, the Company enteredinto a warehouse credit facility with JPMorgan Chase Bank, NationalAssociation ("JPMorgan Chase") for anoncommitted credit limit of $500 million. 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. This credit facility expires in October 2006.

Special-Purpose Warehouse Finance Subsidiary

TheCompany's UBS Warehouse Facility, described above under"—Warehouse Lines Payable," isadministered by an agent on behalf of an institutionally managed mediumterm note conduit. Under the funding agreements governing the UBSWarehouse Facility, the Company transfers finance receivables toMortgageIT SPV I, a Delaware statutory trust (the"Trust") that has been established by theCompany 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 whichare from time to time owned by the Trust are legally owned by the Trustand not by the Company; |

|              |                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------|
| •  | the Trust is alegal entity separate and distinct from the Company and all otheraffiliates of the Company; |

|              |                                                                                                                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the assetsof the Trust are legally assets only of the Trust, and are not legallyavailable to the Company and all other affiliates of the Company ortheir respective creditors, for pledge to other creditors or to satisfythe claims of other creditors; |

25

----

|              |                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | none of theCompany or any other affiliate of the Company is legally liable on thedebts of the Trust, except for an amount limited to 10% of thegreater of (i) the total principal amount of Notes then outstandingunder the related note purchase agreement plus the aggregateoutstanding principal of all mortgage loans sold under the loanrepurchase agreement and the loan sale agreement and (ii) the facilitylimit; and |

|              |                                                                                |
|--------------|--------------------------------------------------------------------------------|
| •  | assets of the Company whichresult from the issuance and sale of the Notes are: |

|  |          |                                                                                                                                                   |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1)  | any cash portion of the purchaseprice paid from time to time by the Trust in consideration of mortgageloans sold to the Trust by the Company; and |

|  |          |                                                               |
|--|----------|---------------------------------------------------------------|
|  | 2)  | the value of the Company's netequity investment in the Trust. |

As of September 30, 2005, theTrust had the following assets (in thousands):

|  |          |                            |
|--|----------|----------------------------|
|  | a)  | whole loans: $751,499; and |

|  |          |                                    |
|--|----------|------------------------------------|
|  | b)  | cash and cash equivalents:$48,894. |

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

|  |          |                                          |
|--|----------|------------------------------------------|
|  | a)  | short-term debt due to UBS:$740,766; and |

|  |          |                                       |
|--|----------|---------------------------------------|
|  | b)  | $59,627 inmembers' equity investment. |

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

NOTE 6—NOTES PAYABLE

MortgageIT issued senior securednotes due 2007, with an aggregate principal amount of $15 million, inMarch 2004. The notes are secured by a first priority security interestin all of MortgageIT's assets, with the exception of its mortgageloans held for sale and ARM loans held for securitization. The notepurchase agreement governing the notes contains various restrictionsand covenants. As of September 30, 2005, MortgageIT was in compliancewith all of the restrictions and covenants contained in the relatednote purchase agreement. When MortgageIT has violated covenantscontained in the note purchase agreement in the past, it has obtainedwaivers with respect to those violations from the notes'investor. No assurance can be made that the investor will waive futurecovenant violations, if they occur.

In November 2004, MortgageITentered into an amendment of the note purchase agreement, which reducedthe interest rate on the outstanding principal balance thereunder from10% per annum to 71⁄2% per annum for the periodbeginning October 1, 2004 and ending March 31, 2005. In addition, theamendment prohibited MortgageIT from prepaying the notes prior to April14, 2005. In August 2005, MortgageIT entered into an amendment andrestatement of the note purchase agreement, which reduced the interestrate on the outstanding principal balance thereunder from 10%per annum to 5.5% for the period as of August 23, 2005 andending at maturity. In addition, this amendment requires MortgageIT topay a premium on any optional prepayment of the notes on or prior toJuly 31, 2006.

NOTE 7—STOCKHOLDERS EQUITY

Issuance of Common Stock

In June 2005, the Companyconducted a secondary public offering of its common stock. The offeringof 9,484,306 shares, at a price to the public of $18.25 per share,included the sale of 7,289,428 shares by the Company and 2,194,878shares by certain selling stockholders. Net proceeds to the Company, onJuly 6, 2005, the closing date, after deducting the underwritingdiscount and offering expenses, approximated $125.4 million. TheCompany did not receive any proceeds from the sale of shares by theselling stockholders.

In July 2005, the underwriters of thesecondary public offering described above, exercised, in full, theiroption to purchase an additional 1,422,646 shares of common stock fromthe Company at the 

26

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public offering price of $18.25 to coverover-allotments. Net proceeds to the Company, after deducting theunderwriting discount and offering expenses, approximated an additional$24.6 million.

Stock Repurchase Plan

In October 2005,the Company announced that its board of directors authorized a programto repurchase up to $30 million of the Company's outstandingcommon stock. The repurchase program allows for shares to be purchasedfrom time to time at management's discretion based upon ongoingassessments of the capital needs of the Company and the marketvaluation of its stock.

Stock Options

2001 StockOption Plan

In 2001, MortgageIT established the 2001 StockOption Plan ("2001 Plan"). The 2001 Planprovided for the granting of stock options to employees, directors andconsultants of MortgageIT to purchase up to 776,000 shares of Class BCommon Stock. The exercise price of the options was not to be less thanthe fair market value on the date of grant with a maximum term of tenyears, or in the case of 10% stockholders, at 110% of thefair market value on the date of grant with a maximum term of fiveyears. MortgageIT awarded options to purchase 241,000 shares during2004, all of which had a ten-year life and vested at the rate ofone-third each year on the first three anniversaries of the respectivegrant date. The 2001 Plan terminated in August 2004.

In August2004, options to purchase 45,000 shares of common stock were exercisedat an exercise price of $4.96 per share. Proceeds to MortgageITapproximated $224,000. As a result of the reorganization of MortgageITand Holdings' initial public offering, options to purchase 56,000shares of common stock were exchanged for approximately $390,000 andoptions to purchase 535,000 shares were cancelled.

2004 andAmended Long-Term Incentive Plans

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

In April 2005, the board ofdirectors adopted the MortgageIT Holdings, Inc. Amended Long-TermIncentive Plan (the "Amended Plan"), whichwas subsequently approved by the Company's stockholders. Underthe Amended Plan, an additional 1,000,000 shares of the Company'scommon stock were reserved for issuance; this addition of shares is theonly material difference between the 2004 Plan and the Amended Plan.The Amended Plan will terminate in 2015.

Both the 2004 Plan andthe Amended Plan provide for the grant of incentive stock options,non-qualified stock options, stock appreciation rights and restrictedstock. During the nine months ended September 30, 2005, options topurchase 91,458 shares of common stock, at an average exercise price of$12.00 per share and 23,398 shares of restricted stock were forfeited,and the Company granted options to purchase 2,500 shares of commonstock, at an average exercise price of $12.98 per share, and 188,635shares of restricted stock. The stock options and restricted stock willvest over a three-year period.

During the three months endedSeptember 30, 2005, options to purchase 359,608 shares of common stockbecame exercisable, of which 141,273 options were exercised at anaverage price of $12.02 per share. 117,142 shares of restricted stockvested during the three months ended September 30, 2005.

Therewere approximately 1,095,800 shares available for future grant underthe 2004 Plan and the Amended Plan at September 30, 2005.

Theweighted average fair value of stock options issued under the 2004Plan, for the nine months ended September 30, 2005, under theBlack-Scholes option-pricing model, was $3.31 per option.

27

----

The weighted average fair value of stockoptions issued under the 2001 Plan, for the nine months ended September30, 2004, under the minimum value method, was $3.61 per option.

NOTE 8—EARNINGS PER SHARE

Basic and diluted incomeper share are calculated in accordance with SFAS No. 128,"Earnings Per Share." The basic and dilutedincome per common share for all periods presented were computed basedon the weighted-average number of common shares outstanding, as follows(Dollars and shares in thousands, except per share data):

|                                                                         |  |                                 |         |                              |  |        |         |               |  |        |         |        |  |        |         |         |  |  |
|-------------------------------------------------------------------------|--|---------------------------------|---------|------------------------------|--|--------|---------|---------------|--|--------|---------|--------|--|--------|---------|---------|--|--|
|                                                                    |  | Threemonths ended September 30, |         | Nine monthsendedSeptember30, |
|                                                                    |  | 2005                            |         | 2004                         |  | 2005   |         | 2004          |
|                                                                    |  |                            |         | (Asrestated)                 |  |   |         | (As restated) |
| Net income(loss)                                                        |  | $                               | 8,665   |                         |  | $      | (11,965 | )        |  | $      | 32,813  |   |  | $      | (10,208 | )  |
| Dividendson convertible redeemable preferredstock:                      |  |                            |    |                         |  |   |    |          |  |   |    |   |  |   |    |    |
| SeriesA                                                                 |  |                            | — |                         |  |   | 63      |          |  |   | — |   |  |   | 426     |    |
| SeriesB                                                                 |  |                            | — |                         |  |   | 358     |          |  |   | — |   |  |   | 2,397   |    |
| SeriesC                                                                 |  |                            | — |                         |  |   | 123     |          |  |   | — |   |  |   | 822     |    |
| Accretionof discount on preferredstock                                  |  |                            | — |                         |  |   | 43      |          |  |   | — |   |  |   | 302     |    |
| Totaldividends on preferredstock                                        |  |                            | — |                         |  |   | 587     |          |  |   | — |   |  |   | 3,947   |    |
| Netincome (loss) attributable to commonstockholders                     |  | $                               | 8,665   |                         |  | $      | (12,552 | )        |  | $      | 32,813  |   |  | $      | (14,155 | )  |
| Basicearnings pershare:                                                 |  |                            |    |                         |  |   |    |          |  |   |    |   |  |   |    |    |
| Netincome (loss) attributable to commonstockholders                     |  | $                               | 8,665   |                         |  | $      | (12,552 | )        |  | $      | 32,813  |   |  | $      | (14,155 | )  |
| Weightedaverage common stock outstanding for basic earnings pershare    |  |                            | 28,077  |                         |  |   | 13,451  |          |  |   | 22,381  |   |  |   | 4,861   |    |
| Basicearnings (loss) pershare                                           |  | $                               | 0.31    |                         |  | $      | (0.93   | )        |  | $      | 1.47    |   |  | $      | (2.91   | )  |
| Dilutedearnings pershare:                                               |  |                            |    |                         |  |   |    |          |  |   |    |   |  |   |    |    |
| Netincome (loss) for diluted earnings per share                         |  | $                               | 8,665   |                         |  | $      | (12,552 | )        |  | $      | 32,813  |   |  | $      | (14,155 | )  |
| Commonstock outstanding for basic earnings per sharecomputation         |  |                            | 28,077  |                         |  |   | 13,451  |          |  |   | 22,381  |   |  |   | 4,861   |    |
| Assumedconversion ofdilutive:                                           |  |                            |    |                         |  |   |    |          |  |   |    |   |  |   |    |    |
| Stockoptions and unvested restricted stock                              |  |                            | 350     |                         |  |   | — |          |  |   | 407     |   |  |   | — |    |
| Weightedaverage common stock outstanding for diluted earnings per share |  |                            | 28,427  |                         |  |   | 13,451  |          |  |   | 22,788  |   |  |   | 4,861   |    |
| Dilutedearnings (loss) pershare                                         |  | $                               | 0.30    |                         |  | $      | (0.93   | )        |  | $      | 1.44    |   |  | $      | (2.91   | )  |
|                                                                         |

Stockoptions and warrants aggregating approximately 535,000 and 661,000,respectively, were excluded from the computation for the three and ninemonths ended September 30, 2004, as their effect would have beenanti-dilutive. Potentially dilutive common shares amounting toapproximately 5.8 million relating to the conversion of Series A,Series B and Series C preferred stock and stock options were excludedfrom the computation for the three and nine months ended September 30,2004, as their effect would have been anti-dilutive.

28

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NOTE 9—STATEMENT OF CASHFLOWS

Supplemental disclosure of cash flow information(Dollars in thousands)

|                              |  |                               |         |        |  |        |        |        |  |  |
|------------------------------|--|-------------------------------|---------|--------|--|--------|--------|--------|--|--|
|                         |  | Ninemonths ended September30, |
|                         |  | 2005                          |         | 2004   |
| Cashpaid during the yearfor: |  |                          |    |   |  |   |   |   |
| Interest                     |  | $                             | 148,441 |   |  | $      | 8,462  |   |
| Incometaxes                  |  |                          | 14,561  |   |  |   | 6,006  |   |
|                              |

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 nine monthsended September 30, 2005 and 2004 (Dollars in thousands).

Threemonths ended September 30, 2005

|                               |  |                              |           |                               |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|-------------------------------|--|------------------------------|-----------|-------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                          |  | MortgageInvestmentOperations |           | MortgageBanking Operations(1) |  | Eliminations |           | Total   |
| Gain on saleof mortgage loans |  | $                            | —   |                          |  | $            | 69,211    |    |  | $      | (7,599  | )  |  | $      | 61,612    |    |
| Brokeragerevenues             |  |                         | —   |                          |  |         | 7,506     |    |  |   | — |    |  |   | 7,506     |    |
| Interestincome                |  |                         | 50,640    |                          |  |         | 37,785    |    |  |   | 1,959   |    |  |   | 90,384    |    |
| Interestexpense               |  |                         | (42,443   | )                        |  |         | (33,522   | )  |  |   | 224     |    |  |   | (75,741   | )  |
| Netinterestincome             |  |                         | 8,197     |                          |  |         | 4,263     |    |  |   | 2,183   |    |  |   | 14,643    |    |
| Other                         |  |                         | —   |                          |  |         | 209       |    |  |   | — |    |  |   | 209       |    |
| Totalrevenues                 |  |                         | 8,197     |                          |  |         | 81,189    |    |  |   | (5,416  | )  |  |   | 83,970    |    |
| Operatingexpenses             |  |                         | 3,566     |                          |  |         | 65,270    |    |  |   | (372    | )  |  |   | 68,464    |    |
| Incomebefore incometax        |  |                         | 4,631     |                          |  |         | 15,919    |    |  |   | (5,044  | )  |  |   | 15,506    |    |
| Incometaxes                   |  |                         | —   |                          |  |         | 6,841     |    |  |   | — |    |  |   | 6,841     |    |
| Netincome                     |  | $                            | 4,631     |                          |  | $            | 9,078     |    |  | $      | (5,044  | )  |  | $      | 8,665     |    |
| Segmentassets                 |  | $                            | 4,689,477 |                          |  | $            | 3,620,204 |    |  | $      | (76,991 | )  |  | $      | 8,232,690 |    |
|                               |

Allocationofeliminations:

|                               |  |                              |       |                               |  |        |        |         |  |        |        |         |  |  |
|-------------------------------|--|------------------------------|-------|-------------------------------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                          |  | MortgageInvestmentOperations |       | MortgageBanking Operations(1) |  | Total  |
| Net income beforeeliminations |  | $                            | 4,631 |                          |  | $      | 9,078  |    |  | $      | 13,709 |    |
| Eliminations                  |  |                         | 2,183 |                          |  |   | (7,227 | )  |  |   | (5,044 | )  |
| Netincome                     |  | $                            | 6,814 |                          |  | $      | 1,851  |    |  | $      | 8,665  |    |
|                               |

|  |
|--|
|  |  |
|  |

|     |                                                                  |
|-----|------------------------------------------------------------------|
| (1) | Representsthe consolidated results of operations for MortgageIT. |

29

----

Three months ended September 30, 2004(as restated)

|                                                   |  |                                  |           |                               |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|---------------------------------------------------|--|----------------------------------|-----------|-------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations (1) |           | MortgageBanking Operations(2) |  | Eliminations |           | Total   |
| Gain on saleof mortgage loans                     |  | $                                | —   |                          |  | $            | 18,344    |    |  | $      | (3,939  | )  |  | $      | 14,405    |    |
| Brokeragerevenues                                 |  |                             | —   |                          |  |         | 8,955     |    |  |   | — |    |  |   | 8,955     |    |
| Interestincome                                    |  |                             | 4,676     |                          |  |         | 11,128    |    |  |   | — |    |  |   | 15,804    |    |
| Interestexpense                                   |  |                             | (2,077    | )                        |  |         | (4,848    | )  |  |   | — |    |  |   | (6,925    | )  |
| Netinterestincome                                 |  |                             | 2,599     |                          |  |         | 6,280     |    |  |   | — |    |  |   | 8,879     |    |
| Realizedand unrealized loss on hedginginstruments |  |                             | (3,690    | )                        |  |         | —   |    |  |   | (6,166  | )  |  |   | (9,856    | )  |
| Other                                             |  |                             | —   |                          |  |         | 248       |    |  |   | — |    |  |   | 248       |    |
| Totalrevenues                                     |  |                             | (1,091    | )                        |  |         | 33,827    |    |  |   | (10,105 | )  |  |   | 22,631    |    |
| Operatingexpenses                                 |  |                             | 973       |                          |  |         | 34,361    |    |  |   | (496    | )  |  |   | 34,838    |    |
| Lossbefore incometax                              |  |                             | (2,064    | )                        |  |         | (534      | )  |  |   | (9,609  | )  |  |   | (12,207   | )  |
| Incometaxbenefit                                  |  |                             | —   |                          |  |         | (242      | )  |  |   | — |    |  |   | (242      | )  |
| Netloss                                           |  | $                                | (2,064    | )                        |  | $            | (292      | )  |  | $      | (9,609  | )  |  | $      | (11,965   | )  |
| **December31,2004**                               |  |                             |      |                          |  |         |      |    |  |   |    |    |  |   |      |    |
| Segmentassets                                     |  | $                                | 2,439,857 |                          |  | $            | 1,117,160 |    |  | $      | (16,167 | )  |  | $      | 3,540,850 |    |
|                                                   |

Allocationofeliminations:

|                             |  |                                  |        |                               |  |        |        |         |  |        |         |         |  |  |
|-----------------------------|--|----------------------------------|--------|-------------------------------|--|--------|--------|---------|--|--------|---------|---------|--|--|
|                        |  | MortgageInvestmentOperations (1) |        | MortgageBanking Operations(2) |  | Total  |
| Net loss beforeeliminations |  | $                                | (2,064 | )                        |  | $      | (292   | )  |  | $      | (2,356  | )  |
| Eliminations                |  |                             | (6,166 | )                        |  |   | (3,443 | )  |  |   | (9,609  | )  |
| Netloss                     |  | $                                | (8,230 | )                        |  | $      | (3,735 | )  |  | $      | (11,965 | )  |
|                             |

|  |
|--|
|  |  |
|  |

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

|     |                                                                  |
|-----|------------------------------------------------------------------|
| (2) | Represents the consolidated results of operationsfor MortgageIT. |

30

----

Nine months ended September 30,2005

|                                                   |  |                              |           |                               |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|---------------------------------------------------|--|------------------------------|-----------|-------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations |           | MortgageBanking Operations(1) |  | Eliminations |           | Total   |
| Gain on saleof mortgage loans                     |  | $                            | —   |                          |  | $            | 161,614   |    |  | $      | (20,910 | )  |  | $      | 140,704   |    |
| Brokeragerevenues                                 |  |                         | —   |                          |  |         | 20,179    |    |  |   | — |    |  |   | 20,179    |    |
| Interestincome                                    |  |                         | 124,341   |                          |  |         | 83,458    |    |  |   | 4,237   |    |  |   | 212,036   |    |
| Interestexpense                                   |  |                         | (96,687   | )                        |  |         | (59,925   | )  |  |   | 130     |    |  |   | (156,482  | )  |
| Netinterestincome                                 |  |                         | 27,654    |                          |  |         | 23,533    |    |  |   | 4,367   |    |  |   | 55,554    |    |
| Realizedand unrealized loss on hedginginstruments |  |                         | 8,128     |                          |  |         | —   |    |  |   | 1,614   |    |  |   | 9,742     |    |
| Other                                             |  |                         | —   |                          |  |         | 715       |    |  |   | — |    |  |   | 715       |    |
| Totalrevenues                                     |  |                         | 35,782    |                          |  |         | 206,041   |    |  |   | (14,929 | )  |  |   | 226,894   |    |
| Operatingexpenses                                 |  |                         | 10,308    |                          |  |         | 169,741   |    |  |   | (1,575  | )  |  |   | 178,474   |    |
| (Loss)income before incometax                     |  |                         | 25,474    |                          |  |         | 36,300    |    |  |   | (13,354 | )  |  |   | 48,420    |    |
| Incometaxes                                       |  |                         | 2         |                          |  |         | 15,605    |    |  |   | — |    |  |   | 15,607    |    |
| Net(loss)income                                   |  | $                            | 25,472    |                          |  | $            | 20,695    |    |  | $      | (13,354 | )  |  | $      | 32,813    |    |
| Segmentassets                                     |  | $                            | 4,689,477 |                          |  | $            | 3,620,204 |    |  | $      | (76,991 | )  |  | $      | 8,232,690 |    |
|                                                   |

Allocationof eliminations:

|                                      |  |                                  |        |                               |  |        |         |         |  |        |         |         |  |  |
|--------------------------------------|--|----------------------------------|--------|-------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                 |  | MortgageInvestmentOperations (1) |        | MortgageBanking Operations(2) |  | Total  |
| Net (loss) income beforeeliminations |  | $                                | 25,472 |                          |  | $      | 20,695  |    |  | $      | 46,167  |    |
| Eliminations                         |  |                             | 5,981  |                          |  |   | (19,335 | )  |  |   | (13,354 | )  |
| Netloss                              |  | $                                | 31,453 |                          |  | $      | 1,360   |    |  | $      | 32,813  |    |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                  |
|-----|------------------------------------------------------------------|
| (1) | Representsthe consolidated results of operations for MortgageIT. |

31

----

Nine months ended September 30, 2004 (asrestated)

|                                                   |  |                                  |           |                               |  |              |           |         |  |        |         |         |  |        |           |         |  |  |
|---------------------------------------------------|--|----------------------------------|-----------|-------------------------------|--|--------------|-----------|---------|--|--------|---------|---------|--|--------|-----------|---------|--|--|
|                                              |  | MortgageInvestmentOperations (1) |           | MortgageBanking Operations(2) |  | Eliminations |           | Total   |
| Gain on saleof mortgage loans                     |  | $                                | —   |                          |  | $            | 53,573    |    |  | $      | (3,939  | )  |  | $      | 49,634    |    |
| Brokeragerevenues                                 |  |                             | —   |                          |  |         | 29,544    |    |  |   | — |    |  |   | 29,544    |    |
| Interestincome                                    |  |                             | 4,676     |                          |  |         | 22,736    |    |  |   | — |    |  |   | 27,412    |    |
| Interestexpense                                   |  |                             | (2,077    | )                        |  |         | (9,849    | )  |  |   | — |    |  |   | (11,926   | )  |
| Netinterestincome                                 |  |                             | 2,599     |                          |  |         | 12,887    |    |  |   | — |    |  |   | 15,486    |    |
| Realizedand unrealized loss on hedginginstruments |  |                             | (3,690    | )                        |  |         | —   |    |  |   | (6,166  | )  |  |   | (9,856    | )  |
| Other                                             |  |                             | —   |                          |  |         | 272       |    |  |   | — |    |  |   | 272       |    |
| Totalrevenues                                     |  |                             | (1,091    | )                        |  |         | 96,276    |    |  |   | (10,105 | )  |  |   | 85,080    |    |
| Operatingexpenses                                 |  |                             | 973       |                          |  |         | 93,607    |    |  |   | (496    | )  |  |   | 94,084    |    |
| (Loss)income before incometax                     |  |                             | (2,064    | )                        |  |         | 2,669     |    |  |   | (9,609  | )  |  |   | (9,004    | )  |
| Incometaxes                                       |  |                             | —   |                          |  |         | 1,204     |    |  |   | — |    |  |   | 1,204     |    |
| Net(loss)income                                   |  | $                                | (2,064    | )                        |  | $            | 1,465     |    |  | $      | (9,609  | )  |  | $      | (10,208   | )  |
| **December31,2004**                               |  |                             |      |                          |  |         |      |    |  |   |    |    |  |   |      |    |
| Segmentassets                                     |  | $                                | 2,439,857 |                          |  | $            | 1,117,160 |    |  | $      | (16,167 | )  |  | $      | 3,540,850 |    |
|                                                   |

Allocationof eliminations:

|                                      |  |                                  |        |                               |  |        |        |         |  |        |         |          |  |  |
|--------------------------------------|--|----------------------------------|--------|-------------------------------|--|--------|--------|---------|--|--------|---------|----------|--|--|
|                                 |  | MortgageInvestmentOperations (1) |        | MortgageBanking Operations(2) |  | Total  |
| Net (loss) income beforeeliminations |  | $                                | (2,064 | )                        |  | $      | 1,465  |    |  | $      | (599    | )   |
| Eliminations                         |  |                             | (6,166 | )                        |  |   | (3,443 | )  |  |   | (9,609  | ))  |
| Netloss                              |  | $                                | (8,230 | )                        |  | $      | (1,978 | )  |  | $      | (10,208 | )   |
|                                      |

|  |
|--|
|  |  |
|  |

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

|     |                                                                  |
|-----|------------------------------------------------------------------|
| (2) | Represents the consolidated results of operationsfor MortgageIT. |

NOTE 11—COMMITMENTS ANDCONTINGENCIES

The Company is a defendant in various legalproceedings. For further information, see Part II Other Information,Item 1 Legal Proceedings of this quarterly report on Form 10-Q.Although it is difficult to predict the outcome of any litigation, theCompany has established a reserve of $2.0million.

32

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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 nine months ended September 30, 2004,and consolidated statement of cash flows for the nine months endedSeptember 30, 2004 have been restated.

For a further discussionof the corrections 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 September 30, 2005, we had transferred to our investmentportfolio approximately $5.1 billion of single-family residential primeARM and hybrid ARM loans originated by MortgageIT.

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

33

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secondary public offering exercised, in full,their option to purchase an additional 1,422,646 shares of common stockfrom the Company at the public offering price of $18.25 to coverover-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 September30, 2005, this division had 476 employees and generated 11.5% ofMortgageIT's total originations in the third quarter of 2005. Thedivision 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 third quarter of2005, the correspondent business unit accounted for 13.8% 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 included elsewhere in this quarterlyreport on Form 10-Q.

Mortgage Investment Operations

Our mortgage investment operations involve the acquisition andretention, in a leveraged portfolio, of either traditional ARM loans orhybrid ARM loans. Traditional ARM loans are mortgage loans that haveinterest rates that reprice in one year or less("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.

34

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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, and 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:

|              |                                                                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Prime ARM and Hybrid ARM mortgage loansthat have been deposited into trusts that issue mortgage-backedsecurities collateralized by the transferred loans; |

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

|              |                                                                                                                                                                                                                                                                                                 |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | ARM securities rated within one of the twohighest rating 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")); |

|              |                                                                                                                                           |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|
| •  | securities and loans that are unrated butthat we determine to be of comparable quality to comparablehigh-quality mortgage securities; and |

|              |                                                                                                                |
|--------------|----------------------------------------------------------------------------------------------------------------|
| •  | cash and cash equivalents, includingshort-term investments in U.S. Treasury and agency non-mortgagesecurities. |

The portfolio also may retain certain classes of ourmortgage-backed securities that are below investment grade (below BBB).Interests in non-investment grade assets will comprise no more than25% of stockholders' equity on an historical costbasis.

At September 30, 2005, our investment operations heldtotal assets of $4.7 billion, of which $4.5 billion consisted ofsecuritized loans and loans awaiting securitization. That compares to$2.4 billion in total assets at December 31, 2004, of which $2.3billion consisted of securitized loans and loans awaitingsecuritization.

Mortgage Banking Operations

Ourmortgage banking operations are conducted through our wholly owned TRSsubsidiary, MortgageIT, and its subsidiaries. The TRS is a full-serviceresidential mortgage banking company that is licensed to originateloans throughout the United States

The TRS generates revenuethrough the origination, sale and brokering of mortgage loans sourcedthrough its loan production channels. This revenue primarily consistsof gain on sale of mortgage loans, loan brokerage revenues and netinterest income. Gain on sale of mortgage loans is generated from thesale of mortgage loans to investors, on a servicing released basis,generally within 30 to 60 

35

----

days of funding. Accordingly, we do notcapitalize the value of mortgage servicing rights. Gain is recognizedbased on the difference between the net sales proceeds and the carryingvalue of the mortgage loans sold and is recognized in earnings at thetime of sale. The carrying value of the mortgage loans sold includesdirect loan-related origination costs and fees. Brokerage revenueconsists of fees and commissions earned by brokering mortgage loansultimately funded by third party lenders. Interest on mortgage loansheld for sale accrues on loans from the date of funding through thedate of sale.

MortgageIT's mortgage banking operationsexpenses consist primarily of:

|              |                                                              |
|--------------|--------------------------------------------------------------|
| •  | loanorigination commissions, salaries and employee benefits; |

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

|              |                                      |
|--------------|--------------------------------------|
| •  | general and administrative expenses; |

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

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

Asubstantial portion of MortgageIT's expenses are variable innature. Loan origination commissions are paid to loan productionofficers only upon the origination of the mortgage loan, making suchcommission expenses 100% variable. Salaries, benefits and otherrelated payroll costs may fluctuate based upon management'sassessment of current and predicted future levels of mortgage loanorigination volume.

Loan Underwriting

We follow aspecific underwriting methodology based on the followingphilosophy—first evaluate the borrower's ability to repaythe loan, and then evaluate the value of the property securing theloan. We have developed underwriting guidelines and practices thatestablish clear parameters for our loan underwriters and creditofficers to make loan approval decisions. For mortgage loans retainedin our investment portfolio, we seek those loans that we believe havelow risk of default and resulting loss. Although our loan underwritingprocedures are structured to predict future borrower payment patternsand financial capability, based on the borrower's past historyand current financial information, as well as our ability to collectthe remaining loan balance through foreclosure in the event of adefault, no assurance can be made that every loan originated willperform as anticipated.

In evaluating the borrower'sability and willingness to repay a loan, we review and analyze thefollowing aspects of the borrower: credit score, income and its source,employment history, debt levels in revolving, installment and othermortgage loans, credit history and use of credit in the past, and theability and/or willingness to provide verification for the above.Credit scores, credit history, use of credit in the past andinformation as to debt levels can typically be obtained from a thirdparty credit report through a credit repository. Those sources are usedin all instances, as available. Sometimes, borrowers have little or nocredit history that can be tracked by one of the primary creditrepositories. In these instances, the reason for the lack of history isconsidered and taken into account. In our experience, most prospectiveborrowers have accessible credit histories.

In evaluating apotential property to be used as collateral for a mortgage loan, weconsider all of the following aspects of the property: the loan balanceversus the property value, i.e., the loan-to-value ratio, theproperty type, how the property will be occupied (a primary residence,second home or investment property), if the property's apparentvalue is supported by recent sales of similar properties in the same ora nearby area, any unique characteristics of the property and ourconfidence in the data and their sources.

Other considerationsthat may effect our decision regarding a borrower's loanapplication are the borrower's purpose in requesting the loan(purchase of a home as opposed to cashing equity out of the homethrough 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 could affect creditperformance.

36

----

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 productionoperations, including both brokered loans and funded loans that areoriginated through MortgageIT's IPI Skyscraper Division of retailbranch offices and through its internet origination channel; |

|              |                                                                                                                                                                                                            |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | wholesale prime production operations,including loans originated through retail loan brokers andcorrespondents that are not MortgageIT employees and funded byMortgageIT through its MIT Lending Division; |

|              |                                                                                                                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | subprime production operations, includingboth retail loans originated through MortgageIT's retail subprimedepartment, and wholesale loans originated through MortgageIT'ssubprime lending division; |

|              |                                                                                                                                                                                  |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | correspondent lending operations,including loans originated through banks, credit unions and mortgagebankers and funded by MortgageIT through its correspondent lendingdivision; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | secondary loan marketingoperations; and |

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

Sale of Loans

We generally sell our mortgage loans on awhole loan, non-recourse basis. However, we do have potential liabilityunder the representations and warranties we make to purchasers andinsurers of the loans. In the event of a breach of such representationsand warranties, we may be required to either repurchase the subjectmortgage loans or indemnify the investor or insurer. In such cases, anysubsequent credit loss on the mortgage loans is recognized byMortgageIT.

All of our subprime loan production is sold to thirdparty investors.

Loan Products

MortgageIT originatesboth mortgage loans to finance home purchases, referred to as purchasemortgage loans, and loans to refinance existing mortgage loans. For thequarter ended September 30, 2005, MortgageIT's purchase loanoriginations represented approximately 48.4% of its totalresidential mortgage loan originations measured by principalbalance.

MortgageIT originates prime first lien conventional andnon-conventional, conforming single-family residential mortgage loans.In addition, MortgageIT also originates a lesser amount ofnon-conforming first lien single-family residential mortgage loans suchas jumbo loans, non-prime loans and "Alt A"loans, as well as home equity and second mortgage loans.

Hedging Activities

We generally do not seek toanticipate the direction of interest rates as a part of our businessstrategy. We seek to maintain hedge positions that avoid the effects ofsevere interest rate movements, which might otherwise impair ourability to earn net interest income and gain on sale revenues.Accordingly, we generally seek to mitigate interest rate risk bymatching the repricing durations of our Portfolio ARM Loans with therepricing durations of our liabilities. We also seek to mitigate theinterest rate risk associated with our mortgage loans held for sale andinterest rate lock commitments issued to borrowers.

For ourmortgage investment operations, subject to the limitations imposed bythe REIT qualification tests, some or all of the following financialinstruments are used for hedging financing cost interest rate risk:Eurodollar futures contracts; interest rate swaps; interest rate caps;collars and floors; and other instruments that may be determined to beadvantageous and are permitted under the investment and risk managementpolicy adopted by our board of directors.

37

----

For our mortgage banking operations, someor all of the following financial instruments are used for hedging thefair value of loans held for sale: forward sale loan commitments andforward sales and purchases of mortgage-backed securities and optionson such securities in the forward delivery TBA market; Eurodollarfutures contracts; and other instruments that may be determined to beadvantageous and are permitted under the investment and risk managementpolicy adopted by our board of directors.

For furtherinformation on our interest rate risk management, see Item 3Quantitative and Qualitative Disclosures About MarketRisk–Interest Rate Risk Management of this quarterly report onForm 10-Q and Note 4 – Derivatives and Hedging Activities in theaccompanying notes to the consolidated financial statements includedelsewhere in this quarterly report on Form 10-Q.

RESULTS OFOPERATIONS

The following table sets forth certain financialdata as a percentage of total revenues for the three and nine monthsended September 30, 2005 and2004.

|                                                          |  |                                |         |                              |  |        |        |              |  |        |        |         |  |        |        |          |  |  |
|----------------------------------------------------------|--|--------------------------------|---------|------------------------------|--|--------|--------|--------------|--|--------|--------|---------|--|--------|--------|----------|--|--|
|                                                     |  | Threemonths endedSeptember 30, |         | Nine monthsendedSeptember30, |
|                                                     |  | 2005                           |         | 2004                         |  | 2005   |        | 2004         |
|                                                     |  |                           |         | (Asrestated)                 |  |   |        | (Asrestated) |
| Revenues:                                                |  |                           |    |                         |  |   |   |         |  |   |   |    |  |   |   |     |
| Gainon sale of mortgageloans                             |  |                           | 73.4    | %                       |  |   | 63.7   | %       |  |   | 62.0   | %  |  |   | 58.4   | %   |
| Brokeragerevenues                                        |  |                           | 8.9     | %                       |  |   | 39.6   | %       |  |   | 8.9    | %  |  |   | 34.7   | %   |
| Netinterestincome                                        |  |                           | 17.4    | %                       |  |   | 39.2   | %       |  |   | 24.5   | %  |  |   | 18.2   | %   |
| Realizedand unrealized gain (loss) on hedginginstruments |  |                           | — | %                       |  |   | (43.6  | )%      |  |   | 4.3    | %  |  |   | (11.6  | )%  |
| Other                                                    |  |                           | 0.3     | %                       |  |   | 1.1    | %       |  |   | 0.3    | %  |  |   | 0.3    | %   |
| Totalrevenues                                            |  |                           | 100.0   | %                       |  |   | 100.0  | %       |  |   | 100.0  | %  |  |   | 100.0  | %   |
| Operatingexpenses:                                       |  |                           |    |                         |  |   |   |         |  |   |   |    |  |   |   |     |
| Compensationand employeebenefits                         |  |                           | 46.4    | %                       |  |   | 90.5   | %       |  |   | 43.6   | %  |  |   | 66.9   | %   |
| Processingexpenses                                       |  |                           | 19.1    | %                       |  |   | 31.7   | %       |  |   | 17.7   | %  |  |   | 19.9   | %   |
| Generaland administrativeexpenses                        |  |                           | 7.3     | %                       |  |   | 12.4   | %       |  |   | 8.4    | %  |  |   | 8.9    | %   |
| Rent                                                     |  |                           | 3.2     | %                       |  |   | 8.8    | %       |  |   | 3.2    | %  |  |   | 6.7    | %   |
| Marketing,loan acquisition and businessdevelopment       |  |                           | 1.4     | %                       |  |   | 4.0    | %       |  |   | 1.4    | %  |  |   | 3.7    | %   |
| Professionalfees                                         |  |                           | 2.9     | %                       |  |   | 3.5    | %       |  |   | 3.2    | %  |  |   | 2.2    | %   |
| Depreciationandamortization                              |  |                           | 1.2     | %                       |  |   | 3.0    | %       |  |   | 1.2    | %  |  |   | 2.3    | %   |
| Totaloperatingexpenses                                   |  |                           | 81.5    | %                       |  |   | 153.9  | %       |  |   | 78.7   | %  |  |   | 110.6  | %   |
| Income(loss) before incometaxes                          |  |                           | 18.5    | %                       |  |   | (54.0  | )%      |  |   | 21.3   | %  |  |   | (10.6  | )%  |
| Incometax expense(benefit)                               |  |                           | 8.1     | %                       |  |   | (1.1   | )%      |  |   | 6.9    | %  |  |   | 1.4    | %   |
| Netincome (loss)                                         |  |                           | 10.4    | %                       |  |   | (52.9  | )%      |  |   | 14.4   | %  |  |   | (12.0  | )%  |
|                                                          |

Threemonths ended September 30, 2005 compared to three months endedSeptember 30, 2004

Net income

Consolidated net incomeincreased from a loss of $12.0 million for the three months endedSeptember 30, 2004 to a gain of $8.7 million for the three months endedSeptember 30, 2005. The increase is primarily attributable to highergain on sale of mortgage loans, higher net interest income, and higheroperating efficiency evidenced by a decrease in expenses as apercentage of revenues. Total revenues increased approximately271% to $84.0 million for the quarter ended September 30, 2005from $22.6 million for the comparable period in 2004, while totalexpenses increased approximately 97% to $68.5 million from $34.8million. Our loan brokerage volume and revenue decreased approximately12% and 

38

----

16% to $460.0 million and $7.5million, respectively, in the third quarter of 2005 from $523.0 millionand $9.0 million, respectively, in the third quarter of 2004. Gain onsale of mortgage loans increased approximately 328% to $61.6millionin the third quarter of 2005 from $14.4 million in thecomparable period in 2004. In addition, net interest income increasedapproximately 65% to $14.6 million in the third quarter of 2005from $8.9 million in the comparable period in 2004. The following tablepresents the average balance for each category of our interest-earningassets and interest-bearing liabilities, with the correspondingannualized effective rate of interest and the related interest incomeor expense for the same period:

Average Balance, Rate andInterest Income/Expense Table(Dollars inthousands)

|                                      |  |                                        |           |                     |  |                          |        |                |  |                     |        |                          |  |        |           |        |  |        |         |         |  |        |         |        |  |  |
|--------------------------------------|--|----------------------------------------|-----------|---------------------|--|--------------------------|--------|----------------|--|---------------------|--------|--------------------------|--|--------|-----------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                 |  | Forthe three months ended September30, |
|                                 |  | 2005                                   |           | 2004(2)             |
|                                 |  | AverageBalance                         |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |        | InterestIncomeandExpense |
| Interest-earningassets:              |  |                                   |      |                |  |                     |   |           |  |                |   |                     |  |   |      |   |  |   |    |    |  |   |    |   |
| PortfolioARMLoans                    |  | $                                      | 4,197,398 |                |  |                     | 4.97   | %         |  | $                   | 52,595 |                     |  | $      | 318,789   |   |  |   | 5.44    | %  |  | $      | 4,316   |   |
| Mortgageloans held forsale           |  |                                   | 3,003,055 |                |  |                     | 4.98   |           |  |                | 37,699 |                     |  |   | 750,985   |   |  |   | 5.93    |    |  |   | 11,078  |   |
| Cashand cashequivalents              |  |                                   | 77,345    |                |  |                     | 0.46   |           |  |                | 90     |                     |  |   | 96,376    |   |  |   | 1.71    |    |  |   | 410     |   |
|                                 |  |                                   | 7,277,798 |                |  |                     | 4.93   |           |  |                | 90,384 |                     |  |   | 1,166,150 |   |  |   | 5.45    |    |  |   | 15,804  |   |
| Interest-bearingliabilities:         |  |                                   |      |                |  |                     |   |           |  |                |   |                     |  |   |      |   |  |   |    |    |  |   |    |   |
| Collateralizeddebtobligations        |  |                                   | 3,648,052 |                |  |                     | 4.14   |           |  |                | 38,056 |                     |  |   | —   |   |  |   | — |    |  |   | — |   |
| Warehouselinespayable                |  |                                   | 3,275,739 |                |  |                     | 4.24   |           |  |                | 35,025 |                     |  |   | 879,895   |   |  |   | 2.99    |    |  |   | 6,541   |   |
| Otherdebt                            |  |                                   | 177,870   |                |  |                     | 5.93   |           |  |                | 2,660  |                     |  |   | 15,000    |   |  |   | 10.11   |    |  |   | 384     |   |
|                                 |  |                                   | 7,101,661 |                |  |                     | 4.23   |           |  |                | 75,741 |                     |  |   | 894,895   |   |  |   | 3.11    |    |  |   | 6,925   |   |
| Netinterest-earning assets andspread |  | $                                      | 176,137   |                |  |                     | .70    | %         |  | $                   | 14,643 |                     |  | $      | 271,255   |   |  |   | 2.34    | %  |  | $      | 8,879   |   |
| Netinterest margin(1)                |  |                                   |      |                |  |                     | .80    | %         |  |                |   |                     |  |   |      |   |  |   | 3.05    | %  |  |   |    |   |
|                                      |

|  |
|--|
|  |  |
|  |

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

|     |                                                                      |
|-----|----------------------------------------------------------------------|
| (2) | There were no mortgage investmentoperations prior to August 4, 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 increased approximately215% to $8.2 million for the three months ended September 30,2005 from $2.6 million for the three months ended September 30, 2004.The increase was due to higher average earning assets of $4.3 billionfor the three months ended September 30, 2005 compared with averageearning assets of $403,000 for the three months ended September 30,2004. Net interest margin at the REIT declined to 0.76% for thethree months ended September 30, 2005 from 2.58% for the threemonths ended September 30, 2004 due to continued flattening of theyield curve and the impact of increased loan basis amortization due tofaster pre-payment speeds. The following table presents the averagebalance for each category of our interest-earning assets andinterest-bearing liabilities, with the corresponding annualizedeffective rate of interest and the related interest income or expensefor the same period:

39

----

Average Balance, Rate and InterestIncome/Expense Table(Dollars inthousands)

|                                      |  |                                        |           |                     |  |                          |        |                |  |                     |        |                          |  |        |         |        |  |        |         |         |  |        |         |        |  |  |
|--------------------------------------|--|----------------------------------------|-----------|---------------------|--|--------------------------|--------|----------------|--|---------------------|--------|--------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                 |  | Forthe three months ended September30, |
|                                 |  | 2005                                   |           | 2004(2)             |
|                                 |  | AverageBalance                         |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |        | InterestIncomeandExpense |
| Interest-earningassets:              |  |                                   |      |                |  |                     |   |           |  |                |   |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| PortfolioARMLoans                    |  | $                                      | 4,197,398 |                |  |                     | 4.76   | %         |  | $                   | 50,328 |                     |  | $      | 318,789 |   |  |   | 5.44    | %  |  | $      | 4,316   |   |
| Cashand cashequivalents              |  |                                   | 97,889    |                |  |                     | 1.27   |           |  |                | 312    |                     |  |   | 84,658  |   |  |   | 1.71    |    |  |   | 360     |   |
|                                 |  |                                   | 4,295,287 |                |  |                     | 4.68   |           |  |                | 50,640 |                     |  |   | 403,447 |   |  |   | 4.66    |    |  |   | 4,676   |   |
| Interest-bearingliabilities:         |  |                                   |      |                |  |                     |   |           |  |                |   |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| Collateralizeddebtobligations        |  |                                   | 3,648,052 |                |  |                     | 4.12   |           |  |                | 37,908 |                     |  |   | — |   |  |   | — |    |  |   | — |   |
| Warehouselinespayable                |  |                                   | 346,580   |                |  |                     | 4.25   |           |  |                | 3,711  |                     |  |   | 279,386 |   |  |   | 2.99    |    |  |   | 2,077   |   |
| Repurchaseagreements                 |  |                                   | 85,546    |                |  |                     | 3.82   |           |  |                | 824    |                     |  |   | — |   |  |   | — |    |  |   | _       |   |
|                                 |  |                                   | 4,080,178 |                |  |                     | 4.13   |           |  |                | 42,443 |                     |  |   | 279,386 |   |  |   | 2.99    |    |  |   | 2,077   |   |
| Netinterest-earning assets andspread |  | $                                      | 215,109   |                |  |                     | .55    | %         |  | $                   | 8,197  |                     |  | $      | 124,061 |   |  |   | 1.67    | %  |  | $      | 2,599   |   |
| Netinterest margin(1)                |  |                                   |      |                |  |                     | .76    | %         |  |                |   |                     |  |   |    |   |  |   | 2.58    | %  |  |   |    |   |
|                                      |

|  |
|--|
|  |  |
|  |

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

|     |                                                                      |
|-----|----------------------------------------------------------------------|
| (2) | There were no mortgage investmentoperations prior to August 4, 2004. |

Expenses

**Compensation and employee benefits**.    Compensation andemployee benefits expenses increased approximately 35% to$699,000 for the three months ended September 30, 2005 from $519,000for the three months ended September 30, 2004. The increase wasprimarily due to an increase in the number of employees as the mortgageinvestment operations increased in scale.

**Processingexpenses**.    Mortgage loan processing expenses increasedapproximately 551% to $1.4 million for the three months endedSeptember 30, 2005 from $214,000 for the three months ended September30, 2004. The increase was primarily due to higher subservicing costsand loan loss provision, driven by an increase in the average earningassets to $4.3 billion for the three months ended September 30, 2005from $403.4 million for the comparable period in 2004.

**General and administrative expenses**.    General andadministrative expenses increased approximately 489% to $1.0million for the three months ended September 30, 2005 from $171,000 forthe three months ended September 30, 2004. This increase was primarilydue to higher insurance and hedge expenses, driven by an increase inthe average earning assets to $4.3 billion for the three months endedSeptember 30, 2005 from $403.4 million for the comparable period in2004.

**Professional fees**.    Professional fees increasedapproximately 578% to $468,000 for the three months endedSeptember 30, 2005 from $69,000 for the three months ended September30, 2004. This increase was primarily due to higher legal and auditexpenses, which audit expenses include costs associated with theCompany's Sarbanes-Oxley Section 404 requirements.

Mortgage Banking Operations

Revenues

**Gain on sale of mortgage loans**.    Gain on sale of mortgageloans increased approximately 277% to $69.2 million for thethree months ended September 30, 2005 from $18.3 million for the threemonths 

40

----

ended September 30, 2004. On a stand-alonebasis, whole loan sales increased approximately 131% to $7.0billion for the three months ended September 30, 2005 from $3.0 billionfor the three months ended September 30, 2004. On a consolidated basis,mortgage whole loan sales to third parties increased approximately188% to $6.0 billion, after the elimination of $977 million inintercompany loan sales, for the three months ended September 30, 2005from $2.1 billion for the three months ended September 30, 2004.

**Brokerage Revenue**.    Brokerage revenue decreasedapproximately 16% to $7.5 million for the three months endedSeptember 30, 2005 from $9.0 million for the three months endedSeptember 30, 2004. The decrease was attributable to a 12%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 incomedecreased approximately 32% to $4.3 million for the three monthsended September 30, 2005 from $6.3 million for the three months endedSeptember 30, 2004. The decrease is primarily attributable to lowerinitial interest rates on pay option ARM loans during the period. Thefollowing table presents the average balance for each category of ourinterest-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 three months ended September30, |
|                                        |  | 2005                                   |           | 2004                |
|                                        |  | AverageBalance                         |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |        | InterestIncomeandExpense |
| Interest-earningassets:                     |  |                                   |      |                |  |                     |   |           |  |                |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Mortgageloans held forsale                  |  | $                                      | 3,003,055 |                |  |                     | 4.98   | %         |  | $                   | 37,699 |                     |  | $      | 750,985 |   |  |   | 5.93   | %  |  | $      | 11,078 |   |
| Cashand cashequivalents                     |  |                                   | 9,462     |                |  |                     | 3.60   |           |  |                | 86     |                     |  |   | 11,718  |   |  |   | 1.71   |    |  |   | 50     |   |
|                                        |  |                                   | 3,012,517 |                |  |                     | 4.98   |           |  |                | 37,785 |                     |  |   | 762,703 |   |  |   | 5.87   |    |  |   | 11,128 |   |
| Interest-bearingliabilities:                |  |                                   |      |                |  |                     |   |           |  |                |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Warehouselinespayable                       |  |                                   | 2,929,159 |                |  |                     | 4.24   |           |  |                | 31,314 |                     |  |   | 600,509 |   |  |   | 2.99   |    |  |   | 4,464  |   |
| Juniorsubordinated debentures and otherdebt |  |                                   | 122,829   |                |  |                     | 7.13   |           |  |                | 2,208  |                     |  |   | 15,000  |   |  |   | 10.13  |    |  |   | 384    |   |
|                                        |  |                                   | 3,051,988 |                |  |                     | 4.36   |           |  |                | 33,522 |                     |  |   | 615,509 |   |  |   | 3.17   |    |  |   | 4,848  |   |
| Netinterest-earning assets andspread        |  | $                                      | (39,471   | )              |  |                     | .62    | %         |  | $                   | 4,263  |                     |  | $      | 147,194 |   |  |   | 2.70   | %  |  | $      | 6,280  |   |
| Netinterest margin(1)                       |  |                                   |      |                |  |                     | 0.56   | %         |  |                |   |                     |  |   |    |   |  |   | 3.29   | %  |  |   |   |   |
|                                             |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (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 92% to $38.3 million for the threemonths ended September 30, 2005 from $20.0 million for the three monthsended September 30, 2004. The increase was primarily due to anapproximate 198% increase in the volume of funded loans to $9.25billion in the three months ended September 30, 2005 from $3.1 billionin the three months ended September 30, 2004, as well as the additionof 17 branches between September 30, 2004 and September 30, 2005.

**Processing expenses**.    Mortgage loan processing expensesincreased approximately 101% to $15.0 million for the threemonths ended September 30, 2005 from $7.4 million for the three monthsended 

41

----

September 30, 2004. The increase wasprimarily due to an approximate 198% increase in the volume offunded loans to $9.3 billion in the three months ended September 30,2005 from $3.1 billion in the three months ended September 30, 2004, aswell as a higher repurchase reserve due to increased subprimeorigination volume as a share of total origination volume.

**General and administrative expenses**.    General andadministrative expenses increased approximately 93% to $5.1million for the three months ended September 30, 2005 from $2.6 millionfor the three months ended September 30, 2004. This increase wasprimarily due to the increase in the volume of funded loans to $9.3billion in the three months ended September 30, 2005 from $3.1 billionin the three months ended September 30, 2004, as well as an approximate63% increase in the number of employees to 2,153 at September30, 2005 from 1,323 at September 30, 2004.

**Marketing, loanacquisition and business development expenses**.    Marketing, loanacquisition and business development expenses increased approximately34% to $1.2 million for the three months ended September 30,2005 from $902,000 for the three months ended September 30, 2004. Theincrease was primarily due to increased marketing expenses associatedwith the increase in the number of branches to 58 at the end of thethird quarter of 2005 from 41 at the end of the third quarter of2004.

**Rent expense**.    Rent expense increasedapproximately 36% to $2.7 million for the three months endedSeptember 30, 2005 from $2.0 million for the three months endedSeptember 30, 2004. This increase was primarily due to an increase inthe number of branches to 58 at the end of the third quarter of 2005from 41 at the end of the third quarter of 2004.

**Professionalfees**.    Professional fees increased approximately 169% to$1.9 million for the three months ended September 30, 2005 from$723,000 for the three months ended September 30, 2004. This increasewas primarily due to higher legal and audit expenses, which auditexpenses include costs associated with the Company's SarbanesOxley Section 404 requirements.

**Depreciation and amortizationexpenses**.    Depreciation and amortization expenses increasedapproximately 43% to $984,000 for the three months endedSeptember 30, 2005 from $686,000 for the three months ended September30, 2004. The increase was primarily due to increased capitalexpenditures related to 17 new branches opened between September 30,2004 and September 30, 2005.

**Income taxexpense**.    MortgageIT made the election to be treated as ataxable REIT subsidiary and, therefore, is subject to federal and statecorporate income taxes. Accordingly, the Company records a taxprovision on the taxable income of the TRS, which includes intercompanyincome that is eliminated in our consolidated statements ofoperations.

Nine months ended September 30, 2005compared to nine months ended September 30, 2004

Net income(loss)

Consolidated net income increased from a loss of $10.2million for the nine months ended September 30, 2004 to a gain of $32.8million for the nine months ended September 30, 2005. The increase isattributable to higher gain on sale of mortgage loans, higher netinterest income, and gains on derivatives instruments used in ourinvestment portfolio hedge program. Total revenues increasedapproximately 167% to $226.9 million for the nine months endedSeptember 30, 2005 from $85.1 million for the comparable period in2004, while total expenses increased approximately 90% to $178.5million from $94.1 million. Our loan brokerage volume and revenuedecreased approximately 20% and 32% to $1.3 billion and$20.2 million, respectively, in the first nine months of 2005 from $1.6billion and $29.5 million, respectively, in the first nine months of2004. Gain on sale of mortgage loans increased approximately184% to $140.7 million in the first nine months of 2005 from$49.6 million in the comparable period in 2004 and we recorded a $9.7million gain on derivatives used in our investment portfolio hedgingprogram in the first nine months of 2005 compared with a $9.9 millionloss on derivatives in the comparable period in 2004. The derivativesgains and losses were recorded primarily as a result of not applyingSFAS No. 133 hedge accounting standards in both the first quarter of2005 and for the year ended December 31, 2004, to certain hedgingactivities. In addition, 

42

----

net interest income increased approximately259% to $55.6 million in the first nine months of 2005 from$15.5 million in the comparable period in 2004. The following tablepresents the average balance for each category of our interest-earningassets and interest-bearing liabilities, with the correspondingannualized effective rate of interest and the related interest incomeor expense for the same period:

Average Balance, Rate andInterest Income/Expense Table(Dollars inthousands)

|                                      |  |                                       |           |                     |  |                          |        |                |  |                     |         |                          |  |        |         |        |  |        |         |         |  |        |         |        |  |  |
|--------------------------------------|--|---------------------------------------|-----------|---------------------|--|--------------------------|--------|----------------|--|---------------------|---------|--------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                 |  | Forthe nine months ended September30, |
|                                 |  | 2005                                  |           | 2004(2)             |
|                                 |  | AverageBalance                        |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |         | InterestIncomeandExpense |
| Interest-earningassets:              |  |                                  |      |                |  |                     |   |           |  |                |    |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| PortfolioARMLoans                    |  | $                                     | 3,459,746 |                |  |                     | 4.97   | %         |  | $                   | 128,498 |                     |  |   | 105,875 |   |  |   | 5.44    | %  |  | $      | 4,316   |   |
| Mortgageloans held forsale           |  |                                  | 2,007,816 |                |  |                     | 5.53   |           |  |                | 83,006  |                     |  |   | 531,379 |   |  |   | 5.69    |    |  |   | 22,615  |   |
| Cashand cashequivalents              |  |                                  | 64,229    |                |  |                     | 1.11   |           |  |                | 532     |                     |  |   | 39,368  |   |  |   | 1.63    |    |  |   | 481     |   |
|                                 |  |                                  | 5,531,791 |                |  |                     | 5.13   |           |  |                | 212,036 |                     |  |   | 676,622 |   |  |   | 5.41    |    |  |   | 27,412  |   |
| Interest-bearingliabilities:         |  |                                  |      |                |  |                     |   |           |  |                |    |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| Collateralizeddebtobligations        |  |                                  | 2,806,551 |                |  |                     | 3.89   |           |  |                | 81,588  |                     |  |   | — |   |  |   | — |    |  |   | — |   |
| Warehouselinespayable                |  |                                  | 2,426,919 |                |  |                     | 3.82   |           |  |                | 69,269  |                     |  |   | 504,382 |   |  |   | 2.95    |    |  |   | 11,155  |   |
| Otherdebt                            |  |                                  | 147,126   |                |  |                     | 5.11   |           |  |                | 5,625   |                     |  |   | 10,000  |   |  |   | 10.13   |    |  |   | 771     |   |
|                                 |  |                                  | 5,380,596 |                |  |                     | 3.89   |           |  |                | 156,482 |                     |  |   | 514,382 |   |  |   | 3.09    |    |  |   | 11,926  |   |
| Netinterest-earning assets andspread |  | $                                     | 151,195   |                |  |                     | 1.24   | %         |  | $                   | 55,554  |                     |  | $      | 162,240 |   |  |   | 2.32    | %  |  | $      | 15,486  |   |
| Netinterest margin(1)                |  |                                  |      |                |  |                     | 1.34   | %         |  |                |    |                     |  |   |    |   |  |   | 3.05    | %  |  |   |    |   |
|                                      |

|  |
|--|
|  |  |
|  |

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

|     |                                                                      |
|-----|----------------------------------------------------------------------|
| (2) | There were no mortgage investmentoperations prior to August 4, 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 increased to $27.7 millionfor the nine months ended September 30, 2005 from $2.6 million for thenine months ended September 30, 2004. The increase was due to higheraverage earning assets of $3.5 billion for the nine months endedSeptember 30, 2005 compared with average earning assets of $135,000 forthe nine months ended September 30, 2004. Net interest margin at theREIT declined to 1.05% for the nine months ended September 30,2005 from 2.56% for the nine months ended September 30, 2004 dueto continued flattening of the yield curve and the impact of increasedloan basis amortization due to faster pre-payment speeds. The followingtable presents the average balance for each category of ourinterest-earning assets and interest-bearing liabilities, with thecorresponding annualized effective rate of interest and the relatedinterest income or expense for the same period:

43

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Average Balance, Rate and InterestIncome/Expense Table(Dollars inthousands)

|                                      |  |                                       |           |                     |  |                          |        |                |  |                     |         |                          |  |        |         |        |  |        |         |         |  |        |         |        |  |  |
|--------------------------------------|--|---------------------------------------|-----------|---------------------|--|--------------------------|--------|----------------|--|---------------------|---------|--------------------------|--|--------|---------|--------|--|--------|---------|---------|--|--------|---------|--------|--|--|
|                                 |  | Forthe nine months ended September30, |
|                                 |  | 2005                                  |           | 2004(2)             |
|                                 |  | AverageBalance                        |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |         | InterestIncomeandExpense |
| Interest-earningassets:              |  |                                  |      |                |  |                     |   |           |  |                |    |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| PortfolioARMLoans                    |  | $                                     | 3,459,746 |                |  |                     | 4.79   | %         |  | $                   | 123,953 |                     |  |   | 105,875 |   |  |   | 5.44    | %  |  | $      | 4,316   |   |
| Cashand cashequivalents              |  |                                  | 50,672    |                |  |                     | 1.02   |           |  |                | 388     |                     |  |   | 29,465  |   |  |   | 1.63    |    |  |   | 360     |   |
|                                 |  |                                  | 3,510,418 |                |  |                     | 4.74   |           |  |                | 124,341 |                     |  |   | 135,340 |   |  |   | 4.62    |    |  |   | 4,676   |   |
| Interest-bearingliabilities:         |  |                                  |      |                |  |                     |   |           |  |                |    |                     |  |   |    |   |  |   |    |    |  |   |    |   |
| Collateralizeddebtobligations        |  |                                  | 2,806,551 |                |  |                     | 3.89   |           |  |                | 81,347  |                     |  |   | — |   |  |   | — |    |  |   | — |   |
| Warehouselinespayable                |  |                                  | 467,417   |                |  |                     | 3.78   |           |  |                | 13,210  |                     |  |   | 94,047  |   |  |   | 2.95    |    |  |   | 2,077   |   |
| Repurchaseagreements                 |  |                                  | 88,600    |                |  |                     | 3.22   |           |  |                | 2,130   |                     |  |   | — |   |  |   | — |    |  |   | — |   |
|                                 |  |                                  | 3,362,568 |                |  |                     | 3.84   |           |  |                | 96,687  |                     |  |   | 94,047  |   |  |   | 2.95    |    |  |   | 2,077   |   |
| Netinterest-earning assets andspread |  | $                                     | 147,850   |                |  |                     | .90    | %         |  | $                   | 27,654  |                     |  | $      | 41,293  |   |  |   | 1.67    | %  |  | $      | 2,599   |   |
| Netinterest margin(1)                |  |                                  |      |                |  |                     | 1.05   | %         |  |                |    |                     |  |   |    |   |  |   | 2.56    | %  |  |   |    |   |
|                                      |

|  |
|--|
|  |  |
|  |

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

|     |                                                                      |
|-----|----------------------------------------------------------------------|
| (2) | There were no mortgage investmentoperations prior to August 4, 2004. |

Expenses

**Compensation and employee benefits**.    Compensation andemployee benefits expenses increased approximately 344% to $2.3million for the nine months ended September 30, 2005 from $519,000 forthe nine months ended September 30, 2004. The increase was primarilydue to an increase in the number of employees as the mortgageinvestment operations increased in scale.

**Processingexpenses**.    Mortgage loan processing expenses increased to $3.7million for the nine months ended September 30, 2005, from $214,000 forthe nine months ended September 30, 2004. The increase was primarilydue to higher subservicing costs and loan loss provision, driven by anincrease in the average earning assets to $3.5 billion for the ninemonths ended September 30, 2005 from $135.3 million for the comparableperiod in 2004.

**General and administrativeexpenses**.    General and administrative expenses increased to$2.8 million for the nine months ended September 30, 2005 from $171,000for the nine months ended September 30, 2004. This increase wasprimarily due to higher insurance and hedge expenses, driven by anincrease in the average earning assets to $3.5 billion for the ninemonths ended September 30, 2005 from $135.3 million for the comparableperiod in 2004.

**Professional fees**.    Professional feesincreased to $1.6 million for the nine months ended September 30, 2005from $69,000 for the nine months ended September 30, 2004. Thisincrease was primarily due to higher legal and audit expenses, whichaudit expenses include costs associated with the Company'sSarbanes-Oxley Section 404 requirements.

Mortgage BankingOperations

Revenues

**Gain on sale of mortgageloans**.    Gain on sale of mortgage loans increased approximately202% to $161.6 million for the nine months ended September 30,2005 from $53.6 million for the nine months 

44

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ended September 30, 2004. On a stand-alonebasis, whole loan sales increased approximately 135.5% to $15.7billion for the nine months ended September 30, 2005 from $6.7 billionfor the nine months ended September 30, 2004. On a consolidated basis,mortgage whole loan sales to third parties increased approximately127% to $13.0 billion, after the elimination of $2.7 billion inintercompany loan sales, for the nine months ended September 30, 2005from $5.7 billion for the nine months ended September 30, 2004.

**Brokerage Revenue**.    Brokerage revenue decreasedapproximately 32% to $20.2 million for the nine months endedSeptember 30, 2005 from $29.5 million for the nine months endedSeptember 30, 2004. The decrease was primarily attributable to anapproximate 20% decrease in the volume of loans brokered tothird parties due to our strategy to increase retail funded loan volumeand reduce retail brokered loan volume, as well as a decrease in themargin on brokered volume.

**Net interest income**.    Netinterest income increased approximately 83% to $23.5 million forthe nine months ended September 30, 2005 from $12.9 million for thenine months ended September 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 or expensefor the same period:

Average Balance, Rate and InterestIncome/Expense Table(Dollars inthousands)

|                                             |  |                                       |           |                     |  |                          |        |                |  |                     |        |                          |  |        |         |        |  |        |        |         |  |        |        |        |  |  |
|---------------------------------------------|--|---------------------------------------|-----------|---------------------|--|--------------------------|--------|----------------|--|---------------------|--------|--------------------------|--|--------|---------|--------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                                        |  | Forthe nine months ended September30, |
|                                        |  | 2005                                  |           | 2004                |
|                                        |  | AverageBalance                        |           | EffectiveRate/Yield |  | InterestIncomeandExpense |        | AverageBalance |  | EffectiveRate/Yield |        | InterestIncomeandExpense |
| Interest-earningassets:                     |  |                                  |      |                |  |                     |   |           |  |                |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Mortgageloans held forsale                  |  | $                                     | 2,007,816 |                |  |                     | 5.53   | %         |  | $                   | 83,006 |                     |  | $      | 531,379 |   |  |   | 5.69   | %  |  | $      | 22,615 |   |
| Cashand cashequivalents                     |  |                                  | 23,587    |                |  |                     | 2.56   |           |  |                | 452    |                     |  |   | 9,903   |   |  |   | 1.63   |    |  |   | 121    |   |
|                                        |  |                                  | 2,031,403 |                |  |                     | 5.49   |           |  |                | 83,458 |                     |  |   | 541,282 |   |  |   | 5.61   |    |  |   | 22,736 |   |
| Interest-bearingliabilities:                |  |                                  |      |                |  |                     |   |           |  |                |   |                     |  |   |    |   |  |   |   |    |  |   |   |   |
| Warehouselinespayable                       |  |                                  | 1,959,502 |                |  |                     | 3.83   |           |  |                | 56,059 |                     |  |   | 410,335 |   |  |   | 2.95   |    |  |   | 9,078  |   |
| Juniorsubordinated debentures and otherdebt |  |                                  | 68,806    |                |  |                     | 7.51   |           |  |                | 3,866  |                     |  |   | 10,000  |   |  |   | 10.13  |    |  |   | 771    |   |
|                                        |  |                                  | 2,028,308 |                |  |                     | 3.95   |           |  |                | 59,925 |                     |  |   | 420,335 |   |  |   | 3.13   |    |  |   | 9,849  |   |
| Netinterest-earning assets andspread        |  | $                                     | 3,095     |                |  |                     | 1.54   | %         |  | $                   | 23,533 |                     |  | $      | 120,947 |   |  |   | 2.48   | %  |  | $      | 12,887 |   |
| Netinterest margin(1)                       |  |                                  |      |                |  |                     | 1.55   | %         |  |                |   |                     |  |   |    |   |  |   | 3.17   | %  |  |   |   |   |
|                                             |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|
| (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 72% to $96.7 million for the nine monthsended September 30, 2005 from $56.4 million for the nine months endedSeptember 30, 2004. The increase was primarily due to an approximate131% increase in the volume of funded loans to $20.0 billion inthe nine months ended September 30, 2005 from $8.7 billion in the ninemonths ended September 30, 2004, as well as the addition of 17 branchesbetween September 30, 2004 and September 30, 2005.

**Processingexpenses**.    Mortgage loan processing expenses increasedapproximately 120% to $38.0 million for the nine months endedSeptember 30, 2005, from $17.2 million for the nine months ended

45

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September 30, 2004. The increase wasprimarily due to an approximate 131% increase in the volume offunded loans to $20.0 billion in the nine months ended September 30,2005 from $8.7 billion in the nine months ended September 30, 2004 anda higher repurchase reserve due to increased subprime originationvolume as a share of total origination volume.

**General andadministrative expenses**.    General and administrative expensesincreased approximately 120% to $16.3 million for the ninemonths ended September 30, 2005 from $7.4 million for the nine monthsended September 30, 2004. This increase was primarily due to theincrease in the volume of funded loans to $20.0 billion for the ninemonths ended September 30, 2005 from $8.7 billion for the nine monthsended September 30, 2004, as well as an increase in the number ofbranches to 58 during the first nine months of 2005 from 41 in thecomparable period in 2004. In addition, the results include the impactof special legal charges and reserves in the amount of approximately$2.9 million associated with the Company's SFAS No. 133 reviewand restatement and other legal matters.

**Marketing, loanacquisition and business development expenses**.    Marketing, loanacquisition and business development expenses remained at the level of$3.1 million for the nine months ended September 30, 2005, which is thesame level of expense incurred in the nine months ended September 30,2004.

**Rent expense**.    Rent expense increasedapproximately 28% to $7.3 million for the nine months endedSeptember 30, 2005 from $5.7 million for the nine months endedSeptember 30, 2004. This increase was primarily due to an increase inthe number of branches to 58 at the end of the first nine months of2005 from 41 at the end of the first nine months of 2004.

**Professional fees**.    Professional fees increasedapproximately 218% to $5.7 million for the nine months endedSeptember 30, 2005 from $1.8 million for the nine months endedSeptember 30, 2004. This increase was primarily due to legal and auditexpenses related to the Company's restatement of its financialsin connection with its SFAS No.133 review, costs associated with theCompany's Sarbanes-Oxley Section 404 requirements, as well asother legal and recruiting expenses.

**Depreciation andamortization expenses.**     Depreciation and amortization expensesincreased approximately 34% to $2.6 million for the nine monthsended September 30, 2005 from $2.0 million for the nine months endedSeptember 30, 2004. The increase was primarily due to increased capitalexpenditures related to 17 new branches opened between September 30,2004 and September 30, 2005.

**Income taxexpense**.    MortgageIT made the election to be treated as ataxable REIT subsidiary and, therefore, is subject to federal and statecorporate income taxes. Accordingly, the Company records a taxprovision on the taxable income of the TRS, which includes intercompanyincome that is eliminated in our consolidated statements ofoperations.

FINANCIAL CONDITION

Prior to ourreorganization as a REIT, our assets consisted primarily of mortgageloans held for sale. At September 30, 2005 and December 31, 2004, ourassets consisted of both Portfolio ARM Loans and mortgage loans heldfor sale, representing 57% and 40%, respectively, oftotal assets at September 30, 2005, and 73% and 22%,respectively, of total assets at December 31, 2004.

Total assetsincreased $4.69 billion from December 31, 2004 to September 30, 2005.The increase primarily reflects an increase in Portfolio ARM Loans inthe amount of $2.07 billion and an increase in mortgage loans held forsale in the amount of $2.51 billion. Portfolio ARM Loans consists of$4.08 billion and $1.43 billion of ARM loans that collateralize debtobligations, and $588.3 million and $1.17 billion of ARM loans held forsecuritization at September 30, 2005 and December 31, 2004,respectively. The growth of ARM loans that collateralize debtobligations was primarily funded by an increase in securitizations of$2.57 billion and $1.33 billion and the growth in ARM loans held forsecuritization and mortgages held for sale was primarily funded by anincrease in warehouse lines payable of $1.80 billion and $1.57 billionat September 30, 2005 and December 31, 2004, respectively.

Thefollowing table presents various characteristics of our Portfolio ARMLoans as of September 30, 2005. The aggregate unpaid principal balanceof the loans included in this table is approximately $4.6billion.

46

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|                                       |  |         |         |         |  |        |           |         |  |        |        |         |  |  |
|---------------------------------------|--|---------|---------|---------|--|--------|-----------|---------|--|--------|--------|---------|--|--|
|                                  |  | Average |         | High    |  | Low    |
| Originalloanbalance                   |  | $       | 285,414 |    |  | $      | 1,500,000 |    |  | $      | 26,500 |    |
| Couponrate onloans                    |  |    | 5.48    | %  |  |   | 7.25      | %  |  |   | 3.50   | %  |
| %Grossmargin                          |  |    | 2.33    | %  |  |   | 3.00      | %  |  |   | 1.75   | %  |
| Lifetimecap                           |  |    | 5.81    | %  |  |   | 13.25     | %  |  |   | 2.00   | %  |
| Originalterm(months)                  |  |    | 360     |    |  |   | 360       |    |  |   | 360    |    |
| Remainingterm(months)                 |  |    | 353     |    |  |   | 360       |    |  |   | 339    |    |
| Geographicdistribution (top 5states): |  |    |    |    |  |   |      |    |  |   |   |    |
| California                            |  |    |    |    |  |   |      |    |  |   | 56.0   | %  |
| Arizona                               |  |    |    |    |  |   |      |    |  |   | 7.7    |    |
| Washington                            |  |    |    |    |  |   |      |    |  |   | 6.5    |    |
| Florida                               |  |    |    |    |  |   |      |    |  |   | 4.7    |    |
| Illinois                              |  |    |    |    |  |   |      |    |  |   | 3.3    |    |
| Other                                 |  |    |    |    |  |   |      |    |  |   | 21.8   |    |
| Occupancystatus:                      |  |    |    |    |  |   |      |    |  |   |   |    |
| Owneroccupied                         |  |    |    |    |  |   |      |    |  |   | 88.9   | %  |
| Investor                              |  |    |    |    |  |   |      |    |  |   | 8.6    |    |
| Secondhome                            |  |    |    |    |  |   |      |    |  |   | 2.5    |    |
| Documentationtype:                    |  |    |    |    |  |   |      |    |  |   |   |    |
| Full/Alternative                      |  |    |    |    |  |   |      |    |  |   | 44.4   | %  |
| Other                                 |  |    |    |    |  |   |      |    |  |   | 55.6   |    |
| Loanpurpose:                          |  |    |    |    |  |   |      |    |  |   |   |    |
| Purchase                              |  |    |    |    |  |   |      |    |  |   | 56.7   | %  |
| Cash-outrefinance                     |  |    |    |    |  |   |      |    |  |   | 27.1   |    |
| Rate &termrefinance               |  |    |    |    |  |   |      |    |  |   | 16.2   |    |
| Originalloan-to-value:                |  |    |    |    |  |   |      |    |  |   |   |    |
| 80.01%andover                         |  |    |    |    |  |   |      |    |  |   | 2.1    | %  |
| 70.01%-80.00%                         |  |    |    |    |  |   |      |    |  |   | 71.8   |    |
| 60.01%-70.00%                         |  |    |    |    |  |   |      |    |  |   | 15.9   |    |
| 50.01%-60.00%                         |  |    |    |    |  |   |      |    |  |   | 5.8    |    |
| 50.00%orless                          |  |    |    |    |  |   |      |    |  |   | 4.4    |    |
|                                  |  |    |    |    |  |   |      |    |  |   |   |    |
| Weightedaverage originalloan-to-value |  |    |    |    |  |   |      |    |  |   | 74.1   | %  |
| Propertytype:                         |  |    |    |    |  |   |      |    |  |   |   |    |
| Singlefamily                          |  |    |    |    |  |   |      |    |  |   | 60.9   | %  |
| PUD                                   |  |    |    |    |  |   |      |    |  |   | 23.2   |    |
| Condominium                           |  |    |    |    |  |   |      |    |  |   | 11.4   |    |
| Otherresidential                      |  |    |    |    |  |   |      |    |  |   | 4.5    |    |
| ARMloan type:                         |  |    |    |    |  |   |      |    |  |   |   |    |
| 3-yearhybrid                          |  |    |    |    |  |   |      |    |  |   | 26.0   | %  |
| 5-yearhybrid                          |  |    |    |    |  |   |      |    |  |   | 73.3   |    |
| Other                                 |  |    |    |    |  |   |      |    |  |   | 0.7    |    |
| ARMinterest ratecaps:                 |  |    |    |    |  |   |      |    |  |   |   |    |
| Initialcap:                           |  |    |    |    |  |   |      |    |  |   |   |    |
| Under3.00                             |  |    |    |    |  |   |      |    |  |   | 6.7    | %  |
| 3.01-4.00                             |  |    |    |    |  |   |      |    |  |   | 0.0    |    |
| 4.01-5.00                             |  |    |    |    |  |   |      |    |  |   | 21.0   |    |
| 5.01-6.00                             |  |    |    |    |  |   |      |    |  |   | 72.3   |    |
| Periodiccap:                          |  |    |    |    |  |   |      |    |  |   |   |    |
| None                                  |  |    |    |    |  |   |      |    |  |   | 0.5    | %  |
| Under1.00%                            |  |    |    |    |  |   |      |    |  |   | 0.2    |    |
| Over1.00%                             |  |    |    |    |  |   |      |    |  |   | 99.3   |    |
| Percentof interest-only loanbalances  |  |    |    |    |  |   |      |    |  |   | 82.3   | %  |
| Weightedaverage FICO (1)score:        |  |    |    |    |  |   |      |    |  |   | 734    |    |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                     |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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. |

47

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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 included elsewhere in this quarterly report on Form10-Q.

Derivatives and Hedging Activities

We utilizederivatives to manage interest rate risk exposure. In accordance withSFAS No. 133, "Accounting for Derivative Investments andHedging Activities," all derivative instruments arerecorded at fair value. We designate every derivative instrument aseither (1) a hedge of the fair value of a recognized asset or liabilityor of an unrecognized firm commitment, (2) a hedge of the variabilityof cash flows to be paid related to either a forecasted or recognizedliability, or (3) a free-standing derivative instrument.

Toqualify for hedge accounting under SFAS No. 133, we must demonstrate,on an ongoing basis, that our interest rate risk management activity ishighly effective. We determine the effectiveness of our interest raterisk management activities using standard statistical measures. If weare unable to qualify certain of our interest rate risk managementactivities for hedge accounting, then the gain or loss on theassociated derivative financial instruments would be reflected incurrent period earnings. See Note 4 of our consolidated financialstatements included elsewhere in this quarterly report on Form 10-Q forfurther information pertaining to our accounting for derivatives andhedging activities.

Changes in the fair value of a derivativethat is highly effective and that is designated and qualifies as a fairvalue hedge, along with the change in the fair value of the hedgedasset or liability, are recorded in earnings. Our fair value hedges areused primarily for mortgage loans held for sale.

Gains andlosses on a derivative that is highly effective and that is designatedand qualifies as a cash flow hedge are recorded in OCI to the extentthat the derivative is effective as a hedge, until earnings areaffected by the variability in cash flows of the designated hedgeditem. Our cash flow hedges are used primarily to hedge the financingcost for forecasted or recognized mortgage-backed collateralized debtobligations.

We obtain the fair value of Eurodollar futures, TBAsecurities, options on TBA securities and interest rate swaps and capsfrom quoted market prices.

The fair value of forward salecommitments to deliver mortgages is estimated using current quotedmarket prices for dealer or investor commitments as applies to ourexisting positions.

The fair value of an IRLC is based on anestimate of the fair value of the underlying mortgage loan, and giventhe probability that the loan will fund within the terms of the IRLC.After issuance, the value of an IRLC can change and be either positiveor negative, depending on the change in value of the underlyingmortgage loan. The probability that the underlying loan will fund isdriven by a number of factors, in particular, the change, if any, inmortgage rates after the lock date. In general, the probability offunding increases if mortgage rates rise and decreases if mortgagerates fall. The probability that a loan will fund within the terms ofthe IRLC also is influenced by the source of the applicant, purpose forthe loan (purchase or refinance) and the application approval rate.

Fair value estimates are made as of a specific point in time basedon estimates using present value or other valuation techniques. Thesetechniques may involve uncertainties and are significantly affected bythe assumptions used and the judgments made regarding riskcharacteristics of various financial instruments, discount rates,estimates of future cash flows, future expected loss experience andother factors. Changes in assumptions could significantly affect theseestimates and the resulting fair values.

48

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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 thisquarterly report on Form 10-Q for further details.

Loan LossReserves

MortgageIT's historical operations had aninsignificant amount of loan losses due to default or non-performanceon the loans primarily because mortgage loans were sold soon afterbeing originated. Because we now hold loans for investment, we recordan allowance for loan losses reflecting our estimate of future loandefault losses. Our Portfolio ARM Loans are collectively evaluated forimpairment, as the loans are homogeneous in nature. The allowance isbased upon management's assessment of the various risk factorsaffecting our investment loan portfolio, including current economicconditions, the makeup of the portfolio based on credit grade,loan-to-value ratios, delinquency status, historical credit losses,purchased mortgage insurance and other factors deemed to warrantconsideration. The allowance is maintained through ongoing lossprovisions charged to operating income and is reduced by loans that arecharged off. Determining the allowance for loan losses is subjective innature due to the estimates required and the potential for imprecision.Two critical assumptions used in estimating the loan loss reserves arean assumed rate of default, which is the expected rate at which loansgo into 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 from 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 September 30, 2005, wecompleted six securitization transactions in which we securitized ARMloans into a series of pro rata pay, floating-rate securities. Thesecuritization process benefits us 

49

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by 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 $4.36billion and A+/BBB+ subordinated floating rate securities totaling$51.1 million to third party investors, and retained $109.9 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 $12.9million, including investment banking fees, legal fees and otherrelated costs. The securitization costs are amortized over the expectedlife of the mortgage-backed securities.

As of September 30, 2005and December 31, 2004, outstanding mortgage-backed securities werecollateralized by ARM loans with a remaining principal balance ofapproximately $4.0 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.

In October 2005, we completed ourseventh securitization in which we issued AAA and AA-ratedfloating-rate pass-through certificates totaling $882.5 million and A+subordinated floating rate securities totaling $4.0 million to thirdparty investors, and retained $2.3 million of subordinatedcertificates, which provide credit support to the higher-ratedcertificates.

We also utilize repurchase agreements as a sourceof financing for our mortgage investment operations. These arrangementsvary in size and other characteristics among multiple providers. Inparticular, repurchase agreements have terms that will vary withrespect to advance rates, interest spreads, size, duration and othercharacteristics depending on the nature of the underlying collateral inthe program.

Under these agreements, we sell some or all of theretained interest in our mortgage-backed securities to a counterpartyand we agree to repurchase those assets at a future date. At maturity,we purchase the assets back from the counterparty at an amount equal tothe original sales price plus interest. During the term of a repurchaseagreement, we continue to earn principal and interest on the underlyingmortgage assets. As of September 30, 2005 and December 31, 2004, we had$75.9 million and $67.7 million of repurchase agreements outstanding,respectively.

These financing arrangements are short-durationfacilities, generally 30 days, secured by the retained interest in ourresidential mortgage-backed securities, the value of which may moveinversely with changes in interest rates. A decline in the market valueof our investments may limit our ability to borrow or result in lendersrequiring additional collateral. As a result, we could be required tosell some of our investments under adverse market conditions in orderto maintain liquidity. If such sales are made at prices lower than theamortized costs of such investments, we will incur losses.

Inaddition, we draw down on all of our warehouse facilities, except forthe facility with RFC, to finance loans that are held forsecuritization by the REIT.

Liquidity from Mortgage BankingOperations

The principal sources of liquidity from our mortgagebanking operations, are our warehouse facilities and our principal useof liquidity is the origination of new mortgage loans.

Tooriginate a mortgage loan, MortgageIT utilizes its short-term warehousecredit facilities that are available to fund mortgage loans held forsale. These facilities are secured by the mortgage loans owned byMortgageIT and by certain other assets, including cash deposited ininterest-bearing collateral accounts. Advances drawn under thesefacilities bear interest at rates that vary depending on the type ofmortgage loans securing the advances. These facilities are subject tosub-limits, advance rates and terms that vary depending on the type ofmortgage loans securing these financings and the ratio ofMortgageIT's liabilities to its tangible net worth. As ofSeptember 30, 2005, the aggregate 

50

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warehouse facilities aggregated $5.15billion and the maximum amount available for additional borrowingsunder these facilities was approximately $460.9 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 balancerequirements and restrictive financial and other covenants that, amongother things, require it to maintain a minimum ratio of totalliabilities to tangible net worth, minimum levels of tangible networth, liquidity and stockholders' equity and maximum leverageratios, as well as to comply with applicable regulatory and investorrequirements.

During the nine months ended September 30, 2005,the Company negotiated two new credit facilities and in October 2005,the Company negotiated an additional new warehouse facility, bringingthe total number of facilities it may draw upon to six.

Theweighted average effective rate of interest for borrowings under allwarehouse lines of credit, was approximately 3.8% and2.6% for the nine months ended September 30, 2005 and the yearended December 31, 2004, respectively.

All mortgage loans heldfor sale have been pledged as collateral under the above warehousecredit facilities. In addition, the facilities contain variousfinancial covenants and restrictions, including a requirement that theCompany maintains specified leverage ratios and net worth amounts. Asof September 30, 2005, the Company was in compliance with the covenantscontained in all of its warehouse facilities. When the Company hasviolated covenants contained in its warehouse facilities in the past,it has obtained waivers with respect to those violations from itslenders. No assurance can be made that the Company's lenders willwaive future covenant violations, if they occur. The warehousefacilities also contain covenants limiting the Company's abilityto:

|              |                                                       |
|--------------|-------------------------------------------------------|
| •  | consolidate, merge or enter intosimilar transactions; |

|              |                         |
|--------------|-------------------------|
| •  | transfer or sellassets; |

|              |                                   |
|--------------|-----------------------------------|
| •  | create liens on thecollateral; or |

|              |                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|
| •  | change the nature ofits business, without obtaining the prior consent of the lenders, whichconsent may not be unreasonably withheld. |

These limits may inturn restrict the Company's ability to pay cash or stockdividends on its common stock. In addition, under the warehousefacilities, the Company cannot continue to finance a mortgage loan thatit holds through the warehouse facility if:

|              |                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the loan is rejected as"unsatisfactory for purchase" by the ultimateinvestor and has exceeded its permissible warehouse period, whichvaries by facility; |

|              |                                                                                                                                   |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------|
| •  | the Company failsto deliver the applicable note, mortgage or other documents evidencingthe loan within the requisite time period; |

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

|              |                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------|
| •  | the loan ceases tobe an eligible 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 theCompany refers to as a conduit facility. Under this agreement, UBSpurchases a loan from MortgageIT, which enables MortgageIT to recordthe sale and recognize the gain on sale. Upon sale, MortgageIT removesboth the loans and the corresponding warehouse liability from itsbalance sheet. A third party subsequently purchases the loan directlyfrom UBS. MortgageIT facilitates the final settlement of the loan salebetween UBS and the third party, and receives a performance fee forservices provided to UBS. MortgageIT classifies the performance fee asbrokerage revenue. The capacity available under the conduit facility isincluded in the $2.0 billion warehouse facility. The overall facilitycapacity at 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.

51

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In addition to the warehouse facilitiesand the UBS conduit facility, MortgageIT issued $77.3 million of juniorsubordinated debentures (the         Debentures") intwo separate private placements. The Debentures were issued to a trustsubsidiary of MortgageIT in order to fund the trust's obligationswith respect to an aggregate of $75 million of trust preferredsecurities which were issued by such trust subsidiary. The Debenturesare floating rate securities and bear a variable interest rate of 375basis points above 3-month LIBOR, paid quarterly, and mature in 2035.They are redeemable at par after five years and at a premium to par incertain limited circumstances over the first five years. In connectionwith the issuance of the Debentures, the Company incurred costs of $2.5million. These costs are being amortized over the expected life of thesecurities.

Finally, MortgageIT entered into a note purchaseagreement in March 2004, whereby MortgageIT sold an aggregate principalamount of $15 million of senior secured notes (the"Notes") to an investor. The proceeds fromthe sale of the Notes provide working capital for MortgageIT. Under therelated note purchase agreement, as amended, the Notes bore interest at(i) a rate of 10% per annum through September 30, 2004, (ii) arate of 7.5% per annum from October 1, 2004 through March 31,2005, (iii) a rate of 10% per annum from April 1, 2005 to August23, 2005 and (iv) a rate of 5.5% per annum from August 24, 2005to maturity. Interest on the Notes is payable quarterly in arrears.TheNotes provide for a single payment of the entire amount of the unpaidprincipal and any unpaid accrued interest on the Notes on March 29,2007. As of September 30, 2005, MortgageIT was in compliance with allof the restrictions and covenants contained in the note purchaseagreement. When MortgageIT has violated covenants contained in the notepurchase agreement in the past, it has obtained waivers with respect tothose violations from the Notes' investor. No assurance can bemade that the investor will waive future covenant violations, if theyoccur.

MortgageIT makes certain representations and warranties,and is subject to various affirmative and negative financial and othercovenants, under the terms of both the warehouse credit facilities andcertain investor loan sale agreements regarding, among other things,the loans' compliance with laws and regulations, their conformitywith the investors' underwriting standards and the accuracy ofinformation. In the event of a breach of these representations,warranties or covenants or in the event of an early payment default,these loans may become ineligible collateral for the warehouse creditfacilities or may become ineligible for sale to an investor, andMortgageIT may be required to repurchase the loans from the warehouselender or the investor. MortgageIT has implemented procedures to helpensure quality control and conformity to underwriting standards and tominimize the risk of being required to repurchase loans. MortgageIT hasbeen required to repurchase loans it has sold from time to time;however, these repurchases have not had a material impact on theresults of operations of MortgageIT.

MortgageIT's abilityto originate and fund loans has historically depended in large part onits ability to sell the mortgage loans it originates at a premium inthe secondary market so that it may generate cash proceeds to repayborrowings under its warehouse facilities. The value ofMortgageIT's loans is relevant in determining the overall amountof borrowings that will be available to it under its financingfacilities. The value of our loans depends on a number of factors,including:

|              |                                                               |
|--------------|---------------------------------------------------------------|
| •  | interest rates on our loanscompared to market interest rates; |

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

|              |                                                                      |
|--------------|----------------------------------------------------------------------|
| •  | loan-to-value ratios, loan terms,underwriting and documentation; and |

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

Cashand Cash Equivalents

The Company's cash and cashequivalents decreased to $59.0 million at September 30, 2005 from $70.2million at December 31, 2004. The Company's primary sources ofcash and cash equivalents during the nine months ended September 30,2005 were as follows:

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | a $2.6 billionincrease in collateralized debt obligations; |

|              |                                                    |
|--------------|----------------------------------------------------|
| •  | a $1.8 billion increase in warehouse linespayable; |

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|              |                                                                             |
|--------------|-----------------------------------------------------------------------------|
| •  | a $150.1million increase in net proceeds from the sale of common stock; and |

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

TheCompany's primary uses of cash and cash equivalents during thenine months ended September 30, 2005 were as follows:

|              |                                                                                 |
|--------------|---------------------------------------------------------------------------------|
| •  | a $2.1 billion increase in Portfolio ARMLoans and mortgage loans held for sale; |

|              |                                                             |
|--------------|-------------------------------------------------------------|
| •  | a $2.5 billion increase in mortgage loansheld for sale; and |

|              |                                                    |
|--------------|----------------------------------------------------|
| •  | a $27.2 milliondistribution 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.

OnSeptember 21, 2005, we declared a distribution on our common stock of$0.48 per share. The distribution was made in October 2005 and, forfinancial reporting purposes, was reflected as an increase in ouraccumulated deficit. The total cash distribution of approximately $13.6million exceeded the minimum taxable income distribution requirementsfor the quarter.

We are required to make annual distributions ofour income to our stockholders in order to maintain our REIT status andto avoid corporate income tax and the nondeductible excise tax.However, differences in timing between the recognition of REIT taxableincome and the actual receipt of cash could require us to sell assetsor to borrow funds on a short-term basis to meet the REIT distributionrequirements and to avoid corporate income tax and the nondeductibleexcise tax. Further, certain of our assets may generate substantialmismatches between REIT taxable income and available cash. Such assetscould, for example, include mortgage-backed securities we hold thathave been issued at a discount and require the accrual of taxableincome in advance of the receipt of cash. As a result, our taxableincome may exceed our cash available for distribution and therequirement to distribute a substantial portion of our net taxableincome could cause us to: (1) sell assets under adverse marketconditions; (2) borrow on unfavorable terms; or (3) distribute amountsthat would otherwise be invested in future acquisitions, capitalexpenditures or repayment of debt in order to comply with the REITdistribution requirements.

INFLATION

For the periodspresented herein, inflation has been relatively low and we believe thatinflation has not had a material effect on our results of operations.To the extent inflation increases in the future at a rate that isfaster than the market currently anticipates, interest rates are alsolikely rise, which would likely reduce the number of mortgage loans weoriginate. A reduction in the number of loans we originate resultingfrom increased inflation would adversely affect our future results ofoperations. Additionally, to the extent that the investment portfolioearnings are sensitive to rising interest rates, unanticipatedincreases in inflation may adversely affect our results ofoperations.

OFF-BALANCE SHEET ARRANGEMENTS

None.

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CONTRACTUAL OBLIGATIONS

We hadthe following commitments (excluding derivative financial instruments)at September 30, 2005

|                                    |  |                       |           |                |  |           |           |           |  |                 |           |        |  |        |         |        |  |        |         |        |  |  |
|------------------------------------|--|-----------------------|-----------|----------------|--|-----------|-----------|-----------|--|-----------------|-----------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                               |  | Paymentsdue by Period |
|                               |  | (Dollars inthousands) |
|                               |  | Total                 |           | Lessthan1 year |  | 1-3 years |           | 3-5 years |  | Morethan5 years |
| Collateralized debt obligations(1) |  | $                     | 3,899,237 |           |  | $         | 1,131,041 |      |  | $               | 2,032,548 |   |  | $      | 735,648 |   |  | $      | — |   |
| Warehouselinespayable              |  |                  | 3,673,365 |           |  |      | 3,673,365 |      |  |            | —   |   |  |   | — |   |  |   | — |   |
| Repurchaseagreements               |  |                  | 75,897    |           |  |      | 75,897    |      |  |            | —   |   |  |   | — |   |  |   | — |   |
| Juniorsubordinateddebentures       |  |                  | 77,324    |           |  |      | —   |      |  |            | —   |   |  |   | — |   |  |   | 77,324  |   |
| Operatingleases(2)                 |  |                  | 35,782    |           |  |      | 9,156     |      |  |            | 15,781    |   |  |   | 9,944   |   |  |   | 901     |   |
| Notespayable                       |  |                  | 15,000    |           |  |      | —   |      |  |            | 15,000    |   |  |   | — |   |  |   | — |   |
|                                    |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Paymentson our 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, adjusted for pre-payments. This estimate will differfrom actual pre-payment amounts. |

|     |                 |
|-----|-----------------|
| (2) | Net ofsublease. |

54

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ITEM3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK

Market risk is the exposureto losses 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 September 30, 2005 and December 31,2004:

|                                               |  |                       |            |                |  |                    |           |        |  |        |           |        |  |  |
|-----------------------------------------------|--|-----------------------|------------|----------------|--|--------------------|-----------|--------|--|--------|-----------|--------|--|--|
|                                          |  | September30,2005      |
|                                          |  | NotionalAmount        |            | CarryingAmount |  | EstimatedFairValue |
|                                          |  | (Dollars inthousands) |
| Assets:                                       |  |                  |       |           |  |               |      |   |  |   |      |   |
| Mortgageloans held forsale                    |  | $                     | 3,237,337  |           |  | $                  | 3,284,445 |   |  | $      | 3,287,839 |   |
| Forwarddeliverycommitments                    |  |                  | 1,851,527  |           |  |               | 9,284     |   |  |   | 9,284     |   |
| Mortgageloans held for sale,net               |  |                  |       |           |  |               | 3,293,729 |   |  |   | 3,297,123 |   |
| ARMloans held for securitization,net          |  |                  | 585,248    |           |  |               | 588,252   |   |  |   | 587,552   |   |
| ARMloans collateralizing debt obligations,net |  |                  | 4,045,873  |           |  |               | 4,083,127 |   |  |   | 4,040,712 |   |
| Hedginginstruments                            |  |                  | 11,565,122 |           |  |               | 48,644    |   |  |   | 48,644    |   |
| Liabilities:                                  |  |                  |       |           |  |               |      |   |  |   |      |   |
| Warehouselinespayable                         |  | $                     | 3,673,365  |           |  | $                  | 3,673,365 |   |  | $      | 3,673,365 |   |
| Collateralizeddebtobligations                 |  |                  | 3,899,237  |           |  |               | 3,899,237 |   |  |   | 3,899,237 |   |
| Repurchaseagreements                          |  |                  | 75,897     |           |  |               | 75,897    |   |  |   | 75,897    |   |
| Juniorsubordinateddebentures                  |  |                  | 77,324     |           |  |               | 77,324    |   |  |   | 77,324    |   |
| Hedginginstruments                            |  |                  | 1,671,454  |           |  |               | 4,340     |   |  |   | 4,340     |   |
|                                          |  |                  |       |           |  |               |      |   |  |   |      |   |
|                                          |  | December31,2004       |
|                                          |  | NotionalAmount        |            | CarryingAmount |  | EstimatedFairValue |
|                                          |  | (Dollarsinthousands)  |
| 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 |   |
| Collateralizeddebtobligations                 |  |                  | 1,331,986  |           |  |               | 1,331,986 |   |  |   | 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 rateswill cause a significant loss of basis in the contract. Thecounterparties to our derivative arrangements are major financialinstitutions and securities dealers that are well capitalized with highcredit ratings and with which we may also have other financialrelationships. While we do not anticipate nonperformance by anycounterparty, we are exposed to potential credit losses in the eventthe counterparty fails to perform. Our exposure to credit risk in theevent of default by a counterparty 

55

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can be measured as the difference between thevalue of the contract and the current market price. We manage this riskby using multiple counterparties and limiting our counterparties tomajor financial institutions with good credit ratings, and in somecases, establishing rights to collateral posted by the derivativecounterparty. In addition, we monitor the credit quality of ourderivative counterparties. Accordingly, we do not expect any materiallosses as a result of default by such counterparties. However, therecan be no assurance that we will be able to adequately manage theforegoing risks, or ultimately realize an economic benefit that exceedsthe costs related to these hedging strategies.

MortgageInvestment Operations

Our investment risk exposure is largelydue to interest rate risk. Interest rate risk is defined as thesensitivity of our current and future earnings to interest ratevolatility, variability of spread relationships, the difference inrepricing intervals between our assets and liabilities, and the effectthat interest rates may have on our cash flows, especially PortfolioARM Loan prepayments. Interest rate risk may affect our interestincome, interest expense and the market value of our interest raterisk-sensitive assets and liabilities. Our policies to manage interestrate risk aim to produce earnings stability and preserve capital byminimizing the negative effects of changing market interest rates andthe impact of prepayment risk.

We are subject to interest rateexposure with respect to our financing costs relating to our PortfolioARM Loans. Changes in interest rates impact our earnings in variousways. While we invest primarily in ARM Loans, rising short-terminterest rates may temporarily negatively affect our earnings and,conversely, falling short-term interest rates may temporarily increaseour earnings. This impact can occur for several reasons and is affectedby portfolio prepayment activity as discussed below. First, ourborrowings may react to changes in interest rates sooner than our ARMLoans because the weighted average next repricing dates of theborrowings are likely to be shorter time periods than those of the ARMLoans. Second, interest rates on ARM Loans may be capped per adjustmentperiod (commonly referred to as the periodic cap), and our borrowingsmay not have similar limitations. Third, changes in interest rates onARM Loans typically lag behind changes in applicable interest rateindices due to the required notice period provided to ARM Loanborrowers when the interest rates on their loans are scheduled tochange.

Interest rates can also affect our net return on HybridARM loans. During a declining interest rate environment, the prepaymentof Hybrid ARM loans may accelerate, possibly resulting in a decline inour net return on Hybrid ARM loans, as replacement Hybrid ARM loans mayhave a lower yield than the older ones paying off. In contrast, duringan increasing interest rate environment, Hybrid ARM loans may prepayslower than expected, requiring us to finance a greater amount ofHybrid ARM loans than originally anticipated at a time when interestrates may be higher, resulting in a decline in our net return on HybridARM loans.

The rate of prepayment on mortgage loans may increaseif interest rates decline or if the difference between long-term andshort-term interest rates diminishes. Increased prepayments would causeus to amortize the deferred origination costs and fees for our mortgageloans over a shorter period, resulting in a reduced yield on ourmortgage loans. Additionally, to the extent proceeds of prepaymentscannot be reinvested at a rate of interest at least equal to the ratepreviously earned on such mortgage loans, our portfolio yield could beadversely affected.

Conversely, the rate of prepayment onmortgage loans may decrease if interest rates rise or if the differencebetween long-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.

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.

56

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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

|                                   |  |                         |           |              |  |        |        |         |  |  |
|-----------------------------------|--|-------------------------|-----------|--------------|--|--------|--------|---------|--|--|
|                              |  | September30, 2005       |
|                              |  | UnpaidPrincipal Balance |           | PortfolioMix |
|                              |  | (Dollars inthousands)   |
| Traditional ARMAssets:            |  |                    |      |         |  |   |   |    |
| Index:                            |  |                    |      |         |  |   |   |    |
| Six-monthLIBOR                    |  | $                       | 32,085    |         |  |   | 0.7    | %  |
| One-yearconstant maturitytreasury |  |                    | 2,384     |         |  |   | 0.1    | %  |
|                              |  |                    | 34,469    |         |  |   | 0.8    | %  |
| HybridARMAssets:                  |  |                    |      |         |  |   |   |    |
| Index:                            |  |                    |      |         |  |   |   |    |
| 3years orless                     |  |                    | 1,202,772 |         |  |   | 25.9   | %  |
| Over 3years to 5years             |  |                    | 3,393,880 |         |  |   | 73.3   | %  |
|                              |  |                    | 4,596,652 |         |  |   | 99.2   | %  |
|                              |  | $                       | 4,631,121 |         |  |   | 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 contracts and interest ratecap agreements (collectively, "Hybrid HedgingInstruments") in order to better match the repricingdurations of our Portfolio ARM Loans and our issued mortgage-backedsecurities.

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

We use Eurodollarfutures contracts to hedge for forecasted and recognized LIBOR-basedborrowings. Eurodollar futures contracts have the effect of fixing theinterest rate on LIBOR-based liabilities in the event that LIBOR-basedfunding costs change.

We enter into Cap Agreements by incurringa one-time fee or premium. Pursuant to the terms of the Cap Agreements,we will receive cash payments if the LIBOR-based interest rate indexspecified in 

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any such Cap Agreement increases abovecontractually specified levels. Therefore, such Cap Agreements have theeffect of capping the interest rate expense on a portion of ourborrowings above a level specified by the Cap Agreement. The purchaseprice of these Cap Agreements is amortized over the life of the CapAgreements, and the amortization expense generally increases as the CapAgreements approach maturity. Therefore, the cap premium amortizationexpense in future periods can be expected to increase from the currentamortization rate.

We enter into Swap Agreements to fix theinterest rate on a portion of our borrowings as specified in the SwapAgreement. When we enter into a Swap Agreement, we generally agree topay a fixed interest rate, generally based on LIBOR. These SwapAgreements have the effect of converting our variable-rate debt intofixed-rate debt over the life of the Swap Agrements.

Both CapAgreements and Swap Agreements represent a way to lengthen the averagerepricing period of our variable-rate borrowings such that the averagerepricing of the borrowings more closely matches the average repricingof our Portfolio ARM Loans.

Management relies on a variety oftools to assess the interest rate risk exposure of the investmentportfolio under various interest rate scenarios. Using financialmodeling, the fair value and interest rate sensitivity of financialinstruments, or groups of similar instruments, is estimated and thenaggregated to form a comprehensive picture of the risk characteristicsof the investment portfolio.

The table below presents thesensitivity of the market value of our portfolio using a discountedcash flow simulation model. Application of this method results in anestimation of the change in the market value of our assets and hedgedliabilities per 50 basis point ("bp")incremental instantaneous parallel shifts in the LIBOR yield curve asof September 30, 2005 — a measure commonly referred to assensitivity of equity. Positive sensitivity of equity indicates anincrease in the market value of our assets relative to the market valueof our hedged liabilities corresponding to the indicated shift in theyield curve.

As of September 30,2005

|                                                     |  |                                                |         |         |  |        |         |         |  |        |         |          |  |        |         |          |  |  |
|-----------------------------------------------------|--|------------------------------------------------|---------|---------|--|--------|---------|---------|--|--------|---------|----------|--|--------|---------|----------|--|--|
|                                                |  | BasisPoint Increase (Decrease) in InterestRate |
|                                                |  | (100)                                          |         | (50)    |  | +50    |         | +100    |
|                                                |  | (Dollarsin thousands)                          |
| Change in market valuesof:                          |  |                                           |    |    |  |   |    |    |  |   |    |     |  |   |    |     |
| Assets                                              |  | $                                              | 60,042  |    |  | $      | 33,998  |    |  | $      | (40,003 | )   |  | $      | (83,016 | )   |
| Hedgedliabilities                                   |  |                                           | (49,121 | )  |  |   | (28,500 | )  |  |   | 36,900  |     |  |   | 80,739  |     |
| Netchange in market value of portfolioequity        |  | $                                              | 10,921  |    |  | $      | 5,498   |    |  | $      | (3,103  | )   |  | $      | (2,277  | )   |
| Percentagechange in market value of portfolioequity |  |                                           | 4.49    | %  |  |   | 2.26    | %  |  |   | (1.28   | )%  |  |   | (0.94   | )%  |
|                                                     |

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.

The table below presents the duration of our assets and liabilitiesas of September 30, 2005, under the then prevailing yield curve, aswell as with instantaneous parallel 50 bps shifts in the curve.Positive portfolio duration indicates that the market value of theinvestment portfolio, net of borrowings and hedges, will decline ifinterest rates rise and increase if interest rates decline. The closerduration is to zero, the less interest rate changes are expected toaffect the market value of portfolio equity.

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|                                 |  |                                                |      |        |  |        |      |        |  |        |      |        |  |        |       |         |  |        |       |         |  |  |
|---------------------------------|--|------------------------------------------------|------|--------|--|--------|------|--------|--|--------|------|--------|--|--------|-------|---------|--|--------|-------|---------|--|--|
|                            |  | BasisPoint Increase (Decrease) in InterestRate |
|                            |  | (100)                                          |      | (50)   |  | Base   |      | +50    |  | +100   |
|                            |  | (Years)                                        |
| DurationofAssets                |  |                                           | 1.11 |   |  |   | 1.30 |   |  |   | 1.53 |   |  |   | 1.74  |    |  |   | 1.87  |    |
| Durationof Borrowings andHedges |  |                                           | 0.90 |   |  |   | 1.17 |   |  |   | 1.50 |   |  |   | 1.83  |    |  |   | 2.08  |    |
| NetPortfolioDuration            |  |                                           | 0.21 |   |  |   | 0.13 |   |  |   | 0.03 |   |  |   | (0.09 | )  |  |   | (0.21 | )  |
|                                 |

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 unpaidprincipal amount of the mortgage inventory being hedged; hence, thederivative contracts effectively fix the forward sales price and,thereby, substantially mitigate interest rate and price risk toMortgageIT.

The following further describes the derivativeinstruments we may use in our risk management activities related to thecommitted pipeline and mortgage loan inventory. The value of thesederivative instruments generally moves in the opposite direction to thevalue of the mortgage loan inventory. We review our committed pipelineand mortgage inventory risk profiles on a daily basis.

|              |                                                                                                                                                                                                 |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Forward sales of mortgage-backedsecurities: represents an obligation to sell a mortgage-backed securityat a specific price in the future; therefore, its value increases asmortgage rates rise. |

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|              |                                                                                                                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Forward purchasesof mortgage-backed securities: represents an obligation to buy amortgage-backed security at a specific price in the future; therefore,its value increases as mortgage rates fall. |

|              |                                                                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long call options on mortgage-backedsecurities: represents a right to buy a mortgage-backed security at aspecific price in the future; therefore, its value increases asmortgage 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. |

|              |                                                                                                                                                                                                       |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long call options on Treasury futures:represents a right to acquire a Treasury futures contract at a specificprice in the future; therefore, its value increases as the benchmarkTreasury rate falls. |

|              |                                                                                                                                                                                                   |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Long put optionson Treasury futures: represents a right to sell a Treasury futurescontract at a specific price in the future; therefore, its valueincreases as the benchmark Treasury rate rises. |

|              |                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | 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 seasons,and 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

The Company carried out an evaluation, with theparticipation of management, including its Chief Executive Officer andChief Financial Officer, of the effectiveness of its disclosurecontrols and procedures (pursuant to Rule 13a-15(e) under theSecurities Exchange Act of 1934) as of the end of the period covered bythis quarterly report on Form 10-Q. Based upon that evaluation, theChief Executive Officer and Chief Financial Officer concluded that theCompany's disclosure controls and procedures are effective toensure that it is able to record, process, summarize and report theinformation the Company is required to disclose in the filings itsubmits to the SEC within the time periods required.

(b)Internal control over financial reporting

There has been nochange in the Company's internal control over financial reportingthat occurred during the most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, its internalcontrol over financial reporting.

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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, MortgageIT,and 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

None.

Item 5.    Other Information

None.

Item 6.    Exhibits

Exhibits filed with thisquarterly report on Form10-Q:

|        |  |                                                                                                                                                                                           |  |  |  |  |
|--------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| No.    |  | Description                                                                                                                                                                               |
|   |  |                                                                                                                                                                                      |
| 10.1   |  | FirstAmended and Restated Note Purchase Agreement dated as of August 23,2005, by and among Mortgage IT, Inc. and each of the Purchasers listedtherein.                                    |
| 31.1   |  | Certification of ChiefExecutive Officer pursuant to Rule 13a - 14(a)/15d-14(a) of theSecurities Exchange Act of 1934, as adopted pursuant to Section 302 ofthe Sarbanes-Oxley Act of2002. |
| 31.2   |  | Certification of Chief FinancialOfficer pursuant to Rule 13a - 14(a)/15d-14(a) of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of2002. |
| 32.1   |  | Certification of Chief ExecutiveOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of2002.                                           |
| 32.2   |  | Certification of Chief FinancialOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of2002.                                           |
|        |

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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:**                                  |  | DougW. Naidus                       |
|                        |  | **Title:**                                 |  | Chairmanand Chief ExecutiveOfficer  |
|                        |  | **Date:**                                  |  | November 9,2005                     |
|                        |  |                                       |  |                                |
| By:                         |  | /s/    GLENNJ. MOURIDY |
|                        |  | **Name:**                                  |  | Glenn J.Mouridy                     |
|                        |  | **Title:**                                 |  | President andChief FinancialOfficer |
|                        |  | **Date:**                                  |  | November 9,2005                     |
|                             |

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